Confidence Vote Looms for Boris


OVERNIGHT

Asian equity markets are mixed this morning, although some key indices are trading higher including those in China and Japan. The easing of lockdown measures in China has supported risk sentiment, even though its May Services PMI remained well below 50 for a third month. There has been a mixed market reaction to last Friday’s US jobs data which beat consensus forecasts and reaffirmed the likelihood of significantly further Fed policy tightening in the months ahead. Brent crude has risen above $120 a barrel.


THE DAY AHEAD

Today’s economic calendar is relatively sparse but marks the return of UK trading after an extended holiday for the Platinum Jubilee. An update on UK new car registrations is due this morning. Last month’s figures for April showed a 16% year-on-year decline, reflecting supply problems in the production and delivery of new vehicles. Data due overnight will reveal how UK retail sales fared in May, according to the British Retail Consortium. In April, the BRC’s figures, which are not adjusted for inflation, showed a 1.7%y/y fall in samestore sales. Sterling market attention will also centre on speculation about PM Johnson’s future, with media reports suggesting that the required number of Conservative MPs (54) needed to trigger a leadership may be reached this week. That would come ahead of two by-elections later this month in parliamentary seats which polls indicate the Conservatives may struggle to hold on to. Chancellor Sunak will be questioned on his recently announced cost of living support package at 1.45pm. The Reserve Bank of Australia is scheduled to provide a policy update early Tuesday morning. At its last meeting on 3 May, the RBA raised interest rates more than expected by 25bp to 0.35%. The central bank has signalled more hikes in the period ahead, with the consensus forecast for rates to end this year at 1.75%. For tomorrow’s meeting, the consensus forecast is for a 40bp hike to 0.75%, reflecting the broadening of inflationary pressures.


MARKETS

The US dollar and treasury yields were supported by US labour market data on Friday which showed the economy added 390k jobs in May, more than the consensus forecast. In reaction, GBPUSD fell below 1.25, while GBPEUR was also lower last week ahead of this Thursday’s ECB meeting which is expected to prepare the ground for a lift-off in Eurozone interest rates. Sterling markets will be closely following domestic political news.


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