Another week another dollar and the sun is shining

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We are 12 days away from the General Election, and UK markets appear remarkably relaxed ahead of it. The FTSE 100 gained just over 1% this week, helped by the sort of economic data that would normally bolster the incumbent coming into an election. Inflation is back to the bank’s target, and the consumer appears to feel more upbeat. Although the Bank of England did not cut rates this week, this may have been more of a function of the timing of the election rather than a desire to keep rates at these levels. According to the ONS, most sectors had a decent month, particularly clothing, sales season probably helping, and domestic goods. UK gilt prices did little this week, boosted initially by the improving inflation outlook, and then sold off on the stronger retail sales data. The monthly flash Purchasing Manager Survey may have come in slightly below expectations, but the composite index remains just above 50, indicating an expanding economy. The Conservative continues to languish in the polls.

UK assets continue to remain attractive to overseas buyers. Britvic, probably best known for Robinsons Barley water, has received an approach from Carlsberg. UK targets have included Anglo-American, Royal Mail, Darktrace, and DS Smith this year. 

Wall Street shut on Wednesday for Juneteenth Day, a Bank Holiday celebrating the end of slavery. Before the mid-week break, Nvidia rose to be the most valuable company in the world. Post-holiday, it fell over 6% on Thursday and Friday. Wall Street has powered onto new highs, driven, as we know, largely by tech. The US yield curve remains invested, and indeed, for the longest period in history, yields on the two-year treasury have remained above that of the ten-year.

The week ahead will be about the US Personal Consumption and Expenditure Index, which will be released at the end of the week. This report will probably determine whether the Federal Reserve makes the first cut to US interest rates in September. The headline and core indexes are forecast to be up 2.6% from a year earlier. Other key releases include the final reading of Q1 GDP growth, durable goods orders, new and pending home sales, the S&P/Case-Shiller Home Price Index, Conference Board consumer confidence, and the Federal Reserve’s annual bank stress test results.

The other main event in Europe will be the French elections at the latter end. Recent political events have widened the gap between yields on German and French ten-year bonds, and the phrase Frexit is being bandied about. Inflation reports from France, Italy, and Spain will be closely monitored, although the ECB are unlikely to cut again in the near future.  Markets in Europe look like opening weaker this morning after a down day in Asia, not helped by Chinese stocks falling to a 4-month low.