Pound and stocks little changed to start the week

It’s been a relatively quiet start to the first trading session of the week with little by the way of significant moves seen in the major asset classes, but several events in the coming days could well change all that. The Tory leadership race is hotting up with the next round of votes scheduled tomorrow before the Fed rate decision Wednesday and Bank of Japan and Bank of England on Thursday. The FTSE is trading higher by around 10 points at the time of writing while the pound is also edging higher.

Hancock endorses Boris

Despite refusing to take part in a televised debate yesterday evening, Boris Johnson remains the heavy favourite to be the next Conservative party leader and he received a further boost with news that Matt Hancock is now backing him. The former leadership contender and prominent Europhile has endorsed Boris and with the current field of 6 set to be whittled down to 2 by Thursday before party members will decide the next leader it does look like its now his to lose.

As far as the market is concerned Boris is not the best leader for the pound in the intermediate-term, with his promise to take the UK out with or without a deal by the end of October representing a sizable risk to the currency. However, any resolution could be met with a near-term appreciation in sterling as it would reduce uncertainty and at least give some direction and fresh impetus to Brexit developments that have been drifting aimlessly now for several months.

Fed rate cut expectations pared back

The pound fell back near last month’s low against the US dollar on Friday in dipping below the $1.26 handle but this was more a case of a broad-based bid in the greenback rather than weakness in sterling. A better than expected retail sales number from the US, accompanied by favourable revisions to past releases sparked a sizable gain in the buck, with traders seemingly paring back bets that the Fed will begin a cutting cycle. The US central bank haven’t cut interest rates in over a decade and with the market pricing a 4 in 5 chance that they deliver one in the next two meeting there is plenty of scope for disappointment which may lead to further gains in the US dollar.

Iran to exceed nuclear deal limit

Last week saw a sharp move higher in the price of crude oil after two tankers were attacked in the Gulf of Oman and there have been further growing signs of tension in the region this morning. Iranian state TV has said that the country will exceed the amount of low-enriched uranium it is allowed to keep under the nuclear deal in a move that will likely draw the ire of the US and several other allies. The current level of 3.67% was set by the 2105 deal between Iran and several world powers in an attempt to restrict its nuclear ambitions but with the US withdrawing from the pact and slapping tariffs on Tehran, the country now seems to be pushing its limits. There’s been no reaction seen in oil benchmarks to this news, with both Brent and WTI trading a little lower on the day but any signs of further escalation threaten to spark a sharp move higher in crude.