US indices eye more record highs

October 5, 2017 09:40 AM

Are we on course for a perfect week for U.S. indices? GBP lower on speculation over Theresa May’s position; four Fed policy makers scheduled to speak; ECB minutes get a muted response.

U.S. futures are indicating a slightly higher open on the financial market on Thursday, as indices target a fourth consecutive record close this week.

Sterling is coming under pressure again this morning following speculation that Theresa May’s position is increasingly under threat following yesterday’s shambolic speech at the Conservative party conference. A change of leadership so soon after the election and just as Brexit talks appear to be making some progress may seem like a ludicrous idea but a leadership challenge has been brewing since the disastrous election campaign and yesterday was just the icing on the cake.

It seems more a matter of when rather than if a challenge will come. You get the feeling that those below her gunning for her job are simply biding their time, waiting for the opportune moment rather than fully throwing their support behind her. Naturally, all of this uncertainty is not good for the pound, especially as a change of leadership will likely alter the direction of the Brexit negotiations which have already progressed at a much slower pace than hoped.

The pound will likely remain in focus today, with speeches from Bank of England policymakers Ian McCafferty and Andy Haldane still to come. While McCafferty is a known hawk and already in favor of raising interest rates, Haldane has previously sided with the majority but has shown a willingness to jump ship. Should we indicate today that he’s tempted to do so at the November or December meetings, we could see the pound rally once again.

We’ll also hear from four Federal Reserve policymakers throughout the course of the day, including one of the leading candidates for the Fed Chair post, Jerome Powell. With the Fed having indicated at the last meeting that it still intends to raise interest rates again this year, it will be interesting to hear whether the data since then has changed this view or whether the same still applies. Jobless claims, trade data, and factory orders make up today’s economic releases, although traders will be more focused on tomorrow’s jobs report.

The ECB minutes from the last meeting received a somewhat muted response in the markets. The minutes effectively reiterated points already made in the statement and during Mario Draghi’s press conference, including how they will manage the QE programme beyond the end of the year – albeit without any indication of what the preferred method is – and a reference to the difficulty that the FX rate poses. The lack of a reaction is unsurprising as the minutes were quite clearly carefully worded to generate such a response and leave little to be interpreted, or more importantly, misinterpreted.

About the Author

Craig Erlam is senior market analyst at OANDA who also writes for OANDA’s Market Pulse site, Marketpulse.com.