Tory poll lead positive for pound

The first opinion polls to be released since the election campaign got officially underway were released at the weekend and proved to be positive for the Conservative Party.

The major polling firms show Boris Johnson’s Conservatives as being certain to be the largest Party in the new Parliament with a real chance that they will be able to command an overall majority. That would ensure Brexit does “get done” and the country would be able to move on.

From a purely practical non-partisan perspective, politically, that would appear to be the most positive result for enabling the country to move on since the Conservatives are the only Party 100% committed to the Brexit deal that was agreed by Parliament before the election was announced.

As was seen in 2017, there is still a long way to go and the public are dubious about promises being made by the two main Parties. Not so much that they are saying things they cannot deliver on, more, how they will be paid for and what that means for the country’s finances longer term.

Following last week’s MPC meeting when the markets were “placed on alert” for a cut in rates early in the new year, traders will be concerned about a new inflationary policies being brought in just as the economy is slowing.

Economically, it could be argued that the country is performing relatively well despite the uncertainty caused by Brexit. The UK is expected to grow at a faster rate than the Eurozone this year and for the following two years according to the Central Bank, although with the outcome of Brexit far from certain, it is difficult to know how accurate the forecasting models are able to predict future GDP.

Last week, Sterling was pressured by the uncertainty generated by the election, falling versus the dollar to a low of 1.2804 and closing at 1.2936.

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Will Trump extend China tariffs?

The ongoing talks between Washington and Beijing on trade have been the dollar’s major driver for some weeks despite some “interesting” economic data and an FOMC meeting. This is probably synonymous with commentators attributing their own reasons to market moves and betrays a lack of a clear reason for the dollar’s current trading pattern.

It remains fairly clear that both sides in the trade negotiations are prepared to play the “long-game” since neither has a clear, realizable, vision of their goals for the talks. They will have realized by now that neither will be able to claim an outright victory if/when the talks finally conclude and it is more likely that this forum will run and run becoming a rival to the WTO which has become more involved in the minutiae of trade agreements rather than overseeing the big picture.

Today is a U.S. holiday as America pays tribute to its Veterans in ceremonies similar to those held in the UK and Europe yesterday. That will slow market activity significantly.

With just a few “trading weeks” to go until the market starts to think about year end, traders thought will turn to 2020 and what the themes will be. Trade will continue to dominate but the one single event risk will, of course, be the U.S. Presidential Election.

With billionaire Michael Bloomberg likely to enter the race, Trump will be faced with an opponent who can not only match him in just about every way, but has considerable political experience having served as Mayor of New York. should he confirm his candidacy, the cat will certainly arrive amongst Trump’s pigeons

The dollar index remains in a relatively narrow range albeit with a positive bias. Last week it traded between 98.40 and 97.79, closing at 98.37.

Lagarde starts work on reform.

Mario Draghi was asked before he left the ECB whether he felt his replacement, Christine Lagarde would have a dramatic tenure as ECB President. His rather “tongue-in-cheek” response was to say that he “wouldn’t wish that on anyone”. Despite the levity of the comment, it is fairly clear that Draghi, having faced tumult on several occasions hopes that going forward the ECB’s role is going to be more as a steady hand on the direction of the economy rather than firefighting.

It is doubtful that Ms. Lagarde sees it that way since she is tasked with laying the groundwork for significant reforms to the fiscal makeup of the region.

While that is not her “official” task, it is clear form her appointment, and Angela Merkel’s abandonment of her compatriot Jens Weidmann for the role the direction she sees the ECB needing to take.

It is doubtful that monetary policy alone will be sufficient to drive the region forward into a new era or “second phase” since reform is in the air even if the European Parliament seems hell bent on the status quo.

While politicians seem to talk around the issues facing the EU, the new heads of the institutions who have just taken on their new roles clearly have a vision shared by some but keen to be avoided by others.

The first task will be to convince those in the Parliament that the region stands at a crossroads. It cannot remain as it is. Fiscal union is the way forward but that will be a tough sell.

News emerged last week that Italy now has a worse credit rating than Greece becoming the riskiest sovereign debtor in the Eurozone. That is something of a technicality since Greece’s only lender currently is the Eurozone (in various guises), while Italy’s ability to borrow is determined internationally.

Last week the single currency weakened versus a recovering dollar. It fell to a low of 1.1017. It is unlikely to fall significantly below the support at 1.0980 without a major event taking place (most likely related to trade) although the upside remains limited given the need for reform to get started or, at least, plans to be outlined,