US election concludes! Sterling buoyed by courts decision
Global investors became more risk averse last week as the US election polls suggested that the result will be close. While a significant number of votes have already been cast, the majority of voters will turn out today. However, the markets were buoyed on Monday, as Hilary Clinton received a substantial boost, with the FBI clearing her from any wrongdoing over her emails.
US jobs data showed that 161,000 jobs were created in October, as well as figures for August and September being revised up. As a result, the unemployment rate edged down to 4.9% and wage growth accelerated. This has provided further justification for an interest rate rise in the near future.
The Bank of England (BOE) increased its inflation forecast for next year, to 2.7%. Furthermore, the expected growth rate has been revised up to 1.4% from 0.8% for 2017, although forecasts for 2018 have been lowered. The BOE indicated that negative impact of Brexit has delayed rather than completely avoided. However, while the bank originally anticipated that it would enact an additional interest rate cut, it believes that this will no longer be necessary. The sharp fall in inflation will be driven by the fall in the value of the pound and bank does not anticipate that the headline interest rate will return to its 2% target before 2020.
Sterling currency markets reacted strongly last Thursday, following a “favourable” ruling by the High Court. Judges ruled that Parliament should vote on when the government can trigger Article 50, starting formal negotiations with the EU. Some traders have taken this as a possible watering down of the terms of the Brexit deal, and therefore a positive for the value of the Pound. However, the Prime Minister has indicated that she wishes to press on with the current programme and has vowed to appeal the ruling. It is difficult to foresee a scenario where this ruling significantly changes any potential exit agreement and will likely only delay the final result.
|UK 10 Year Gilt Yield||1.248||1.194||-0.054||-4.33%|
This week will see the result of the US election. In addition, the week will see the release of Chinese and German inflation data on Wednesday and Friday respectively.