Polls currently put the Tories in front at 42% of the vote, up from the 37% result in the 2015 election, and there is a good chance that the government could increase its majority in Parliament and thereby cement its authority during Brexit negotiations. Elsewhere geopolitics and the unwind of the Trump-reflation trade continued with the US dollar down, US Treasury yields down, while Equities were weighed down by sharp falls in commodity prices (particularly industrial metals) along with disappointing earnings from Goldman Sachs. The rally in the pound gives inspiration for today’s title “That’s why they call me Mrs Fahrenheit”, a play on the lyrics from Queen’s Don’t Stop Me Now inspired by the UK PM.

UK PM Theresa May called for a snap election on June 8 which has also been supported by Labour’s Jeremy Corbyn. The Pound rallied hard on the news, up 2.2% with the pound reaching a high of 1.2905, but edging back to finish at 1.2844 – its highest level since early October 2016. My colleague Nick Parsons observed that the 2-cent rise has meant the GBP/USD has broken its 200 day moving average for the first time since the Brexit referendum and given net shorts in IMM CFTC data, short covering could see a break higher which could bring the September 2016 high of 1.3445 into focus.

The moves in the Pound were also helped along by general US dollar weakness with the US dollar index (BBDXY) down 0.8% overnight and at its lowest level since late March. Most other currency pairs were higher with the Euro up 0.8% and the Yen also up 0.4%. Underperforming were the commodity-linked currencies with the Aussie down 0.4% and the Canadian dollar down 0.5%.

Driving the weakness in the Aussie has been sharply lower iron ore prices (along with other industrial metals), with the iron ore price down 4.6% overnight to $63.2 a tonne. A somewhat dovish RBA Minutes also added to the tone which played into the view of the RBA being on hold in 2017. The Minutes showed overt anxiety over the lack of labour market improvement with the Board concluding “developments in labour and housing markets warranted careful monitoring over coming months”. Bumper jobs figures released last week should help alleviate these concerns in the short term while the RBA will take “some time” to assess the effectiveness of recent macro-prudential policies. NAB continues to see the RBA on hold in 2017 and 2018.

The other big mover overnight were bond yields. US Treasury Yields fell 8.2 bps overnight to finish at 2.17%. There was no immediate catalyst, and it seems it is a continuation of an unwinding of the Trump-reflation trade as activity picked up following Easter. Scepticism continues on Trump’s ability to implement his legislative agenda, with Treasury Secretary Mnuchin on Monday stating getting tax reform by August was “an aggressive timeline” and would probably get delayed due to healthcare. A soft CPI print on Friday also added to the uncertainty over the pace of activity given already weak expectations for Q1 GDP. German Bund yields also followed these moves, down 3.1 bps to 0.16%.

US Fed pricing for June now sits at 34%, down from 42% yesterday and there is only one more rate hike fully priced by the end of year. Despite moves in pricing, Fed officials are sticking to the script of two more rate hikes for this year. The Fed’s George (non-voter) overnight stated she still sticks to the base case and that while the first quarter “looks soft” the Fed should not start “over-interpreting what it means for the longer term” and that she does not want to be in the position of “allowing inflation to overshoot the 2% goal or to press labour markets into a condition where they are overheating”.

Equities fell across the board overnight with the EuroStoxx down 1.1% and S&P500 down 0.3%. The FTSE100 was down a sharp 2.5%, but a fair chunk of that weakness was due to commodities and health care – with sharp falls in Materials (-4.2%), Energy (-3.4%) and Healthcare (-3.4%). Industrial metal prices were all weaker across the board with particularly sharp falls in Nickel (-4.4%), Zinc (-3.7%) and Copper (-1.9%). The falls reflect some uncertainty around the outlook for commodity demand from China and the US.

Coming Up

It is a very quiet day domestically with only second-tier Weekly Consumer Confidence and Motor Vehicle Sales due for release. The international calendar also brings little in the way of excitement. Today sees the Eurozone Final CPI figures and the February Trade Balance. While CPI is important, today’s figures are the final reading for March with the flash measure already having come and gone. That flash measure disappointed coming in at 1.5% y/y, below the expectation of a 1.8% increase. The final measure today is similarly expected to be 1.5% y/y and Core at 0.7% y/y. French politics will also continue to be under the microscope with the first round a virtual four horse race between Le Pen, Macron, Fillon, and Melenchon (election April 23 and May 7).

In the U.S. today we get the Fed’s Beige Book and the Fed’s Rosengren (non-voter, hawk) speaks at a Hyman Minsky Conference in New York.

Overnight

On global stock markets, the S&P 500 was -0.29%. Bond markets saw US 10-years -0.71bp to 2.17%. In commodities, Brent crude oil -0.87% to $54.88, gold+0.2% to $1,292, iron ore -4.6% to $63.20, steam coal +0.2% to $84.35, met.coal +1.3% to $283.50. AUD is at 0.7558 and the range since yesterday 5pm Sydney time is 0.7534 to 0.7561.

For full analysis, download report or listen to The Morning Call Podcast

• Markets Today: 19 April 2017 (PDF,164kb)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

Disclaimer