Another cabinet resignation as criticism mounts

Theresa May faces a losing battle in her quest to remain in office until there is a clear path forward for Brexit. Her much-vaunted tenaciousness which has stood her in good stead during her political career is now seen as little more than stubborn resistance to the inevitable.

Having survived a vote of confidence within her own Party last December, Party rules dictated that she was safe for another year. However, several backbench MPs are exploring the possibility of having the rule changed in order to vote on her removal.

Mrs May’s stubborn refusal to accept the inevitable led to a further resignation from her Cabinet yesterday. Andrea Leadsom, the Leader of the House of Commons, responsible for the Government’s agenda of legislation, quit. She cited the Prime Minister’s stance over Brexit as her reason. It is thought that Leadsom will be a contender to be May’s successor.

Yesterday’s release of inflation data had little effect on the pound, although may be seen as significant in the long-term. CPI rose back above the Government’s 2% target although by not as much as traders had expected. Prices rose by 2.1% in April, below the 2.2% expected.

The pound was under pressure for most of the day, falling to a low of 1.2624 and closing at 1.2661. It has continued to fall overnight currently trading (0530 BST) at 1.2644.

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Euro facing an important few days

The single currency is facing possible headwinds from several directions over the next few days as voting starts in EU Parliamentary elections and economic activity data is released.

Today could be a landmark day for the economy, the day that the turnaround in the economy begins, or it could be another disappointment bringing further pressure on the ECB to act.

Consensus has shifted a little for the German PMI data with analysts moving their expectations a little lower and predicting an unchanged 44.8 for May.

The overall Eurozone data is expected to have risen from 47.9 in April to 48.10 in May. A small increase but at least the recent falls have possibly abated.

Mario Draghi, in his speech following yesterday’s ECB meeting, expressed his concern over the lack of progress politicians are making in completing economic union. Should the Parliament swing to the right following the elections that may never happen.

The question of Draghi’s successor at the ECB is starting to come to the forefront. Jens Weidmann, the Bundesbank President, is being heavily touted since it seems that Germany will miss out in the race to replace Jean Claude Juncker as President of the European Commission.

There is a growing feeling that it is Germany’s “turn” to hold the Presidency although Weidmann’s appointment would send shivers through the southern states.

The euro continued its recent fall yesterday, reaching a low of 1.1149 and closing at 1.1153. Its range was quite narrow and it has barely changed overnight.

Fed minutes continue to confuse market

The minutes of the latest meeting of the FOMC provided no concrete direction for short-term interest rates as members expressed concern that any increase in inflation could be short term and therefore any rate hike to “nip it in the bud” could backfire on economic growth.

All in all, the minutes predicted a continuation of the Fed’s steady as she goes policy with traders left to make up their own minds about both the prospects for the larger economy and the dollar.

Treasury Secretary Steve Mnuchin reported yesterday that a continuation of the trade talks between the U.S. and China is at least a month away.

The game of politics being played out between the world’s two largest economies will have a considerable effect on global trade although it is clear that small victories are all that can be hoped for as an overall victor cannot emerge.

The Huawei controversy continued yesterday as ARM, a major chipmaker, stopped doing business with the Chinese giant in another blow to its global expansion.

The dollar continues to rally although this is based upon events on the other side of the Atlantic. The dollar index rose to a high of 98.12, closing just one pip lower. Overnight, it has continued to show signs of further strength.