Sterling falls to fresh 4-month low; Aussie stocks hit post-GFC highs

Summary:

• Further declines seen in the pound

• Political concerns continue to weigh

• Australian stocks hit 11-year high

There’s been further weakness seen in the pound this morning with the GBP/USD rate falling below the $1.27 handle and in doing so trading at levels not seen since the middle of January. This pair is on course for an 11th drop in the past 12 sessions and even though this move has seen a depreciation of almost 4% the persistence of the decline is perhaps more telling than its size. The FTSE is trading higher by around 40 points at the time of writing as UK stocks look to recover from a soft start to the week with US-Sino trade tensions continuing to weigh on risk sentiment.

The pound is falling once more today with the market in a near constant state of decline in recent weeks. 1.2665 a possible level of support. Source: xStation

Politics remains the key driver of the pound

The decline in sterling appears to have come about from renewed Brexit fears as the market are starting to price in a less favourable outcome. With PM May’s tenure heading into the final stretch it appears unlikely that a last ditch attempt to get her withdrawal agreement through parliament next month will be successful and therefore attention turns to her replacement. The now almost 3 years since the referendum have seen Mrs May attempt to find a near impossible compromise in the middle ground and her exit paves the way for a more extreme outcome; namely no-deal or a second referendum. What happens next is pretty much anyone’s guess but the main concern in the markets remains that the 6-month extension from the EU could well be as far as the bloc is willing to go without a clear change of tact from the UK, and as things stand the default outcome in the absence of an extension would be a no-deal Brexit.    

Australian stocks hit 11-year highs  

While many developed stock markets remain in wait-and-see mode as investors attempt to ascertain what impact the latest trade developments will have going forward, Australian equities are attempting to break higher with the ASX200 rallying overnight to its highest level since December 2007. The benchmark has moved up to its highest level since before the global financial crisis on the back of a surprise election result and an apparent dovish shift from the Reserve Bank of Australia (RBA) with several observers now of the belief that the central bank will cut rates next month. In a similar vein to the FTSE, the domestic stock market in Australia generates a large chunk of its revenues in foreign currencies and with the Aussie dollar languishing close to its lowest level of the year this has provided a de facto boost for investors.       

Australian stocks have surged to their highest level since late 2007 overnight after a couple of dovish messages from the RBA. Some expectation now that the central bank will cut as soon as next month. Source: xStation