Macro Commentary

The most important election for a generation has resulted in a huge Conservative majority. The margin of the win was very much at the top end of expectations, with a strong turnout across the country.

As expected, this has led to strong gains in sterling as the political uncertainty becomes greatly reduced.

In the US, the central bank kept policy on hold this week, and indicated they would remain on hold throughout 2020, insisting the US economic outlook remains favorable.

In Europe, the ECB also kept monetary policy on hold yesterday as expected, in the first meeting under new chair Lagarde.

On the exchanges, sterling has rallied strongly across the board.

GBP/USD initially hit 1.3500, before settling back to 1.3400. There is strong buying interest now building at the psychological 1.3200 level.

GBP/EUR initially pushed up towards 1.2100, a level not seen since the 2016 referendum. There are some corporate selling orders above this level so we may see some consolidation here for now, with good support building at 1.1800.

There is a huge amount of UK data out next week, and though this will be skewed by the election build-up, it will of course add to the volatility, especially with the holiday reduced liquidity.

GBP/USD – 1-year chart

Week ahead

Date Release Last Expected*
16/12/19 UK Markit Manufacturing PMI SA 48.9 49.1
16/12/19 UK Markit/CIPS Services PMI 49.3 49.6
16/12/19 UK Markit/CIPS Composite PMI 49.3  49.5
17/12/19 UK Average Earns. 3M/YoY 3.6%  3.4%
17/12/19 UK Unemployment Rate 3.8% 3.9%
18/12/19 UK CPI YoY 1.5% 1.5%
18/12/19 UK RPI YoY 2.1% 2.1%
18/12/19 EU CPI YoY 0.7% 1.0%
19/12/19 UK Retail Sales YoY 3.1% 2.6%
19/12/19 UK Bank Rate 0.75% 0.75%
20/12/19 UK GDP YoY 1.0% 1.0%

*Bloomberg survey

Equity Indices

Indices Previous Close YTD % Change
FTSE 100 7382 +9.80%
S&P 3168 +26.40%
EUROSTOXX 3754 +25.16%
DFM GENERAL INDEX 2722 +7.59%

Foreign Exchange

Currency Last Currency Last
EUR/USD 1.1175 AUD/USD 0.6925
GBP/USD 1.3400 USD/AED 3.6730
GBP/EUR 1.1990 GBP/AED 4.9220
USD/CHF 0.9825 EUR/AED 4.1040
USD/JPY 109.60 XAU/USD 1473

UK Benchmark Rates

Libor   Swap Mid  
3 month 0.77863% 2 year 0.82%
6 month 0.85100% 3 year 0.83%
12 month 0.95313% 5 year 0.87%

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