GBP: Sterling Under Pressure As Tory Rebellion Continues
Sterling marginally underperforms its G10 peers in early Asia-Pac trade, as the UK political turmoil escalates and a flurry of ministerial resignations continues, with Boris Johnson facing mounting pressure to quit.
- Welsh Secretary Simon Hart has just become the third Cabinet member to step down, while Health Minister Edward Argar has also just resigned, which comes after Levelling-up Secretary Michael Gove was sacked for "disloyalty."
- Cable last deals at $1.1921, a touch lower on the day, after lodging new two-year lows on Wednesday. Next support is at $1.1876, which limited losses Wednesday, followed by $1.1846, the 0.764 proj of the May 27 - Jun 14 - 16 price swing.
- Short-end GBP/USD implied volatilities keep rising in the Tokyo morning, but are yet to test overnight highs.
- EUR/GBP last seen at GBP0.8542, tad higher at typing. Focus turns to the 50-EMA/yesterday's low of GBP0.8536/0.8533. A break here would expose Jun 9 low of GBP0.8486.
- GBP/JPY last trades at Y161.97, down 15 pips on the day, with bears looking for a sell-off past Jun 16 low/round figure of Y160.01/160.00.
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AUSSIE 10-YEAR TECHS: (M2) Edges Off Recent Highs
- RES 3: 97.455 - High Mar 18
- RES 2: 97.185 - High Apr 5
- RES 1: 96.945 - High Apr 26 and key short-term resistance
- PRICE: 96.485 @ 15:27 BST Jun 06
- SUP 1: 96.330 - Low May 10
- SUP 2: 96.200 - 3.0% Lower Bollinger Band
- SUP 3: 96.124 - 0.5% 10-dma envelope
Aussie 10yr futures are drifting away from recent highs. This keeps the primary trend pointed down. MA studies continue to highlight a bearish backdrop and recent weakness has maintained a bearish price sequence of lower lows and lower highs - the definition of a downtrend. A resumption of weakness would open 96.200 - the 3.0% lower Bollinger Band as well as 96.124. Key short-term resistance remains at 96.945, the Apr 26 high.
AUD: A$ Outperforms Safe Havens, RBA In Focus Today
AUD/USD couldn't sustain gains above 0.7200 post the Asia close, as US yields surged. We finished the NY session sub this level and open this morning around 0.7195. The A$ did outperform safe havens JPY and CHF though.
- To recap, US yields spiked overnight, the 5 and 10yr yields now above 3.00%, while the 2yr rose over 7bps to 2.73%. This has unwound much of the recent improvement in AU-US yield differentials. The 2yr spread is back into negative territory notwithstanding some likely catch up from AU yields today.
- The signals from equities were positive, US and EU equities posted gains, while the VIX index was relatively steady. AUD/JPY pushed higher closing in on 95.00, we open this morning at 94.90.
- Aggregate commodity indices were higher, with oil largely tracking sideways, while iron ore grinded higher to $144/tonne.
- Today all the focus is on the RBA decision. Presumably a 40bps hike will induce some A$ strength as futures pricing has edged lower at the start of this week. For June the futures settled below 0.63% yesterday, down from last week's highs of 0.66%.
- The Bloomberg consensus is for a 25bps move, which would take the cash rate to 0.60%. For our full preview please see this link.
UK: Johnson Urges Party To Move On After Surviving No-Confidence Vote
UK PM Johnson says the government and the Conservative Party can now come together to "do our job" after a vote to oust him as Tory leader yielded a "convincing and decisive" result.
- Johnson survived a no-confidence vote held Monday evening as 211 Tory MPs backed him, while 148 voted to remove him as party leader. The result was towards the upper end of the rebels' expectations.
- The Prime Minister said he was "certainly not interested in snap elections," adding that "what I'm interested in is delivering for this country" as he called for unity.
- Under the existing rules, Tory MPs cannot call another vote of no confidence for a year, although Sir Graham Brady, who oversees the process, conceded that amending the rules is "technically" possible.
- Although Johnson managed to withstand the challenge to his leadership, the result leaves him considerably weakened and is testament to deep divisions within the Conservative Party.
- Historical records speak against Johnson's claims of a "clear win." Previous Conservative leaders who survived no-confidence votes (Theresa May, John Major and Margaret Thatcher) were gone soon afterwards.
- The Prime Minister will now lead his party to by-elections in Wakefield and Tiverton & Honiton, where the Conservatives are expected to suffer a humiliating defeat, which may further damage Johnson's position.
