Sterling Surges on U.K. Election Outcome

 
Snapshot: 

        -Sterling surges; 10-year Treasury yield at 2.136%; stock futures edge higher; Nymex crude at $59.17; gold at $1184.10
        -Watch for: April employment report; speech by Fed's Dudley; earnings from Liberty Media, AOL
        News: Investors Pull $2.75 Billion From Junk-Bond Funds in Latest Week; German Industrial Output Undershoots; ECB Bond-Buying Has Boosted Inflation Hopes
        The pound remained at its highest levels in a week on Friday, driven by news that the Conservative Party will likely win the U.K. election, after a night of surprises at the ballot box.
        Sterling surged to $1.5458, and tapped as high as $1.5523 overnight. The pound had been trading around $1.5249 ahead of Thursday's election. An initial jump for the pound came late Thursday as exit polls showed a strong result for the Conservatives. Against the euro, the pound was up 0.4% at $1.3753.
        As the old mantra goes, "markets hate uncertainty," said Louise Cooper, independent analyst at Cooper City, in a note. "[Prime Minister David] Cameron has governed for the last five years and investors know what they are getting with Cameron and [Chancellor George] Osborne. Better the devil you know, and all that," she said.
        With the bulk of results in, the Conservatives look set to win 329 seats in Parliament, giving it a working majority, despite opinion polls that had showed a tighter race and a possible coalition government. The surprise in the election has come after months of pre-election surveys predicting a dead heat. Should the projections prove correct, Cameron is expected to keep his job as prime minister.
        While the election results will remove one source of uncertainty for investors, a Conservative win may raise another over the future of the U.K. in the EU. The Tories have promised to hold an in-or-out referendum on the issue, and analysts have called the threat of a "Brexit" - a U.K. exit from the EU - as a risk.
        In other major forex crosses, the dollar was up slightly against the yen and euro as investors readied for closely watched U.S. jobs data. Against the yen, the dollar was at Y120.05 versus Y119.75 late Thursday. The euro was down at $1.1227 from $1.1266.
        Analysts said if U.S. nonfarm-payrolls data disappoint, the dollar could get hit by selling. Read: Four keys to the April jobs report.
        The ICE U.S. Dollar index, a measure of the dollar's strength against a basket of six rivals, was up 0.1% at 94.729.
        U.S. Treasurys built on the strong gains seen Thursday, with the yield on the benchmark 10-year note falling to 2.136% against Thursday's year-to-date high of 2.305% according to CQG data.
        European debt markets stabilized after a highly turbulent week.
        The yield on the German 10-year government bond, or Bund, stood at around 0.53% in early trade. On Thursday, the yield hit a more-than five-month high of 0.78%, a huge jump from its all-time low of just 0.05% less than three weeks ago.
        "What started as a mild bout of selling in Bunds quickly turned into a generalized government bond market rout," said Thibault Colle, a strategist at UBS. Other strategists added, however, that moves likely would be more subdued Friday as investors look to the U.S. payrolls data to determine their next moves.
        U.S. stock futures pointed higher, but gains were limited as investors waited for all-important nonfarm-payrolls data, which could provide clues for the timing of a potential U.S. rate hike.
        Futures for the Dow Jones Industrial Average rose 27 points to 17,912, while those for the S&P 500 index added 3.3 points to 2,087.50. Futures for the Nasdaq index added 11 points to 4,413.25.
        Wall Street stocks recovered some of the losses from two previous session on Thursday, thanks to a calming down of global bond markets. Gains for overseas stocks helped inspire some positive momentum for U.S. stock futures. The FTSE 100 index surged on news of an expected election victory in the U.K. for Conservatives.
        The next big catalyst for stocks will come at 8.30am ET when nonfarm-payrolls data for April is released. After just a 126,000 rise for payrolls in March, anything less than 200,000 gain may be seen as another letdown. A stronger-than-expected weekly jobless claims report out on Thursday fueled some hopes for improved jobs data Friday.
        Economists polled by MarketWatch are forecasting a gain of 228,000 and a drop in the unemployment rate to 5.4%. Revisions to the March data are also possible.
        "If the U.S. nonfarm payrolls number is an extreme disaster and it delivers the message that the U.S. economy is slowing down due to the absence of QE, then we could see another episode of market correction taking place, which could set the pace for the rest of the month," said Naeem Aslam, chief market analyst at Ava Trade in emailed comments.
        But if the number is weak, but not disastrously so, rate hike expectations are likely to be anchored toward September and cheap money remains available, which should be viewed as good news by markets, he said.
        As well, markets will be watching for hourly wage data. In March, wages expanded at a 2.1% annual pace. Wholesale inventories for March are due at 10am ET.
        Oil prices fluctuated ahead of the latest U.S. job report, which will determine the short-term direction of the dollar.
        As oil is priced in dollars, the currency's swings have a significant impact on oil prices.
        Brent crude for June delivery rose 0.5% to $65.86 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, light, sweet crude futures for delivery in June were trading at $59.17 a barrel recently, up 0.4% from Thursday's settlement.
        Gold climbed by just under 0.2% to $1,184.10 per troy ounce.
        Investors Pull $2.75 Billion From Junk-Bond Funds in Latest Week
        Investors yanked $2.75 billion from funds dedicated to low-rated corporate debt, in the latest sign of nerves about economic headwinds and turbulence in global bond markets.
        German Industrial Output Undershoots
        German industrial production in March was well below forecasts as capital goods output slumped, a further sign that Germany's upswing may not be as robust as previously thought.
        ECB Bond-Buying Has Boosted Inflation Hopes
        The ECB's bond-buying program has stimulated inflation expectations while some oscillation in bond yields can be expected in the future, a central bank official said.
        Chinese Stocks Heading for Biggest Weekly Loss in 5 Years
        Shanghai shares are up for the day, but a bruising three-day selloff still leaves them facing their biggest weekly loss since May 2010.
        China Exports Unexpectedly Fall
        Chinese exports unexpectedly fell in April in the face of weak global demand and a stronger currency, the latest sign of slower growth in the world's second-largest economy.
        Australia's RBA Lowers Growth Forecasts
        Australia's central bank Friday lowered its forecasts for economic growth and inflation over coming years saying uncertainty still hangs over the outlook for the resource-rich economy as it grapples with the end of a decade-long mining boom and a slowdown in China.
        BOJ Minutes Show Board Spurned Kiuchi's Calls to Taper
        The Bank of Japan's toughest inside critic of aggressive easing measures met with stiff resistance from other policy-setters when he proposed slashing the bank's asset purchases at a policy meeting in early April, minutes from the meeting released Friday.
        Write to paul.larkins@wsj.com
        (END) Dow Jones Newswires

        May 08, 2015 06:24 ET (10:24 GMT)

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