Markets Update

U.S. job growth surged more than expected in June and employers increased hours for workers, with signs of a labor market strengthening that is likely to keep the Federal Reserve on course for a 3rd interest rate increase this year, despite lackluster inflation. Non-farm payrolls increased by 222,000 jobs in June beating expectations for a 179,000 gain. Data for April and May was revised to show 47,000 more jobs were created than previously reported. US unemployment rose to 4.4%, from a 16-year low of 4.3%, because more people were looking for work; a sign of confidence in the labor market. The jobless rate has dropped 0.4% this year and is close to the most recent Fed median forecast for 2017.

UK data released on Friday showed output by British factories unexpectedly fell in May, indicating that the UK economy has struggled to gain any momentum after a slow start to 2017 and further raising questions about the likelihood of the Bank of England raising interest rates this year. Markets were expecting an increase of 0.5% in Manufacturing Production (MoM) but were surprised with a very poor reading of -0.2%. GBPUSD reacted immediately dropping from 1.2955 to 1.28664 (-0.7%) whilst EURGBP climbed from 0.87964 to 0.88602 (+0.55%). GBPUSD is currently trading around 1.2905 and EURGBP around 0.8840.

The G20 meeting in Hamburg over the weekend had little to no impact on the markets. The highlights were the first-time meetings of Trump, Putin & Xi Jinping. The general undertone was that this was the G19 plus 1 meeting as the US was not a particularly welcome attendee.
USDJPY initially dropped by 0.6% on Friday, to trade as low as 113.148, before rebounding higher following the NFP to reach a high of 114.176 – a 0.8% increase on the day. In early trading USDJPY is around 114.15.

EURUSD had a similar story reaching a high of 1.14393 after the data release before retracing down to a low of 1.13791 a relatively small loss of 0.2% on the day. Currently EURUSD is trading around 1.1410.

Gold had heavy selling pressure, dropping 1% on Friday to trade as low as $1,207.17 – close to a 4-month low. Gold is down over 1.6% on the week resulting in its worst performance since May. Currently Gold is trading around $1,212.

WTI closed down 4% on the week as the decline in US inventories did not convince traders that global production was anywhere near rebalancing. On Friday WTI traded down 1.8% to hit a low of $43.88pb. Currently WTI is trading around $44.65pb.

Today & Tomorrow is light on impactful economic data releases – traders are focusing on Wednesday July 12 when, at 09:30 BST, the UK will release its Average Earnings Index followed, at 15:00 BST, by the Bank of Canada interest rate decision and Fed Chair Yellen’s Testimony.

Cheerio,

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

 

People Getting Serious About Marijuana

The taboo’s about even discussing the green weed have slowly relaxed over the last decade. It’s medical benefits have long been lauded despite the obvious stigma.

Imperial Brands Plc gained the services of a leader in the field of medicinal cannabis as the British tobacco manufacturer seeks to further its push beyond cigarettes.

Simon Langelier, a 30-year veteran of Philip Morris International Inc., joined the board as a non-executive director this week, the Bristol-based company said in a statement Tuesday.

Langelier is chairman of PharmaCielo Ltd., a supplier of medicinal-grade cannabis oil extracts. He joined the Canadian-based company in 2015 after a career at Philip Morris that included heading up the next-generation products unit from 2007 to 2010. Imperial stands to benefit from his experience in tobacco and “wider consumer adjacencies,” Chairman Mark Williamson said in the statement.

About 18 months after jettisoning the word “tobacco” from its name, the appointment advances Imperial Brands’s efforts to move beyond its main product, as smoking rates in developed nations dwindle. While focusing on e-cigarettes, Imperial previously resisted another alternative to cigarettes — heated tobacco devices, but that stance could be easing. Philip Morris’s main reduced-risk product is a heated tobacco device called iQOS.

In May, Imperial’s Chief Development Officer Matthew Phillips said the company was assessing whether demand for heated-tobacco devices would pick up outside of Japan, where iQOS has captured 7.1 percent of the country’s cigarette market since its launch in 2015. The company could have a product on the market within months, if needed, he said.

“Imperial’s one-pronged strategy in next-generation tobacco isn’t particularly wise,” Eamonn Ferry, an analyst at Exane BNP Paribas, said by phone. “It’s sensible that they appear to be now softening their stance on heat-not-burn, given the success of the format in Japan.”

At Philip Morris, Langelier established a joint venture for the worldwide commercialization of the company’s smoke-free products.

His experience at PharmaCielo will be beneficial in helping Imperial eke out opportunities should marijuana be legalized at the federal level in the U.S., Ferry said. The expertise tobacco firms have in crop farming and distribution has spurred speculation that they may eventually seek to enter the cannabis market. Cowen & Co. estimates the U.S. part of the industry will surpass $50 billion in sales this decade.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

UK Election : What Could It Mean To You.

U.K.’s citizens have just voted their next set of Parliament members.

What were the results and why should traders care? Here are a couple of answers:

Why did Theresa May call for snap elections anyway?

Back in mid-April, Prime Minister Theresa May called for a snap election despite her promises to wait for the May 2020 scheduled elections. The plan was to capitalize on her (and her party’s) popularity and strengthen their numbers ahead of the crucial Brexit negotiations.

Back then the Conservative Party held 330 seats, just a smidge above the 326 required to form a majority in the 650 seats of the Lower House. The Labour Party came in second (229 seats), followed by the Scottish National Party (54) and the Liberal Democrats (9).

The pound rallied at her announcement as market players and their cats had bet on a landslide win for the Tories, with polls attributing double-digit leads against the next party.

Did May’s gamble pay off?

Not even a little bit. In the weeks that followed, May’s hard stance on Brexit, two terror attacks in the U.K., a few REALLY unpopular bits in the Conservative Party manifesto, and hard campaigning from her opponents have pulled the Tories’ lead down to uncomfortable levels.

Fast forward to Election Day and now May’s party has…more regrets than seats in the Parliament.

With a voter turnout of 68.7% – the highest since 1997 – and only one more constituency left undeclared, Theresa May’s Conservative Party is expected to snag 318 seats in the Parliament, 12 fewer than when she called for the elections.

The Labour Party is expected to get 261 seats (+31 seats) while the Liberal Democrats (12) and Democratic Unionist Party (10) also added to their numbers. The Scottish National Party (35) also lost seats, though.

What does this mean for the government?

In a word, trouble. With no party reaching parliamentary majority, the U.K. officially has a “hung Parliament.”

Basically, having a hung Parliament means that it will be harder for the MPs to reach decisions. But as leader of the party with the most seats, May will be given a choice if she wants to (a) form a coalition or (b) run a minority government.

Forming a coalition means teaming up Survival-style to get the required 326 votes. In this scenario the Tories would sign a formal coalition as PM David Cameron did with the Liberal Democrats in 2010. The Tories would have to give up control, though, and likely give Cabinet positions to the other party.

Or they could choose to run a minority government and enter into “confidence and supply” agreements, wherein a small party or independent MPs will “supply” their votes on bills and “confidence” votes in exchange for progress for their pet causes.

What does this mean for Brexit negotiations?

More trouble. Remember that May wanted to reinforce their numbers to improve her bargaining position with the EU and increase chances of a “good deal” for Britain. If you recall, she has said that “no deal is better than a bad deal.”

But with the Conservative Party not even getting majority, things just got a lot harder for May. Not only does she have to soften some of her stances (not all Tories are in favor of a hard Brexit), but she might have to scrap some of her plans altogether.

The lack of majority could also lead to delays in the Brexit negotiations. Formal talks was scheduled to start on June 19 but already EU’s Chief Brexit negotiator Michel Barnier tweeted:

“Brexit negotiations should start when UK is ready; timetable and EU positions are clear. Let’s put our minds together on striking a deal.”

Recall that Britain has already officially triggered Article 50 of the Lisbon Treaty. This means that they have two years to negotiate their way out of the EU. Tick tock.

Any other surprises?

As you can see on the chart above, Nicola Sturgeon’s Scottish National Party also lost bigly. More importantly, Alex Salmond – Sturgeon’s deputy, mentor, and a key SNP member, has lost his seat in Gordon.

This means that we won’t see a second Scottish referendum anytime soon. Already Sturgeon has shared that she would “properly think” about whether to press ahead with Referendum 2.0 after the Tories enjoyed their best performance in Scotland since 1983.

Nick Clegg, THE leader of the Lib Dems in 2010 and former Deputy Prime Minister, also lost his seat in Sheffield Hallam to Jared O’Hara of the Labour party. Yikes!

How did the markets react?

The pound took its hardest hit when exit polls – which have been good predictors of actual results – pointed to a hung parliament.

The currency also dropped by its sharpest since the EU referendum and made new lows while the final tallies were shaping up. However, it also saw retracements at the start of the London session.

FTSE 100, which includes companies that would profit from a weaker pound, opened higher today. Meanwhile, FTSE 250, which has more local companies, are marginally lower on the day.

It’s also interesting to note that utilities companies are among the biggest winners today. One possible reason is that the lack of majority would mean that the Labour Party won’t likely push through with nationalizing them while Theresa May can’t cap their bills either.

What now?

PM May revealed that she has seen the Queen and has formally asked permission to form a government.

Apparently, she’s now teaming up with the Democratic Unionist Party (DUP) to form a coalition in time for the start of Brexit negotiations AND the opening of the new Parliamentin 10 days.

Thing is, the DUP isn’t a fan of a “hard Brexit.” DUP founder Arlene Foster once shared that “No one wants to see a hard Brexit,” adding that “no one wants to see a hard border.”

This means that, unless May convinces Foster and her gang to come over to the “hard” side, then we’ll likely see a toned down version of May’s initial Brexit plans.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

UK OK ?

The U.K. could suffer another ratings downgrade after a General Election led to a hung parliament, Moritz Kraemer, sovereign chief ratings officer at S&P Global, said on Friday.

The U.K. lost its triple A rating after the country voted to leave the European Union in June of last year. S&P said at the time that it was worried the decision would lead to a deterioration of the U.K.’s economic performance and institutional framework.

Kraemer said on Friday that the latest election outcome proves the rating update was correct and further ones could be on the way.

“We have the outlook on the ratings still on negative indicating that further downgrade or downgrades could be in the wings going forward,” he said.

“This depends pretty much on the further outcome of the Brexit negotiations and the reality that the U.K. will face outside the EU, which is still uncertain,” Kraemer added.

Brexit talks, which were due to begin in a couple of weeks, are set to be delayed until the U.K. has a new government in place. The associated uncertainty could hurt the country’s economy by further derailing investment decisions.

Kramer noted that this was the second unnecessary referendum/election in the U.K. “This is quite a track record,” he said.

The upcoming decisions of U.K. lawmakers will be closely watched. Kathrin Muehlbronner, a Moody’s senior vice president and lead U.K. sovereign analyst, said via email: “Moody’s is monitoring the U.K.’s process of forming a new government and will assess the credit implications in due course.”

“As previously stated, the future path of the U.K. sovereign rating will be largely driven by two factors: first, the outcome of the U.K.’s negotiations on leaving the European Union and the implications this has for the country’s growth outlook; Second, fiscal developments, given the country’s fiscal deficit and rising public debt,” she added.

The outcome of the election also seemed to indicate that voters are tired of austerity policies.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Short Pound

The pound is heading lower whatever the outcome of the U.K.’s elections, according to BlueBay Asset Management.

While the currency has rallied since the election was called, BlueBay began selling sterling last week, betting that the U.K. is set for a damaging Brexit process after the vote. Such a view chimes with Allianz Global Investors who recently used the rally in the pound to short it, and the median forecast of analysts in a survey, who see the pound declining about 3 percent by the end of 2017.

“We’ve literally gone short the pound at the end of last week,” said Mark Dowding, a fund manager at BlueBay, which oversees $55.5 billion. “We think you’re going to be facing a Brexit that to us looks like it’s going to be a hard Brexit.”

The pound, which tumbled following the U.K.’s decision to leave the European Union last June, has pared some of those losses as investors speculate that the earlier vote will ease pressure on U.K. Prime Minister Theresa May. The Conservatives are currently expected to comfortably win the June 8 snap elections with a large majority in Parliament.

Sterling reached a nine-month high of 1.3048 on May 18, and was at $1.2971 as of 12:06 p.m. in London on Tuesday. Even after rallying 5 percent in 2017, sterling remains about 13 percent weaker since the Brexit vote last June.

“There’s been this optimism in markets that a really big majority may actually strengthen Theresa May’s hand and make life a lot easier,” said Dowding, who predicts sterling could retest $1.20 toward the end of the year — an 8 percent decline from the current levels. “I’m not really sure it will make too much difference in practice.”

Tough comments from both sides of the negotiating table signal a choppy path ahead. Bundesbank board member Andreas Dombret said Tuesday divorce proceedings would likely be hard or very hard. Those comments came shortly after Brexit Secretary David Davis said the U.K. will walk away from talks unless the bloc drops its high financial demands.

“The most significant point that we would make on the U.K. is that, based on our discussions around Westminster and our discussions around Brussels, it feels that the deal that U.K. politicians think they can achieve seems an unrealistic pipe dream,” Dowding said.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

UK Oil

BP started a project in the U.K. North Sea that will restore production halted since 2013 and help double the company’s output in the area by the end of the decade.

BP and its partners budgeted 4.4 billion pounds ($5.7 billion) for the Quad 204 project, which involved building a new floating production and supply vessel and redeveloping the aging Schiehallion and Loyal fields. Output from Quad 204 will ramp up to 130,000 barrels of oil a day this year, the London-based company said in an emailed statement Monday.

The producer plans to double its U.K. North Sea output to 200,000 barrels of oil equivalent a day by 2020, the company said. Volumes from the region, one of the world’s most expensive areas for finding and extracting oil, have shrunk in the past decade as older fields deteriorated and exploration spending dropped with crude’s three-year decline. BP partner Royal Dutch Shell Plc said earlier this year that it was selling a majority of its North Sea positions.

Among those divestments, Shell agreed to reduce its interest in the Schiehallion field, where it owns a 55 percent stake, while BP has 33 percent and Siccar Point Energy 12 percent. Once the deal is completed, Shell will hold 45 percent.

The Schiehallion and Loyal fields stopped production in 2013 as the sites needed redevelopment, new wells, replacement of infrastructure on the sea bed and a new production vessel. The new ship, the Glen Loyal, is 36 percent owned by BP, which is the operator, 54 percent by Shell and 10 percent by Siccar Point. The partners intend to drill 20 new wells there.

BP’s shares rose as much as 0.8 percent and Shell’s B shares added as much as 0.7 percent in London trading, in line with the gain in the Stoxx Europe 600 Oil & Gas index.

Quad 204 is the third of seven new projects BP plans to start this year. The company will restore its total oil and natural-gas production to about 4 million barrels a day by the end of this decade, a level it was at before the disastrous Gulf of Mexico oil spill in 2010 forced it to sell a third of its assets, Chief Executive Officer Bob Dudley said May 17.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Forex Trading Update

We ended up last week with softer than expected April US retail sales and consumer prices. As a result, the US Dollar, which had had a very good week, gave back almost half of its gains of the week.

By the time you are reading this, our week of trading will have already started. Retail sales q/q for New Zealand was out late last night and beat the forecasted figure by 0.4%. Retails sales rose 1.5% against estimate of 1.1% on Q1. China Industrial Production was out at 3am as well and that was y/y release.

Today should be a typical Monday with no news. Traders coming back to their desks and assessing what happened over the weekend and preparing their week ahead. We should experience thin liquidity thanks to no important Fundamental Events happening throughout the day. We only have Theresa May who is Due to participate in Facebook’s Live Q&A hosted by ITV News, via satellite;

Due to Brexit talks which are going not so well at the moment plus a General Election in the UK on June 8th, this speech should affect the British Pound in the morning as investors will have their eyes and ears plugged on any clues the UK Prime minister may give on her plans for Brexit negotiations and the future of the country.

The British Pound is one of the Major currencies which should be most affected this week with CPI Y/Y on Tuesday, Average Earnings Index3m/y on Wednesday and Retail Sales m/m on Thursday. All being released @ 9:30 GMT on their respective days.

France has now its new president Emannuel Macron who was sworn as President yesterday with the difficult task of transforming electoral success into political strength in a society tormented by unemployment and divided by anger.

There is not much to say in terms of fundamentals as the bigger picture haven’t changed much in the past few weeks and the market is quite indecisive at the moment. It looks like the summer doldrums may be starting to have its effects . For the time being the biggest mover is the USD/JPY and that could easily be a “buy the rumours sell the news” run fuelled by the idea that the FED will hike next month at its next meeting.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.