UK Election under focus, Swiss PMI

Forex News and Events

Tories and Labour neck-and-neck

Latest survey provided by YouGov indicates that Conservatives lead Labour by 1 point at 34% versus 33%; Labour were leading Tories in the last poll from Friday (…). A hung parliament is therefore the only certainty. As a result, either the Labour or Conservative party will be forced into a coalition government, leaving both leaders on the backing of other parties. The pressure on the sterling pound will therefore intensify for the next few days as the results will have important implications for the future of UK within the Eurozone. The absence of an EU referendum would remove a significant threat on investment and foreign flows, allowing the sterling to appreciate further. Recently, GBP/USD came under a lot of pressure, falling from 1.5498 on April 29th to 1.5150 this morning.

Markets expect the RBA to cut its cash rate by 25bps to 2%

According to the last data out of the housing market in Australia, the real estate bubble is being pumped up again after Building Approvals contracted -1.6%m/m in February (revised up from -3.2%m/m prior read). For the last few weeks, we were expecting the RBA to cut its cash rate by 25bps to 2% during the early May meeting. However, the Royal Bank may delay again rate hike as jobs market showed signs of improvement in March (unemployment rate fell to 6.1% from 6.3% in February) while Building Approvals rose 2.8%m/m in March while analysts were looking for a contraction of -1.5%m/m. However, the AUD/USD is still seen as overvalued and Governor Stevens made clear that the RBA has a strong easing bias. The rate decision tomorrow night will indicate how much the RBA is concerned about the housing market bubble.

PMI manufacturing at 47.9 - by Peter Rosenstreich

Report from the SNB showed that total average sight deposits (week ending 1 May 2015) rose to chf449.5bn from 447.2 from the prior week. While sight deposits of domestic banks fell to chf384 from chf385.9. We suspect that move was not adjustment of SNB measures (including SNB interventions) but rather natural evolution of deposits (possibly due to earlier SNB decisions to tighten rules on the negative rates). In spite of policy makers unrelated commitment to protect Switzerland from CHF appreciation the massive chf30bn loss reported last week will keep additional measures sidelined. While the Swiss economy continues to feel the effect of the suddenly stronger CHF as see in today PMI manufacturing which was steady at 47.9 against expectations for a rise to 48.2, the “tsunami” many were expected have not come to pass. In fact while the PMI read was below the 50 expansion mark its coming off the lows with a few bright spot in the underlying categories (output orders and quantity of purchases). Given the uncertainty emulating from the Greek bailout negotiations and resilient Swiss economy (relative value trade) we suspect that CHF will continue to gain against the EUR. Our midterm target remains parity.