Commentary on Theresa May s closing speech

Overall, there was nothing particularly market-moving in Theresa May’s speech, at least not until towards the end. In an unexpected move, she said that “change has to come” on monetary policy, saying that low interest rates and QE have only helped those who are asset rich, while people without assets have not benefitted.

She certainly doesn’t mince her words, and since she spoke we have seen a slight uptick in the pound versus both the dollar and the euro, and EURGBP is close to the lows of the day. The FTSE 100 is also off of its lows of the day, although it still remains comfortably above 7,000. This may seem counter-intuitive, but ultra low interest rates are not great for the banking sector, so May’s words could boost this sector and thus the pound and the FTSE 100 at the same time.

Of course, the BOE is independent, so May’s government should not be able to change policy. But her words could be enough to ease some of the downward pressure that has been building on the pound and could be enough to trigger a mini rally, potentially back above 1.28 in GBP/USD.

2-year UK bond yields are also rising on the back of May’s speech, which is also helping the pound. Short-term UK bond yields received an unusual double whammy of good news today: May’s talk about loose monetary policy not lasting forever and a weaker than expected US private sector employment report. The weaker US data is particularly important, if this is a precursor to a weak NFP jobs report on Friday then the pound may well recover into the weekend as the dollar slips.