UK election keeps the market on its toes

As the UK returned from a long weekend, to what will be one of the most pivotal weeks in terms of UK politics that arguably we have ever seen, the markets also returned with their own unique slice of turbulence, something we have become accustomed to so far in 2015. UK Construction PMI data was the only major data release yesterday, printing below the expected 57.6 at 54.2 and creeping ever closer to the 50 mark that signals contraction within that sector. Subsequently, the pound seemed to lose ground across the board, with levels against the dollar touching a daily low of 1.5087 interbank (IB) and at against the euro a low of 1.3557. It would seem that tensions over the uncertainty of the UK general election are spilling into the markets, with the expectation of a hung parliament putting pressure on the pound from its peers. For now it would seem that nervous trading and further pound depreciation are to be expected until the polls close at 10pm Thursday. Services PMI data will be the highlight today, being the largest component of UK GDP, this number gives a valuable insight into the health of the UK economy and additionally the attitude of consumers. The general election will continue to hold the headlines and as such the potential for sterling depreciation is still very possible.

The rally that has helped the euro regain so much of its lost ground against its major peers over the last two weeks, doesn’t seem to be nearing any sort of conclusion, despite the ongoing troubles and concerns faced by the region over not only their own recovery but also the restructuring of Greek debt repayments. The quantitative easing program (QE) implemented by Mario Draghi at the start of March is showing signs of success, and it has even been suggested that tapering the program before the 21 month deadline is a possibility. Additionally, Spanish unemployment change figures released yesterday printed at -118.9K well below the forecast of -64.8K, again consolidating the view that recovery, albeit in small steps, is definitely finding its way into Europe. There is an argument that much of the so called ‘Grexit’ has been priced into the market and has done nothing more than provide a form of scaremongering to push euro investors out of the single currency. And this is a view that is compounded by the incredibly low yields offered on corporate-debt in Portugal, Spain and Italy. However, once again we find ourselves entering another critical week for Europe, as not only do Greece have two payments to make to the IMF, they also have to reach some sort of agreement, even if it is merely to agree to disagree. Once again, eyes and ears on Europe. There is a temptation to simply write ‘Greece’ here, however it would be wrong to discredit the rest of Europe in doing so. Spanish, Italian, French and German Services PMI data is due today and will surely give further indications of widespread European economic health and consumer spending.

After what has been a difficult couple of weeks for the dollar, the perfect tonic would surely be some decent fundamental data, something they haven’t seen for some time. So, yesterday’s positive release of ISM Non-Manufacturing PMI data, printing at 57.8 against the forecast of 56.2 was a big tick in a big box. US consumers have been spoilt of late, with lower oil prices allowing them extra cash to spend at retailers, restaurants and movie theatres, with more being spent monthly on dining out than on groceries. Analysts are viewing this as the start of a run of positive US data, with this data showing a fair amount of momentum in activity that bodes well for a pick up in growth and employment. Non-Farm Payrolls are due this Friday and expected to tick up to 230K a vast improvement from the 126K jobs created in March. Surely a positive figure here will help to reignite the dollar rally that captured the headlines at the start of the year. In terms of data, ADP Non-Farm employment change figures are the only release of any note today, forecast at 192K, after which, Fed Chair, Janet Yellen is due to address the Institute for Economic Thinking, where as usual, traders will look for any clues of change to economic policy.