*China cut reverse-repo rate from 2.55% to 2.5%
*GBP price action leans towards UK Conservative majority
*European banks lag rest of the world but seem to be on the improve
Markets buy into surprise China cut
Taking stock of Asia price action, it was modest with G10 FX and equities marginally risk-off across the board. ASX Cash dropped -0.4% and was down 27pts on the open. Risk however has since steadied off the back of China’s unexpected cut to its 7-day reverse repo rate – a short-term funding cost – from 2.55% to 2.5%. This marks the first reduction made since October 2015 and builds on the PBOC’s recent trim to the medium-term lending (MLF), used by banks for longer-term funding needs. EURUSD and GBPUSD are high beta in early European trading up 0.10% and 0.20% respectively. Given that Monday’s calendar looks negligible, China’s unexpected cut could help lean risk sentiment positive for most of today’s European trading. We also expect the PBOC to make a third cut to its LPR rate later this week.
Conservative majority looking more likely
GBPUSD made a move back above 1.29 late Friday after UK election headlines hit the wires once again. This time, the Brexit Party announced it would stand down from 43 non-Conservative seats. We noted previously that developments out of the Brexit Party reduced the risk of a No Deal Brexit; markets appear to be treating this news in a similar fashion. Markets are pricing in a strong likelihood that Conservatives…