Article / 12 July 2016 at 7:00 GMT

Morning Markets: Sterling bolstered on May accession

Managing editor, / Saxo Bank



  • US: NFIB Small Business Optimism Index (1000 GMT) 
  • India: Industrial Production (1200 GMT)
  • US: Job Openings & Labor Turnover Survey (1400 GMT)

GBPUSD broke free of the sub-130.0 millstone overnight after party stalwart Theresa May was confirmed as leader of the Conservatives and prime-minister-in-waiting after the withdrawal of rival Andrea Leadsom from the leadership battle.

GBPUSD was within touching distance of 131.0 in the runup to the European open and sterling bulls will welcome that bit of certainty in the political sphere which should propel the beleaguered pound away from the 31-year lows of last week. Cycle lows might not necessarily have been reached yet, nevertheless, and the Bank of England will still delve into its war chest Thursday.

Equities across the globe flourished as the S&P 500 hit a record 2,143.16 intraday and the Nikkei's bull run on the back of what could be a $199 billion stimulus package added another 2.5% to Monday's 4% surge. The return of a feel-good factor in markets also stymied the yen sending USDJPY back above 103.0, had gold retreating back towards the $1,350/oz mark and bond yields moving back towards more "normal' levels..

What can we expect in European markets? The FTSE 100 has already more than recovered the immediate post-Brexit losses and is 20% up on its year lows in February although the decline in the pound since June 23 has partially spurred the latest push. The FTSE 250 still remains some 4% below its June 23 close and bulls will look for this more UK-reflective index to recover that lost ground before any real conclusions can be drawn on the direction of the market. Both Dax and Cac  can expect to enjoy the tailwind too going into the open.

It was the story at the start of the year but after clambering back to the relative safety of the $50/barrel mark, oil just might be ready to return to the front page again. WTI closed the US session at a two-month low south of $45/b and Brent is also getting close to breaking $46/b. With a leaner, fitter industry emerging, might it become a dominant theme again in H2 2016?


Market signals

Asian session

  • The S&P500 hit a fresh high overnight, giving sentiment a lift across Asia
  • Oil prices ticked lower; equity indices and crude have diverged for the past two weeks
  • West Texas Intermediate crude traded at $44.82/barrel, little changed from Monday
  • Australia: the NAB business conditions index for June was up two points to 12
  • The upbeat NAB data is from a survey held after the Brexit vote
  • Japanese Prime Minister Shinzo Abe said he would order a fresh round of fiscal stimulus
  • Nikkei set for its steepest two-day climb since February
  • The dollar rose 2.2% against the yen to 102.68
  • The MSCI Asia Pacific Index had gained 1.3% as of 0451 GMT
  • The Nikkei 225 was up 2.77% at 16,144 at 0456 GMT
  • At 0405 GMT the Hang Seng was up 0.5% and the Shanghai Composite was flat
  • The Mumbai Sensex  was up 72 points at 0500 GMT, a 0.26% rise
  • Australia's benchmark S&P/ASX200 was 27 points or 0.52% higher, at 0525 GMT
  • In late Asian trading he AUD rallied 0.64%, closing in on US76 cents

Forex ahead

  • The US dollar firmed slightly against the yen; it was worth ¥102.6800 at 0055 GMT
  • The Australian dollar held above 0.75; it was worth 0.7546 at 0056 GMT
  • GBP strength very likely as relief rally gathers strength

From the Floor

Runaway success. "Nintendo shares continue to soar on the success of Pokemon Go", says Moltke-Leth.

Banking on a bailout. “The big stumbling block for global markets remains the Italian banks situation” says Hardy.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Survey data hints at firmer numbers for industrial output in India, the world's second most populous nation, says James Picerno.

Dangerous intervention
The Reserve Bank of New Zealand's Governor needs to decide on a course of action by the next monetary policy review meeting. One option, writes Max McKegg, albeit fraught with danger, is an intervention in NZDUSD.

Crude and stocks diverge
Conventional wisdom says oil price falls drag equities down, but equity indices have not correlated with crude for the past two weeks, says the team at Saxo Capital Markets Australia.

Then there were none
The Brexiteers have all come and gone, leaving Theresa May as prime minister in waiting and putting the UK political system on a collision course with change, writes Martin O'Rourke.


I think she may have exaggerated her resume by about this much. Photo: iStock

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12 July
Patto Patto
I suspect Teresa May will be a caretaker PM. She doesn't have the charisma to lead the party into the next general election. Boris will topple her before then............


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