The Japanese are back from the Golden Week holidays and UK elections are over. A new princess is born in Britain and new US jobs report were out… So a lot to cover! Let’s dig in one-by-one:
Now that the U.K. general elections are over and the Brits are done fussing over the new royal baby, Let’s see what the U.K Election Results Could Mean for the Pound.
Based on the pound’s forex reaction to previous U.K. election results, a hung parliament or coalition government tends to spark a sharp decline for the British currency, as traders price in political and economic uncertainty. We had this very thing happening on the day of elections however afterwards the market took the news better than a lot of people, buying into UK assets as this political set up is generally seen as better for business than labor, or a coalition government that might struggle to get things done.
Prime Minister David Cameron today promoted one of Britain’s most prominent Indian-origin MPs Priti Patel by making her the new Employment Minister, as he continued to give finishing touches to his first all- Conservative Cabinet.
More announcements are expected to continue to filter in after Cameron spent the weekend on the shape of his new Cabinet and the forex traders seem to be taking them all pretty well and betting on Cable rallies.
Eurozone and Mr. Euro
The eurogroup are meeting today to continue discussions and there isn’t much point in speculating over what conclusions will be drawn. We’re due a press conference at 6pm UK time, so markets will just have to wait nervously until then for any kind of direction on these long and painfully drawn out negotiations.
Ms. USA Dances to the Beat of Jobs Report
And the numbers are in! After printing dismal results for March, the U.S. jobs report for April showed a pretty decent comeback and is probably enough to confirm the FOMC’s claim that the recent hiring slowdown was just temporary.
Friday saw a decent jobs number out of the US. The headline number was 229,000 jobs created in April, which is good new. The bad news was that March’s numbers were revised down to 85k, which means that jobs created is lagging well behind the number of people entering the labor market. Stocks still performed well though, but the US Dollar didn’t make the sort of gains that you would expect for a currency that is meant to be moving towards a rate rise.
China’s Interest Rate Cut
Overnight we’ve seen china’s central bank cut interest rates by 25 basis points to 5.1%. The move has been well received by investors and the stock market is higher, but the rate cut is seen more as a way of reducing the refinancing costs of local governments than it is an economic stimulus measure.
The Week Ahead
This week we start with the Bank of England interest rate announcement. We don’t expect any changes, but it’s there all the same. We also get the quarterly inflation report on Wednesday from the bank and it will be interesting to see what they think now that oil has started to see price rises. This is also the first week back following the long pre-election media blackout from the central bank, so we would expect a few other impromptu addresses from various members of the MPC.
Wednesday is a big day for Europe, with the first estimates of Q1 GDP released, as well as a host of employment reports from across the bloc.