US dollar sell-off continues, equities in red
(Arnaud Masset, market analyst)
The greenback was under heavy selling pressure on Monday as Donald Trump takes office. The Japanese yen soared the most within the G10 complex, with USD/JPY falling more than 1% to 113.45, and remains on course to test the 112-113 key support area. This broad dollar weakness came on the back of a sharp drop in US treasury yields as the 10-year slid 3.5bps to 2.4320% this morning, while the monetary policy sensitive 2-year eased to 1.1760%, down 1.5bps. US equities will most likely follow European ones into negative territory as investors rush into bonds. The Trump rally seems to be at an end.
UK Supreme Court to set the rules on Brexit
(Arnaud Masset, market analyst)
The pound sterling started the week on solid footing and took advantage of a sell-off in the greenback as GBP/USD rallied 0.60% to 1.2450. In fact, the pound has surged more than 4% over the last seven days as Brexit fears ease on the back of Theresa May’s pacifying speech. Nevertheless, it may be just the beginning of a broader move should the UK Supreme Court validate the judgement of a High Court ruling which obstructed the so-called “royal prerogative”. On Tuesday at 9:30 GMT, the court will state whether the government has the authority to trigger Article 50 without a parliamentary approval. Even though Theresa May has already promised that MPs will have to vote on Brexit before starting the negotiation, a rejection of the government’s appeal would definitely trigger a relief rally in the pound as the government will most likely take a softer stance. With most MPs being Europhiles, they will undoubtedly try to negotiate a relationship which resembles full-EU membership as closely as possible.
French Election: Valls set to lose Socialist Candidacy to Hamon
(Yann Quelenn, market analyst)
Yesterday, in the first round of the Socialist primary, Benoit Hamon beat Manuel Valls, 35% vs 31%, despite Valls being tipped as favourite in the polls. Next Sunday’s second round will see the winner represent the Socialist Party in the French Presidential Election. It is worth noting that only 1.5 million person voted in the Left primary, while over 4 million people participated in the first round of the Right primary last November.
The results of the left primary will remain a curiosity and following Francois Hollande, we should not expect his successor to come from the left end of the political spectrum. The French election is likely to become a two-way race between Francois Fillon and Marine Le Pen. Emmanuel Macron, despite being widely supported by the mainstream media, has a very liberal political position, which people will likely reject as has been the case several times in the last year last year (Brexit, Italian election).