The nomination of Christine Lagarde for head of the ECB got the market in a stir yesterday, with investors getting their bets in early that she’ll open the easy-money taps again.

European government debt yields moved lower – with France and Germany reaching all-time lows – on the news that Ms Lagarde could move from the IMF to lead the ECB once Mario Draghi’s tenure expires later this year. Her possible appointment draws mixed feelings, with the Telegraph saying it will be a catastrophe – saying her track record is terrible, her positions too inflexible and her experience with monetary policy minimal – whereas others point to her being a great leader and likely to continue a Draghi-esque strategy of throwing money at the problems whilst perhaps having the political leverage to be able to spur governments into structural reforms to address root causes. Perhaps.

If this does come to fruition then the IMF will need a new leader and Mark Carney is being touted as a likely front runner when that race gets going. The timing couldn’t be better from his point of view, as his BoE term is due to expire in January of next year.

The moving and potentially shaking up with these moves could be a good thing, especially in Europe where the old guard seem to be losing the respect of the dressing room.

Staying on the UK: The Tory leadership hopefuls are aiming fresh new policies squarely at those that will vote them in… Jeremy Hunt has promised a review on Fox Hunting bans whilst Boris has gone for perhaps a wider crowd pleasing measure of aiming to recruit 20,000 new police within the next three years.  Boris is still the overwhelming bookies favourite, with odds of 1-10, whilst Jeremy’s set at 6-1.

Labour might want to think twice about calling a confidence vote the moment the next leader gets into power: There’s a Times poll conducted by YouGov that suggests they’d end up fourth in any general election. It’s the Lib-dems and the Brexit party that would get in between Labour and the Tories, which could easily lead to a Tory/Brexit party coalition.


Meanwhile, In America… Trump got back to his market manipulating ways yesterday, calling out Europe and China over currency manipulation.Bloomberg runs an interesting piece that says analysts aren’t ruling out possible intervention by the US in a bid to weaken the Dollar – something that hasn’t been done for years. Trump is likely to find that, like yesterday, his vocal efforts to change the situation won’t work and the likely Fed rate cut later this month won’t work as much as he’d like either – this is a risk they say, because this is when he might take actual intervention measures. We’re not too sure that he would, because as much as he wants American exports to be cheaper, their trade deficit is world leading and price increases their could make for an uncomfortable inflation situation.

The US has gone into their Independence Day holiday with all major indices closing last night at all-time highs. This puts the S&P 500 up 19% year to date and just 5 points off crossing the 3,000 barrier. To put that growth into context, it took the market 16 years to grow from 1,000 to 2,000. It’s added the next thousand points in less than five – No wonder Trump wants more easy money!

Despite the good news in the stock markets, the FT points to the US government bond yield curve still being inverted – which has long been seen as the canary in the coal mine for a recession. The divergence between confidence in the stock markets and confidence in the bond markets can’t continue forever. This is an article worth a read.

With the market holiday in the US, the overnight session has been very quiet and European desk are likely to be pretty thin on the ground too. Sterling still feels at the mercy of the leadership hopefully, with every time someone mentioning  ‘hard Brexit’ and ‘necessary’ in the same sentence the Pound seems to take a knock. 

Have a great day


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