"Triple Threat Thursday" is now a distant memory, with both the ECB and Comey testimony "non-events" for the market, although the UK general election was a shocker in which contrary to expectations, Theresa May lost her majority in Parliament, sending sterling tumbling overnight and prompting even more confusion about the UK's political fate and the future of Brexit. That however did not spook risk assets, and on Friday morning, European stocks gained with Asian stocks little changed, while S&P500 futures were set for new all time highs. Just like after Brexit, it was U.K. stocks that rallied the most among developed markets as the pound fell. With the majority of seats counted, May's Conservatives had no way to win an outright majority in parliament. That raised fears the political turmoil could delay and confound talks on leaving the European Union, which are due to start in less than two weeks, and the pound shed over 2 percent against the dollar...
Sterling dropped as low as $1.2636 in early London trading, before clawing back some ground. Yields on 10-year gilts fell 3 basis points to 1.00 percent. However, the damage contained, with S&P futures edging up 0.2 percent to 2,434, and just shy of record highs.
"The uncertainty is bad news for sterling," said Bank of America, Merrill Lynch European equity & cross-asset strategist James Barty. "I think for the global market it doesn't matter. Unlike Brexit, which at the time had a spillover into other markets, this is a very UK-specific thing"...
Most impacted by the UK result was the pound, which plunged the most in eight months as the election intended to strengthen Prime Minister Theresa May’s hand in negotiations with the European Union instead cast doubt over her future. The currency’s retreat gave British stocks a boost, but the election’s impact beyond the U.K. was muted...
The euro extended losses to three days, and the Stoxx Europe 600 Index swung. Fears of a supply glut continue to weigh on oil, but it managed to reverse an earlier decline.
“For now, the results of U.K. elections do not appear to be threatening the global growth story,” Mark Haefele, global chief investment officer at UBS Group AG, said in a note to clients. But for Britain,“political uncertainty is likely to more than offset any benefit from a marginally weaker pound,” he said.
The FTSE 100 Index jumped 0.8 percent. The Stoxx Europe 600 Index swung before trading little changed. Futures on the S&P 500 rose 0.1 percent. The underlying gauge advanced less than one point on Thursday, for a second day of gains.
In other overnight news, there was muted reaction to China inflation report as producer prices missed expectations, and eased further; PBOC reverse repos close to maturities; overnight Hibor falls for sixth day; Shanghai Composite closed modestly higher.
Overnight, Wall Street had also seemingly judged that the testimony of former FBI director James Comey was not life-threatening for the administration of President Donald Trump. Comey accused Trump of firing him to try to undermine the investigation into possible collusion by his campaign team with Russia's alleged efforts to influence the 2016 election.
"I think the market is taking less of an alarmist review of this situation because there is no smoking gun here," said Jefferies & Co money market economist Thomas Simons. "So it's not particularly impactful for thinking about Trump's economic agenda to go through."
In commodity markets, spot gold was 0.3% lower at $1,274.20 an ounce. Oil prices remained subdued, wit Brent having settled at its lowest since Nov. 29, the eve of an OPEC production cut deal.
*) Bulletin Headline Summary from RanSquawk;
- UK PM May's Conservative Party failed to win a majority in the UK general election although are still the largest party in government
- The Northern Irish DUP are expected to support the Conservatives in a "confidence and supply" arrangement, not a formal coalition
- Theresa May is now scheduled to head to Buckingham Palace to request to form a government
*) Market Snapshot;
- S&P 500 futures up 0.2% to 2,434.25
- STOXX Europe 600 down 0.1% to 388.76
- Nikkei up 0.5% to 20,013.26
- Topix up 0.08% to 1,591.66
- Hang Seng Index down 0.1% to 26,030.29
- Shanghai Composite up 0.3% to 3,158.40
- German 10Y yield unchanged at 0.257%
- Euro down 0.3% to 1.1178 per US$
- Italian 10Y yield fell 12.1 bps to 1.884%
- Spanish 10Y yield fell 2.8 bps to 1.448%
- Brent Futures down 0.3% to $47.70/bbl
- Gold spot down 0.3% to $1,274.34
- U.S. Dollar Index up 0.5% to 97.43
*) Top Overnight News;
- May’s Bet Fails, Pound Falls as Government Loses Majority; House Passes Dodd-Frank Rollback Bill; FDA Toughens Stance on Opioids
- Theresa May’s future as Britain’s prime minister was thrown into doubt after her gamble to call an early election backfired spectacularly, casting uncertainty over the government’s make-up as well as the direction and timing of negotiations on leaving the European Union
- Ousted FBI chief James Comey and President Donald Trump accused each other of lying about their private encounters in the wake of dramatic
Senate testimony that centered on whether the president sought to quash part of a federal probe into Russian meddling in the 2016 election
- Dish Network, Amazon considering extending their partnership or potentially merging sometime in the next few months
- Saudi Arabia dwarfs Qatar on almost any measure, yet there are plenty of ways the tussle between the Gulf neighbors could end up hurting the world’s biggest oil exporter, even if it wins
- Central banks are poised to start rowing in the one direction again
*) Asian equities have been somewhat unreactive to this hurdle for PM May and the uncertainty now surrounding the UK political front, with Asian bourses as well as US equity futures relatively mixed. Nikkei 225 (+0.7%) has been the outperformer thus far following the softness in the JPY, which had been looking to test yesterday's high around 110.40. Shanghai Comp (+0.2%). and Hang Seng (-0.1 %) struggled to find any firm direction, while the marginal gains in the ASX 200 (+0.2%) were led by the rise in miners. Finally, 10yr JGB traded marginally higher as yields trickled lower throughout the session, with JGB's also supported by the BoJ's rinban operation.
- Chinese CPI (May) Y/Y 1.5% vs. Exp. 1.5% (Prey. 1.2%).
- Chinese PPI (May) Y/Y 5.5% vs. Exp. 5.6% (Prey. 6.4%)
# Top Asian News;
- China’s Factory Inflation Eases as Raw Material Prices Decline
- Philippines Suspends Resorts World Manila’s Casino Permit: BTVPh
- Great Wall Motor Gains as Strong Pre-Orders Seen for New Model
- Li Ka-Shing’s Firms Slump as Falling Pound Hurts Profit Outlook
- Hong Kong Stocks Retreat From 2015 High Amid Overheating Signs
- Dalian Iron Ore Caps Third Weekly Drop on Steel Market Outlook
- SoftBank Boosts Japan Stocks, Beating Impact of ‘Super Thursday’
- Little Impact Seen From U.K. Vote, ECB Meet, Comey: Asian NDFs
*) In European trading, the weaker GBP has benefitted UK equities with the FTSE 100 opening higher by over 1% before paring some of the gains amid the political uncertainty over what comes next. Utility companies led the way higher with SSE and Centrica both near the top of the FTSE, while large multinationals were helped by the depreciation in the GBP. Unsurprisingly, banking names such as Lloyds and RBS, declined while homebuilders also fell as the increased uncertainty could ultimately slow house purchases. Defensive sectors drove gains in other European equity markets with health care stocks performing well across the region. Gilts opened lower but recovered as UK equity markets reversed some of the gains. The UK data had little impact on UK asset classes despite industrial output rising less than expected in April, after declining for the previous three months.
# Top European News;
- Young Seek Revenge on Old as Divided Britain Upends its Politics
- Airbus Warns U.K. Government: Retain Labor Mobility to Save Jobs
- U.K. Heads for Hung Parliament as May’s Election Gamble Fails
- U.K. Industrial Output, Manufacturing Rise Less Than Forecast
- DUP Said to Consider Arrangement to Ensure May Has Support: Sky
- M&G Bond Manager Says Election Could Lead to Second Brexit Vote
# In currencies, the initial reaction was seen in the GBP after the exit poll released on Thursday evening, which showed the Conservatives would fall short of a majority. GBP/USD then dropped to its lowest level in 7 weeks as reports emerged that Theresa May would not resign, although some profit taking saw GBP/USD bounce a little off its lowest levels. Other FX markets have been relatively unreactive with JPY weakness observed amid USD/JPY demand at the Tokyo fix. Today sees large options (2.1 bIn) expire at today's 1000am NY cut. The pound weakened 1.7 percent to $1.2732 at 10:58 a.m. in London.
The yen retreated 0.3 percent to 110.35 per dollar. The euro slipped 0.3 percent to $1.1181. The Bloomberg Dollar Spot Index added 0.4 percent, gaining for a third day.
# In commodities, WTI and Brent crude futures both stabilised after the large declines seen in the early part of the week and since the OPEC meeting in early June. The market has largely shrugged off the geopolitical tensions in the Middle-East with Qatar and other Gulf countries. West Texas oil gained 0.5 percent to $45.89 a barrel, after two days of losses. Crude has slumped this week as an unexpected increase in U.S. crude stockpiles cast doubt on OPEC’s ability to rebalance world crude markets. Gold fell 0.3 percent to $1,274.18 an ounce, declining a third day.
# Looking at the day ahead, while the fallout from the UK election will no doubt be front and centre, there is also a little bit of data to get through. This morning in Europe we get more hard data points with more industrial production prints due in France and the UK along with trade data out of Germany and also the UK. In the US we are due to receive the wholesale trade report. EU/NATO Conference is also due today. It’s worth also noting that this Sunday France begins the two-step process to elect a new National Assembly with polls due to close on Sunday evening. The second round is on June 18th....