Two Brexiteers resign, calling into question Theresa May’s ability to continue to run the government, what happens? The stock market goes up and the pound barely moves. So, what are the conclusions? Is the market now believing that Theresa has removed the hard Brexit element and leave the market more convinced that she will remain in power and deliver the soft Brexit? In what is becoming more and more like Brexit by name, whether this will be a satisfactory outcome for both Europe and the UK only time will tell.
One does get the sense if sterling did not fall further on the latest Brexit news, the worst could be over for a while and the pound may rally from here. Bloomberg tv seemed to suggest that traders are running short positions in sterling, that could further help support the currency.
The weather, a Royal Wedding, World Cup success adding to beer and burger demands as well as new TVs should in theory all help the UK economy in the second quarter, This was reflected modestly in the release of new monthly estimate for GDP growth for the month of May as the economy grew 0.3%. The service sector showing robust growth. May is a little early to see the real impact all these influences will have. The coming month's releases will be a better indication. We will also start to see if the positive influences will be countermanded by the Brexit uncertainty. The other question will be is a rate rise in August now coming more likely? That speculation could also help strengthen the pound.
The German ZEW survey, which we like as a something of a contra-indicator for European equity markets fell again. Just to remind readers this survey measures the level of optimism analysts have for the coming six months. Many years of experience tells you analysts are like poor cricket captains, they tend to follow the ball, get most gloomy at the bottom and most optimistic at the top. Tuesday’s reading was the lowest since August 2012. As a reminder, this was at a time when indexes around the globe had fallen sharply on Euro area concerns and just as Draghi uttered the famous phrase “do whatever it takes”. This led to a doubling in the value of the Stoxx fifty index in the following years. That is not to suggest the European markets could double at this time, it just proves that these indicators are worth following.