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● Sterling holds near six-month high while UK stocks again under pressure
● Dollar index below 100 and Treasury yields sub 2.20 per cent as Trump trade fades
● Brent below $55 a barrel and gold pulls back from five-month peak

UK assets remain in focus after prime minister Theresa May called a snap general election for June 8.

The pound, which surged on Tuesday, amid hopes Mrs May can secure a bigger parliamentary majority that will help her snag a softer Brexit deal, is holding most of those gains.

The strong pound is weighing on the UK’s blue-chip equity barometer. The FTSE 100, replete with foreign currency earners, is down 0.2 per cent after slumping 2.5 per cent on Tuesday, its worst session since last year’s Brexit result.

What to watch
The eurozone’s final March inflation report is due for release at 10:00 BST, with analysts expecting the annual rate to stay at 1.5 per cent.

Core inflation, which removes volatile food and energy prices from the calculation, is forecast to dip from 0.9 per cent to 0.7 per cent, and such a move may encourage the European Central Bank to maintain for longer its ultra-loose monetary policy.

Ahead of the data — which is delivered alongside the bloc’s trade balance for February — the euro is dipping 0.2 per cent to $1.0715 and the 10-year German Bund yield is little changed at 0.17 per cent, near its lowest since November.

Equities
Stock markets are struggling to recover their bullish momentum in the light of a so far lacklustre US first-quarter earnings season.

Figures released early on Tuesday by Goldman Sachs and Johnson & Johnson were not well received. And after the market closed, IBM also delivered numbers that didn’t go down too well, causing shares in “Big Blue” to pull back.

US index futures suggest the S&P 500 will open at 2,244 later in New York, recovering just 2 of the 7 points lost in the previous session and leaving the Wall Street barometer 52 points shy of its record high touched at the start of March.

Fixed income
One reason financial stocks have been struggling in recent weeks is that investors are worried about their lending margins as bond yields moved lower.

The 10-year US Treasury yield is up 1bp to 2.19 per cent on the day, but remains near its lowest level in five months after some recent soft data called into question the pace of growth in the world’s biggest economy.

The monetary policy sensitive US 2-year yield, which hit a seven-year high of 1.40 per cent in the immediate aftermath of the Federal Reserve’s March interest rate rise, is now just 1.18 per cent. The chances of another Fed rate hike in June are priced at 42.4 per cent, down from about 70 per cent a few weeks ago, according the CME FedWatch tool.

The yield on Japan’s benchmark 10-year government bond fell below zero for the first time since mid-November.

Forex
The prospect of a slower pace of Fed rate rises has weighed on the US currency of late, pushing the dollar index (DXY), which tracks the buck against a basket of its peers, back below 100.

The DXY is recovering some poise on Wednesday, adding 0.1 per cent to 99.64, helped by the softer euro and as the Japanese yen weakens by 0.3 per cent to ¥108.68.

The South African rand is down 0.7 per cent to 13.3508 per dollar, as worries about the government’s economic policies linger.

Copyright The Financial Times Limited 2017. All rights reserved.
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