Theresa May Grapples with Dissent

Daily Analysis - 13/11/2017

British Pound Retreats on Elevated Political Risks

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The UK Pound slumped in early Monday trade against the US dollar as fresh turmoil faces embattled British Prime Minister Theresa May amidst a weekend report that said a group of Conservative Members of Parliament were preparing a leadership challenge. Senior Tory leaders, including former Cabinet minister John Redwood, dismissed speculation about May's future.

Investors Question May’s Ability to Deliver Brexit Transition


The Sunday Times reported that 40 MPs from May’s Conservative Party had agreed to sign a letter of no-confidence against her. That number was eight short of the magic figure required to trigger a party leadership contest, which could pave the way for May to be replaced by a fellow Conservative as the new Prime Minister. Investor sentiment towards Sterling was further dented after UK Brexit Minister David Davis remarked on Sunday that his country would not offer a formula or a figure for how much it believes it owes the European Union, underscoring the tardy progress in the divorce negotiations. In the meantime, the GBPUSD pair has retreated to just above 1.3100, pulling back from an eight-day peak reached on Friday after better-than-expected data pertaining to industrial output and the trade deficit.

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US Consumer Sentiment Unexpectedly Dips


A leading gauge of US consumer optimism witnessed a surprise fall in November from a month earlier, as anticipated gains in jobs and wages were more than offset by expectations for higher inflation and interest rate increases. The University of Michigan’s preliminary reading on consumer sentiment retreated from the 100.7 reported in October to 97.8 in November.

Economists polled by the Wall Street Journal had estimated a preliminary November reading of 100.0. Richard Curtin, Chief Economist for the “Surveys of Consumers,” attributed the latest decline in sentiment to a “slight rise” in year-ahead inflation and rate increase expectations. The University of Michigan's consumer sentiment index tracks attitudes of 500 consumers on key future economic prospects such as inflation, unemployment, interest rates, personal finances and government policies. S&P 500 futures snapped an eight-week winning streak to finish Friday at 2578 before rebounding following the weekly reopening.

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Japan’s Factory Gate Inflation Tops Expectations


Producer prices in Japan rose 0.30% month over month through the end of October according to figures released by the Bank of Japan early Monday, topping the consensus forecast calling for a gain of 0.10%. September’s reading was upwardly revised to reflect an increase of 0.30% compared to the earlier reading of 0.20%. On an annualized basis, prices surged 3.40% last month - again topping projections for a 3.10% uptick. Export prices climbed 1.70% on the month and 9.70% for the year ended in October.

In addition, figures published by the Central Bank indicated import prices advanced 2.60% monthly and 15.30% from a year ago. The main event ahead is a GDP report set for release on Wednesday, with expansion expected to have reached an annualized pace of 1.30% during the third quarter. USDJPY briefly gained ground overnight before slipping back below the 113.500-mark.

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France's Industrial Output Receives Pharma Boost


Following an unexpected decline in August, French industrial output bounced back in September per data delivered by INSEE on Friday. Industrial production in Euro Area's second-largest economy rose 0.60% month-on-month in September. Economists surveyed by the Wall Street Journal had forecast a 0.50% expansion for the period. The August reading was also updated to reflect a more modest decline of -0.20% versus the -0.30% previously reported. The main driver of the most recent gains was soaring pharmaceutical output which climbed 12.00% in September after experiencing weakness over the summer.

Manufacturing output also accelerated, rising 0.40% compared to the -0.30% contraction reported in August. Production of transportation goods was the major underperformer, sliding -4.30% during the latest measure.  Quarter-on-quarter, industrial output grew 0.60% in the three months ended September. CAC 40 futures are down early Monday, hovering just above the key support at 5350.

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