Summary:
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GBPUSD near 3-month low as politics continue to weigh
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Thomas Cook shares fall 17%
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Trump sends mixed messages on trade
There’s been more weakness seen in the Pound this morning with the currency dropping to fresh 3-month lows against the US dollar as political uncertainty continues to weigh heavy. Theresa May is set to meet the 1922 committee just before lunchtime when she is expected to be asked to name her departure date from number 10 or else face another confidence vote next month. Tory party rules currently prohibit more than one leadership challenge per year, but there is growing pressure to change these rules given the widespread and thinly veiled discontent at the PM due to her handling of Brexit. As far as currency traders are concerned, the removal of May would be negative for the pound as her replacement would likely be more hardline on Brexit and increase the risk of a no-deal outcome.
GBPUSD has drifted lower in recent trade with the past 3 sessions showing 3 sizable declines. Price is now at its lowest level since February. Source: xStation
Thomas Cook shares plunge
There’s been a sharp move lower in Thomas Cook shares this morning, with the stock tumbling as much as 17% after the firm delivered a pretty worrying trading update. A large pre-tax loss of £1.5B for the 6 months to March was largely due to a £1.1B writedown related to its 2007 merger with MyTravel, but perhaps even more concerning to investors is the forward guidance with the tour operator warning of “challenging” trading conditions ahead. While Brexit uncertainty clearly isn’t helping matters there’s more at play here with the real crux of the problems relating to the outdated business model that has failed to adapt to changing market conditions. The stock has now lost more than 80% in the past year and the debt markets are starting to get jittery with the firm’s ability to continue as a going concern being openly questioned.
Trump sends mixed messages on trade
Reports Wednesday afternoon that US president Trump would delay a decision on auto tariffs by up to 6 months caused a swift move higher in global stock markets, with the German Dax in particular reacting positively to the news due to its sizable weighting of carmakers. However, not too long afterwards Trump delivered a note of caution to those who believed the delay marked a turning point in the recent escalation of trade tensions as he declared a national emergency to protect US computer networks from “foreign adversaries”. While it doesn’t mention them by name, the move is likely aimed at Huawei with the Chinese tech giant facing the brunt of national security concerns not just in the US but also here in the UK. This capped any overenthusiasm in the markets from the auto tariff news but on balance the latest developments do appear to be more positive for stock markets and they could now be well placed to recover some of the losses seen in recent weeks.
