European Morning Briefing 09.06

European Morning Briefing 09.06

• Theresa May’s future is in doubt as her gamble to strengthen her hand looks to have backfired with projections for a hung parliament.
• GBP fell around 200 pips on the release of the exit poll, while the latest forecasts from BBC seeing Conservatives at 318 seats (8 short of an absolute majority and 12 short from current) labour at 267.
• **Note that a working majority can be obtained with 321 seats given that the three speakers and Sinn Fein (7 seats) are not counted when calculating a majority**

Theresa May’s gamble to strengthen her hand on what was seemingly a sure bet for a landslide victory has backfired, with the initial projections from the exit polls alongside results throughout the night indicating that the Conservative party will fall short of a majority. Upon release of the exit poll, this saw the largest bout of volatility in GBP, which fell around 200 pips against the USD-index, FTSE futures -0.5%. Room for downside remains for GBP amid the uncertainty now surrounding the UK political front, while Brexit negotiations are due to commence in 10 days. Of note, the last time there was a hung parliament (2010) GBP fell a further 3.3% in the following 2 weeks.

UK PM May is to hold a press conference in the wake of the result at 1000BST with media speculation mounting over whether she will step down from her position.


Interestingly, equities have been somewhat unreactive to this hurdle for PM May and the uncertainty now surrounding the UK political front, with Asian bourses as well as US equity futures relatively mixed. Nikkei 225 (+0.7%) has been the outperformer thus far following the softness in the JPY, which had been looking to test yesterday’s high around 110.40. Shanghai Comp (+0.2%). and Hang Seng (-0.1%) struggled to find any firm direction, while the marginal gains in the ASX 200 (+0.2%) were led by the rise in miners. Finally, 10yr JGB traded marginally higher as yields trickled lower throughout the session, with JGB’s also supported by the BoJ’s rinban operation.

Chinese CPI (May) Y/Y 1.5% vs. Exp. 1.5% (Prev. 1.2%). (Newswires)
Chinese PPI (May) Y/Y 5.5% vs. Exp. 5.6% (Prev. 6.4%)


Aside from the general election, major FX pairs had been trading within tight ranges, with the JPY weakening overnight to retest yesterday’s high. Elsewhere, AUD was somewhat unreactive to the latest Chinese inflation, which edged up for May.


The appreciation in the USD-index led by GBP selling has pressured gold prices overnight, falling over USD 3/oz, while crude prices had been trading sideways throughout the night. Additionally, Libya had announced that their largest oil field (Sharara) was now online.

US House of Representatives approved a bill yesterday to scrap federal bailout powers, subsequently easing requirements on banks and weakening the Consumer Financial Protection Bureau. (BBC)




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