Climb of Corbyn (Video)

The Day So Far…

An uneventful morning as markets digest the profit taking move yesterday in crude where OPEC and non-OPEC nations collectively agreed to extend the existing framework to March 2018. The steep decline from the peak of $52/bbl was fairly telegraphed given the markets positioning in recent weeks, and as we have discussed here before I feel OPEC are fighting a losing battle long-term as in either situation the shale industry wins as Gulf nations are forced into supporting prices. This outcome is something the Saudi’s are fully aware of which is reflected in the move to a more progressive leadership under the younger Mohammad bin Salman. His more open outlook, partial IPO of Saudi Aramco and raising of finances in the bond market are all subtle signs of a shift to diversity the Kingdom from having such a dependence on a market they are quickly losing control of. The meeting with Trump this week was also significant in respect to the Saudi’s effective management of the relationship with their soon to be biggest rival, the US. Sweetening the talks with large scale arms deals and making commitments to infrastructure investment into north America is no doubt part of the longer-term political play, but with Saudi likely to shoulder the burden of other less compliant nations in order to adhere to the 1.8mln target, I would expect the US to cease their opportunity to steal further market share by continuing to ramp up production.

GBP has been the main mover in the FX market and comes amid the latest YouGov poll of voting intentions for the UK General Election. The narrowing of the gap to just 5 points between the Conservatives and Labour has pressured GBP/USD lower on the premise that this negates the size of majority Theresa May can capture and thus her ability to have flexibility in her mandate to negotiate Brexit. One caveat here is that on balance across polls YouGov is by far the tightest with the average still in the low double-digit range. The underwhelming Tory manifesto and the about turn on the dementia tax have not done the government any favours but the tragic event that unfolded in Manchester has seen a shift back to those seeking a “strong and stable” leader. To me the outcome of the election hasn’t changed and it’s not a conversation about a potential Labour government but rather how much as this dented the majority by which the Conservatives will win.

 

The Day Ahead…

There are several economic data points scheduled for this afternoon including the 2nd reading of Q1 growth in the US, durable goods orders, and the final May reading for the University of Michigan sentiment. As per usual I doubt any of the above will have a lasting impact and attention could well be more focused on Trump who is attending the G7 summit which is due to conclude at the weekend. For the President it has been “so far, so good” in his first tour outside the borders of the US but as ever with Trump I would be vigilant to expect the unexpected. Finally, it’s a UK bank holiday on Monday so have a great extended weekend and enjoy the sunshine – see you back here on Tuesday.