Pound Soars to Six Month High

Daily Analysis - 19/04/2017

UK Prime Minister Theresa May Announces Snap Polls

The British Pound soared by over 1.00% on Tuesday after UK Prime Minister Theresa May announced new elections for summer. Analysts think May’s unexpected call for an early general election is likely to strengthen her mandate during impending “Brexit” negotiations following the triggering of Article 50 last month.

Pound Volatility to Remain High

Despite the Pound's latest rise, it remains -15.00% below the level it was trading prior to the “Brexit” vote. The currency's rise has also caused huge volatility in the benchmark FTSE 100, with the index diving -2.50% on Tuesday, the biggest one-day drop since the UK referendum decision to leave the European Union. The Pound swung within a wide range, touching a low of $1.2515 earlier yesterday, before hitting a six-month high of $1.2763.

Since the decision took most investors by surprise, volatility should remain high as they digest the effects of an early election. The Pound's rally suggests investors believe May will win a comfortable majority in the House of Commons. In the meantime, GBPUSD is holding strong just below the prior session’s high, with the pair last seen around 1.2835.

US Industrial Production Rebounds

After contracting back in January, March industrial production in the United States gained the most in three months amid heightened consumer goods and utilities output that easily countered the enduring weakness in manufacturing and construction. On a monthly basis, industrial production rose 0.50%, compared to the 0.10% increase recorded in February according to Federal Reserve data.

The pick-up in industrial activity was in-line with analyst expectations. Unusually cold weather in March boosted demand for home and office heating, lifting utilities production by 8.60% during the month – the largest increase on record. Consumer goods output also climbed for the first time in two months, gaining 1.20%. However, factory output fell unexpectedly in March, clocking its biggest decline in seven months amidst a slowdown in auto production. After dipping modestly on Tuesday, S&P 500 June futures are stuck in a narrow trading range, sitting just below the strong resistance at 2350.

New Zealand Services Sector Expansion Accelerates

After a deceleration during the middle of 2016, New Zealand's services sector continued its most recent expansionary streak in March. The BusinessNZ Performance of Services Index (PSI) reported overnight gained 0.3 points to 59.0 last month from the downwardly revised 58.7 in February - the second biggest expansion in the last 18 months.

All of the 5 sub-indices managed to remain above the 50-mark that separates expansion from contraction. Notably, new orders increased at their fastest pace since June 2007. The three-month average of the PSI surged to 59.0, its highest reading since 2007. The composite index, which merges the PSI and the manufacturing index, increased 0.8 points from February on a GDP-weighted basis to 59.0 in March. Adding to optimism was the significant 3.10% increase recorded by the GlobalDairyTrade Price Index. Nevertheless, NZDUSD is lower on the session, with the pair retreating below 0.7025.

Foreign Investment in Canadian Securities Hits Record

Buoyed by increased cross-border mergers and acquisitions, foreign investment in Canadian securities jumped to a record high of $38.8 billion in February per data reported by Statistics Canada on Tuesday. The figure easily surpassed the prior high of $26.5 billion recorded in May of 2012. Non-resident investors acquired $35.9 billion in equities in February amid a spurt of new share issuance arising from corporate takeover activity.

Foreigners bought $7.07 billion worth of Canadian debt in February, largely provincial government bonds denominated in foreign currencies. Canadians, on the other hand, purchased $6.3 billion in foreign securities, buying $4.9 billion in stocks and $795 million in bonds. The USDCAD pair has carried over the bullish momentum from the previous session, managing to climb at the outset of European trade after retaking the 1.3400 level earlier.