Market commentary: GBP continues to weaken as Britain goes to the polls

At the time of going to print European futures are currently in the red. But what is really driving the markets? Greece continues to create noise albeit many are of the opinion that a solution will be found (in this case) later rather than sooner. 

Britain goes to the polls today with no clear sign of who will gain the majority. If polls are anything to go by this election will not be a clear win either way but is expected to be followed by a series of negotiations of who has the right to govern and the subsequent structure of the parliament.

The GBP continues to weaken versus the euro but we would like to think that this weakening is just noise attributed to the general election and once this is all over, the GBP should regain the losses incurred recently.

Sovereign bonds around Europe continued their sell off after a great run following the start of the QE programme which is in place and is expected to run its course and not be terminated earlier than scheduled.

This downtrend may have been triggered by an optimistic inflation forecast by the ECB. However one must comment that not all analysts share the same view as most are waiting to see the tangible effect of QE. The selloff is taking longer than expected and we continue to try to understand what the main culprits are.

So far we have jotted liquidity (or lack off) and profit taking on long tactical trades by investors who took advantage of QE. Malta is not immune to this and we have been seeing Malta government stocks selling off in the past few weeks.

The Greek saga is far from over. Even we are tired of listening to the same issues over and over again let alone European politicians who are constantly being distracted by this ongoing story. On a positive note it was reported that Greece wired yesterday’s payment to the IMF and it was also reported that it has enough money to meet next week’s obligation.

Ahead of next Monday’s Eurogroup meeting, the negotiations continue within the euro working group. So far according to media reports Greece has not proposed a plan that provides stability to the financial sector, offers fiscal sustainability and promotes competitiveness.  The story continues.

In terms of data for today, we had the German factory orders which came in line with expectations on a Year on year basis but lower on a month on month basis. France also reported its industrial production figures which on month on month basis came in slightly lower than consensus and slightly higher on a year on year basis.

In the afternoon, we will be looking at the Initial Jobless Claims as issued in the US and the commentaries that follow whether a rate hike on the other side of the Atlantic is expected sooner rather than later. On the supply side, Spain and France are expected to issue €13.5 billion in aggregate worth of government bonds.

This article was issued by Darin Pace, Treasury Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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