Daily Market Update: Obama gives boost to the UK ‘stay’ campaign
Sterling continued to strengthen against both the dollar and the euro yesterday, with concerns around Brexit easing after U.S.
President Barack Obama voiced his support for Britain to stay in the E.U. Data released by betting website Betfair showed the probability of the UK remaining in the EU is now the highest it has been since last September, with the likelihood of a Brexit deemed to have fallen from 37% this time last week, to 27%. This move has been largely attributed to Obama’s support, who said on Sunday that if Britain were to leave the EU, it may take a full decade before a free trade deal with the U.S. could be agreed.
In the United States, new home sales slipped 1.5% m/m to a 511,000 annual rate in March— slightly below consensus (520,000). However, sales in earlier months showed a net upward revision of 23,000. The new home sales data are a notoriously volatile series, so it is unwise to make too much of monthly movements. Smoothing through the volatility, sales for Q1 as a whole averaged 517,000 units, up from 509,000 in Q4 2015, and were up 5.4% from a year ago. Anecdotal reports continue to suggest sales would be higher if not for the continued reported lack of inventory, supported by a 5.1% surge in second hand home sales. Meanwhile, another recent housing demand indicator, weekly mortgage applications, have suggested a pickup in sales activity heading into the key spring selling season. The April Dallas Fed Manufacturing index was -13.9 after -13.6 in March.
However the underlying statistics improved, with new orders in positive territory for the first time since November. The US data and event calendar is somewhat back-loaded this week, as the major events include the FOMC decision on Wednesday, the first estimate of first quarter GDP growth on Thursday, and price inflation (PCE deflator) and wage inflation (ECI) figures on Friday. But today ahead of those events, durable goods orders and shipments will provide an update on business investment and is one of the final indicators released, along with the March preliminary goods trade balanced, that will factor into the first quarter GDP estimates.
In the E.U., Greece and its creditors resumed discussions yesterday over its bail out progress and reforms required in order for it to access €5 billion of financial aid. These reforms include pension and tax amendments, plus additional measures that could be implemented in the event it misses budget targets set out in Augusts bail out programme. These would only be brought in if the primary budget surplus target of 3.5% of GDP by 2018 is not likely to be hit. Implementing any additional cuts will be difficult for the government who has only a fragile parliamentary majority and was re-elected last year on the basis of promises to reduce the impact of austerity.