Heat is on for leader of UK ruling party – Sterling suffers

Today's Highlights

• Reserve Bank of Australia minutes weigh on the Aussie Dollar.

• US/China trade war intensifies.

Current Market Overview

The fight for the new leader of the UK’s Conservative Party progresses later today, when Parliament holds its second vote by way of a secret ballot in the House of Commons. Results are expected after 18:00 BST. This stage marks the chance for any of the remaining candidates to be eliminated, so there is all to play for. The final two then face a postal vote from the party (160,000 members), which starts on 22nd June. We expect the winning candidate to be announced one month after. Boris Johnson is still the bookies’ favourite and Sterling has remained on the back foot as markets have had to price in the increased risk of a no deal Brexit.

Reserve Bank of Australia minutes weigh on the Aussie Dollar

The Australian Dollar dipped after the latest Reserve Bank of Australia (RBA) minutes show that interest rate cuts are on the horizon. Worse than expected house price data also gives the Aussie more selling pressure. The RBA cut cash rate by -25bps to 1.25% at the 4th June meeting and the Minutes stated that “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead.” Inflation has been below the 2-3% target for three years and even deteriorated to 1.5% in Q1. Unemployment rates have not gone down, despite continued jobs growth. Weaker housing data has also added pressure to the Australian Dollar, which is likely to fall further.

US China trade war intensifies

Starting in June – in response to US tariffs – Beijing imposed a levy of $60 billion against US-imported goods. Markets have turned to the US Dollar as a safe as concerns about the trade war ramp up. China has begun to explore other ways to retaliate, with one measure being so extreme it has been dubbed the “nuclear option”. This could have a significant effect on the markets and has the potential to weaken the US Dollar considerably. While this seems unlikely at the moment, it cannot be ruled out entirely, particularly as China has limited options in response to president Trump’s trade tariffs.

Keep calm and carry on

Good luck to all those affected by the train strikes today. London commuters face five days of strike action by South Western Railway (SWR) staff over the role of train guards, adding to the transport chaos with Royal Ascot taking place this week.