Europe Summary and Highlights 12 May
GBP sold as pressure on Starmer ramps up, and gilts spike at open, though trim off support/resistance tests
Oil creeps higher as standoff rolls on, keeping dollar supported
European morning session
Heating up a touch this morning as some recent tension points start to bite a little, albeit with markets generally still within recent bounds. Setting the backdrop, further negative comments from Trump on Iran (garbage, ceasefire on life support) did see oil nudge back above the $100 mark in the morning and, with risk markets softer, a firmer dollar lean if still very checked back within recent bands.
The main action though seen on sterling where an opening gilt spike to test the lows and recent yield highs (10s still up some 11bp) on the back of political worries saw cable test down to 1.35 support before trimming off support, and EUR/GBP bouncing further off the recent 0.86- base (spiking to test 0.87- at the highs before also pulling back). Some 70+ Labour MPs urging him to stand down or give an exit date, amid broader cabinet jostling.
Starmer emerges from cabinet vowing to get on with job, but agitations are not going to go away. Focus turns to the backroom gossip and the event betting market to gauge timings and odds on the favourites (which wing of the party).
German ZEW survey unexpectedly bounces, sentiment -10.2 vs -17.2, though current conditions -77.8 vs -73.7 as expected. Italy industrial production 0.7%m/m sa, 1.5%y/y ca, firmer than consensus.
Asia session
There is not much risk positive headlines on Tuesday as both sides do not seem to be closing gaps. Apart from finger pointing, we do have reports that Iran is willing to compromise the transferal of nuclear materials by dilution, yet it is hard to see Trump will accept that. U.S. major equity indexes are in the red while regional equities performing individually. AUD/USD is fell by 0.26% to 0.7230 as there is also no support from soft precious metal. NZD/USD also 0.14% lower while USD/CAD rises 0.1%. Both WTI and Brent are higher for the session.
It is reported that Japan and the United States have reaffirmed their close cooperation. The MoF has likely intervened multiple times in the past week, a convenient timing for political incentive and USD/JPY reaching above 160 figure. What is left to discuss is whether the U.S. will try to strongarm Japan into hiking rates. USD/JPY is trading 0.32% higher at 157.63 after poor March household spending data. Else, EUR/USD is down 0.24% and GBP/USD is down 0.26%.