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Sterling Weighs on FTSE, Despite Rise in Eurozone Equity Bourses

By:
David Becker
Updated: Apr 19, 2017, 11:49 UTC

European stock markets are stabilizing, with Eurozone markets bouncing back from yesterday's losses and the DAX up 0.20%, and Italian and Spanish markets

Sterling Weighs on FTSE, Despite Rise in Eurozone Equity Bourses

European stock markets are stabilizing, with Eurozone markets bouncing back from yesterday’s losses and the DAX up 0.20%, and Italian and Spanish markets outperforming with gains of 1.20% and 0.65% respectively. The French CAC 40, which was still under pressure early in the session amid election jitters, has also managed to catch up with the DAX.

The FTSE 100 has also moved up from early lows but is down on the session, as Sterling lost some ground versus the USD at least, although the Pound remains above 1.28 against the USD as PM May seeks to increase her majority at the June 8 election and thus hopes to gain more flexibility in the Brexit negotiations. U.S. stock futures are also moving higher.

This followed a largely negative session in Asia overnight, where risk aversion continued to dominate and pressure on commodity prices saw the ASX closing with a -0.56% loss. The Nikkei managed to outperform and post a marginal 0.07% gain, as a weaker Yen underpinned exporters. Oil prices are slightly higher on the day, with WTU trading at USD 52.58 per barrel.

The pound has settled in the lower 1.28s versus the dollar after rallying strongly yesterday on the PM May’s call for a snap general election on June 8. The FT’s poll tracker points to a landslide victory that would greatly increase the Tory Party’s majority, which, the thinking goes, would dilute the influence of the hard right on May, giving her more flexibility in Brexit negotiations. There is also the view that government won’t have to call an election until three years after actual Brexit in 2017, which should increase the odds for a post-single market transitional period to allow time for new trading terms to be hammered out.

Eurozone Current Account Surplus Widened in February

The Eurozone posted a current account surplus of EUR 19.2 billion in February, up from EUR 15.7 billion in January, with exports rising and nominal imports falling back. Unadjusted data show exports rising 8% year over year in the first two months of the year, while imports rose 11% year over year and oil price developments are likely to impact this nominal data.

On a country level, Germany remains the biggest contributor to the Eurozone’s surplus and the discussion about Germany’s large trade and current account surplus won’t go away in a hurry, even if on a real basis net exports actually detracted from overall growth in Germany last year.

Eurozone March HICP inflation was confirmed at 1.5% year over year, unchanged from the preliminary reading and down from 2.0% year over year in the previous month. Core fell back to 0.7% from 0.9%, also in line with the preliminary numbers, but with the deceleration in both core and headline rate to a large extend driven by the later timing of Easter this year. This meant holiday related prices, including charges for flights and package holidays, increased in April, rather than March as in 2016, which in turn suggests a renewed uptick in the headline rate with the preliminary numbers this month. So while HICP is now back clearly below the ECB’s upper limit for price stability, the comments on ECB tapering and the removal of the implicit easing bias won’t go away.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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