Today's data releasesKey levels
14:30ECB's Draghi speaks  
14:30BOJ's Kuroda speaks Support
14:30Fed's Powell speaksGBP/USD1.3062
15:30Crude oil inventoriesGBP/EUR1.1306

Market overview

Initiated by an escalation in trade tensions between China and the US, the JPY and USD both posted gains while global stocks declined amid little sign of any resolution to the dispute. In remarks in Washington, Trump signalled uncertainty that talks with China will work to end the disagreement. “We have to do something about it. Now, maybe something happens where they come and they say, ‘we agree, it’s been unfair for the last 25 years,”’ he told the National Federation of Independent Business. “But somehow that doesn’t seem to work so easily. But we’re going to make it fair.” It would appear the early signs of a truce between the two countries was clearly just temporary with tensions only likely to increase ahead of the midterm US presidential elections. The US dollar index rose to its highest level since early July 2017 peaking at 95.296, pushing GBP/USD to a seven month low opening at 1.3172 this morning.


German Chancellor Angela Merkel and French President Emmanuel Macron met yesterday for joint cabinet talks on EU reform proposing a “new chapter” for the euro-zone in an ever changing geopolitical world. The meeting, held at a German government guest house 40 miles north of Berlin and which was also attended by EU President Jean-Claude Juncker, included discussions on a wide variety of issues, ranging from migration to creating a Eurozone budget aimed at boosting investment in the bloc and fortifying Europe against financial shocks . Acknowledging the EUR has not been able to compete with the USD, Macron said the new joint Eurozone budget would be operational by 2021 after details, including its amount and whether it would be financed by national sources or bloc-wide tax, had been hammered out by ministers. Although reports suggest there were plenty agreements between the two governments, there are also some sizeable differences, especially around the specifics of economic reform, a topic which will be a forefront of conversation at the EU leaders summit on 28-29 June.


At the ECB Forum on Central Banking in Sintra yesterday, Draghi again stressed the ECB’s desire to be patient when considering any potential rise in interest rates. Reiterating last week’s agreement to keep borrowing costs unchanged until the back end of 2019, he emphasised the importance of future economic data in determining the proximity to an end in QE and eventual rate hike and made it clear that the central bank was not yet ready to withdraw its support - although he did recognise Euro area inflation and the underlying economy had picked up. However, he cautioned that uncertainty stemming from three main sources; an increase in global protectionism, rising oil prices, and geopolitical risks in the Middle East had grown and that concerns surrounding lagging business investment were still present. The EUR was sold off the back of the comments hitting a session low of 1.1531 before recovering to close at 1.1574. Attention will now turn to the panel discussions this afternoon where he will be joined by a number of central bankers including BOJ’s Kuroda and the FED’s Jerome Powell. 

The day ahead

Today the EU Withdrawal Bill returns to the House of Commons, where the government will try to once again head off a Tory rebellion. At the centre of the standoff is an amendment tabled by the House of Lords on Monday which would mean MPs would be able to "approve" what the government will do if it fails to reach a deal with the EU. The Prime Minister has refused to back the amendment, pitching herself against a number of Conservative MPs who only backed a similar vote last week after a compromise was reached between themselves and 10 Downing Street. This compromise, however, has subsequently fallen through and so there is a possibility that a number of the MPs could rebel against the government today in backing the Lords amendment. Yesterday Ms. May met some of the rebel MPs in a series of one-to-one meetings in an attempt to win them over on an individual basis, though it is unclear at this stage whether she has successfully brought enough of them on board. Should Tory rebels succeed in dismantling May’s Brexit strategy and remove the no-deal option from the governments bargaining table, it would undoubtedly spell bad news for the pound as investors become increasingly concerned for the outlook of UK PLC. The bill is set to be voted on later this afternoon after Prime Minister’s Questions following a debate.


On the data front the only point worth highlighting is US Crude Oil Inventories released at 3.30pm.

Thought of the day

Walking into the office this morning, I was expecting the topic of conversation to centre around yesterday’s World Cup fixtures, Andy Murray’s return to tennis or perhaps today’s Common’s showdown between the Government and Tory rebels. I was wrong on all accounts – it’s the reality TV show Love Island that seems to be stirring up the Investec Dealers at the moment… asides from the markets of course! For those of you unfamiliar with the show, a group of single guys and gals enter a luxury island villa looking for their perfect partner. However as people start to bond and couples form, new contestants are added. Along with a constant supply of alcohol, it makes for a combustible mix! Corporates may feel just as things are ticking along nicely and sterling is on top of the world, the Bank of England makes a bump in the road by changing its view on rates and in no time at all, GBPUSD is trading more than 10 cents lower. Whilst the situation may appear bleak (for dollar buyers at least) for now, Investec strives to be your perfect partner – particularly when times are tough. Give your Investec dealer a call today and we promise to offer a sympathetic ear – whether you want to talk about the markets or about Britain’s favourite reality show!

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