01/06/2017 - Pound Recovers After Polls Improve for May

GBP

Sterling recovered from its lowest level in more than a month on Wednesday after two surveys showed Prime Minister Theresa May's poll lead in double digits, countering signs she might be set to fall short of a majority in next week's election. Surveys released later in the day by research firms Kantar and Panelbase showed May's lead over the opposition Labour Party at 10 and 15 points respectively, giving the pound some respite.

Bookmakers still put the odds on a Conservative victory at more than 90 percent. The change in the polls is forcing investors to rethink some of the political logic behind the moves of the past month and also ask whether a victory for Jeremy Corbyn's Labour Party could even prove a positive for sterling.

Traditional financial market logic favours right-leaning parties who keep a tighter rein on public spending over those like Labour who tend to tax and spend more. However a Corbyn-led coalition would likely seek a softer deal that kept Britain closer to Europe's single market - while also spending more to stimulate the economy in the near-term  making the medium term impact on the pound a difficult call.

EUR

Italy’s troubled banks may suffer an additional 10 billion euros ($11 billion) in losses from the sale of their bad loans at current market prices, said Ignazio Visco, Bank of Italy governor and ECB governing council member.

“If they were sold at the very low prices offered by the few large specialist debt collection agencies active in the market today, which pursue very high returns, the amount of additional writedowns would be in the order of 10 billion euros,” Visco said on Wednesday at the central bank’s annual meeting in Rome. He pointed out that the country’s troubled banks have 20 billion euros in net bad loans.

Italy is struggling to fix a crisis legacy of about 360 billion euros of soured loans in its banks’ balance sheets that are holding back credit and weighing on the country’s weak recovery. Italian authorities are trying to prop up Banca Monte dei Paschi di Siena SpA and two banks in the northern region of Veneto, using a provision in the EU’s bank-failure rules that allows governments to provide state aid.

While talks for a state backed recapitalization of Monte Paschi, Banca Popolare di Vicenza SpA and Veneto Banca SpA are underway, Visco urged European authorities to coordinate better and faster on the banking crisis.

Key Announcements 

09.30 – GBP: Manufacturing PMI; Forecast at 56.5 against a previous of 57.3
13.15 – USD: ADP non-Farm Employment Change; Forecast at 181k against a previous of 177k
13.30 – USD: Unemployment Claims Forecast at 239k against a previous of 234k
15.00 – USD: ISM Manufacturing PMI Forecast at 54.7 against a previous of 54.8