European stock markets traded higher on Monday as investors look ahead to a key (aren’t they all?) European Central Bank meeting this week and another key (!) US CPI inflation report. Brent oil rose above $120 despite OPEC+ agreeing to a larger-than-normal production increase for July and August. British Prime Minister Boris Johnson faces a no-confidence vote – will the Tories have the stomach to depose their leader, or will they stick to a man who has become an election liability?
The FTSE 100 rallied 1% in early trade with oil majors Shell (LON:RDSa) and BP (LON:BP) driving gains. There’s not much by way of company updates this morning, mirroring a rather dull day for economic updates. Shares in Frankfurt and Paris were up a similar margin, whilst US equity index futures pointed higher in the wake of another losing week. Asian markets were mixed with some slightly more positive economic news from China as the Caixin services PMI rose to 41.4 from 36.2 in April…but still in contraction territory.
The S&P 500 fell 1.6% on Friday despite strong jobs numbers, leaving it down 1.2% for the week. Nonfarm payrolls showed a healthy 390k jobs added in May, and wage growth continued at +0.3% for the month. The solid report, which shows the labour market remains very tight, only underlined the reality that the Fed is driving things now it is hellbent on defeating inflation. On that front, this week’s CPI report will be of particular importance for the market. Tech fell hard as yields picked up following the jobs report. Tesla (NASDAQ:TSLA) resumed its slump, dropping by 9%. Apple (NASDAQ:AAPL) and Meta both dropped about 4%, whilst Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) declined around 2.5%.
Oil – Brent rose above $120 a barrel, its highest in three months, as Saudi Arabia raised selling prices for July despite OPEC and allies agreeing last week to increase production more than planned. OPEC+ had announced last week it would raise production by 648k barrels in July and August, about 50% more than originally pencilled in. It suggests the market remains exceptionally tight and participants are unimpressed by the extent of the increase by OPEC.
BoJo to go-go? A vote of confidence will be held by Conservative MPs from 18:00 to 20:00 BST. If 180 rebels vote for him to leave there will be a leadership election and he won’t be on the ballot. I’m not convinced there is much for the market here – it’s not Corbyn on the other side of the benches this time. UK bond yields did pop higher, with the 10-yr gilt yield rising to an eight-year peak, and sterling jumped on the news…no idea why that might be except maybe the market has lost confidence in the PM even if his own party hasn’t yet. Should note that the dollar is offered this morning as risk is bid, though the pound did also rally against the euro.
But I don’t see how he can survive for much longer – either today or once the Tories get beaten in the Wakefield and Tiverton and Honiton by-elections this month. There is a definite question about why the rebels have moved early instead of waiting for the trouncing the Tories will be get in those contests…whips doing whip stuff like encouraging rebels to send letters early? If a confidence vote were held the day after wipe-out in Wakefield and Devon BoJo wouldn’t stand any chance, so the timing looks like it’s been coordinated by the whips and Number 10. Technically, if BoJo survives today’s vote he cannot be challenged for another year, but rules are made to be broken…(1922 chairman Brady this morning hinted they could alter the rules). Even if the party knows there is not a true successor to BoJo to fill the vacuum the question is whether they are so scared of Partygate on the doorstep that removing him is the only course of action. Even with the vote taking place today, opposition against has been growing among moderate MPs and his chances of survival seem low, perhaps one in five. Remember it’s a secret ballot so take with a pinch of salt all those saying they’re backing him.
Nice little pop for cable on the confidence vote news…but worth noting that EUR/USD also trades firmer against a broadly weaker greenback as risk is bid. A better gauge might be EUR/GBP, which has fallen to last Friday’s lows as some bod comes through for sterling this morning.
GBP/USD Chart
