Sterling is the big mover first thing as we enter a critical week for world markets.
The pound surged to 2-1/2 year highs against the euro and 7-month highs on the dollar, with traders increasingly confident the ruling Conservative Party will be returned to power with an overall parliamentary majority in Thursday’s UK election.
A swathe of opinion polls over the weekend showed PM Boris Johnson’s Conservatives with a lead of 10 percentage points or more over the main opposition Labour Party, with Monday’s opinion poll by Survation for ITV’s Good Morning Britain showing the gap as high as 14 points.
The buoyancy of the pound mirrored an upbeat start to the week for world markets in general, with the latest incoming economic news positive on balance.
A bigger-than-forecast rise in U.S. jobs last month set the tone on Friday, sending Wall St shares back close to record highs.
Since then, a mixed Chinese trade report for November showed an unexpected drop in exports but a surprise jump in imports – but was read positively as another stabilisation of the economy overall. Japan, meantime, upgraded its Q3 GDP estimate.
Asia’s major bourses were marginally higher on Monday, with U.S. and European stock futures mostly flat.
The lack of net movement reflects the big event risks of the week ahead, with the Dec. 15 deadline for the latest U.S. tariff rises on Chinese goods looming without any agreement yet between the two sides to avert the move despite more optimistic noises at the end of last week.
China’s Assistant Commerce Minister Ren Hongbin told reporters on Monday he hoped the two sides could reach a trade agreement “as soon as possible”.
Before the Dec 15 deadline expires, the Fed’s latest policy decision comes on Wednesday, followed on Thursday by Christine Lagarde’s first meeting as European Central Bank chief and the UK election.
The dollar held much of Friday’s payrolls-related gains going into the new week, with traders eyeing the weekend report from the Bank for International Settlements that identified both the unwillingness of the top four U.S. banks to lend cash and also a burst of demand from hedge funds for secured funding as the main reasons for a recent spike in U.S. money market interest rates.
Even though the Fed has since acted to add additional reserves to the banking system, nervousness about a repeat of September’s jump in rates for securities repurchase agreements, or repos, persists, particularly around the typically illiquid year-end period, and rates for the final day of the year are moving up again.
On the European corporate news front, one hot spot will be the battle for food delivery dominance, with Dutch technology giant Prosus raising its unsolicited offer for Just Eat to 740 pence per share, valuing the company at around 5.05 billion pounds.
M&A is also spicing things up in the pharma sector with Sanofi announcing a deal to buy U.S. firm Synthorx in a cash deal worth around $2.5 billion. Meanwhile Swiss drug maker Roche extended its offer again for gene therapy specialist Spark Therapeutics.
On Friday Austrian sensor specialist AMS said it had succeeded at its second attempt with a 4.6 billion euro bid for Osram.
Tesco’s strategy is under the spotlight after it signalled a further retreat from its once lofty global ambitions by starting a review of its remaining Asian businesses, which could result in a sale of those Thai and Malaysian operations.
And talking about retail, Marks and Spencer got a rating upgrade from Goldman Sachs. Elsewhere, Tullow Oil scrapped its dividends and said its CEO resigned as the company faces issues at its fields in Ghana.
Among British small caps, Amigo shares will be under scrutiny with a management reshuffle.