US and Iran exchange fire as peace talks stall

Good morning

We had a ridiculously rangebound day in the majors yesterday, GBPUSD, EURUSD and even USDJPY traded something close to a 20 pip range for most of the day.  There seemed to be a mild sense of positive sentiment, equities were up, oil was a bit more volatile but heading into the London close was pretty much where it had been yesterday morning. 

GBPUSD was up to recent highs around 1.3480, spurred in no small part by comments from BoEs Greene that tightening in the coming weeks may well be necessary, certainly if the Iran conflict continues, and that acting sooner can have a huge benefit in containing second round inflation and could prove ultimately less severe than failing to act.   Bailey also made the latter point but did point out that the market had previously priced in BoE cuts for this year, the fact these are now off the table is, in his mind, somewhat akin to tightening.  He is wary of the already low growth levels in the UK.  Elsewhere, The Times have reported that UK government borrowing in £60bn higher than predicted by OBR, who also acknowledged they have been too optimistic in UK growth forecasts.

EURUSD got to 1.1655, while GBPEUR continued to creep higher to 1.1580.  EU HICP and Core CPI yesterday were both higher than previous data which surely opens the door for an ECB rate rise next week.  The slightly softer US dollar failed to impact USDJPY which ticked a few pips higher to 159.90, helping GBPJPY to 215.50, the highest since the 30 April intervention.  BoJs Ueda speaks later this morning.

Aussie GDP overnight came in softer than expected which prompted a limited AUD sell-off which saw AUDUSD trade from 0.7180 to 0.7150 and GBPAUD from 1.8750 to 1.8795, although AUD is a little off those lows as I type.  AUDNZD did drop from 1.2110 to 1.2095 but has since recovered to 1.2130.

The news overnight is of US attacks on Iran reportedly in response to Iranian missile and drone launches aimed at Kuwait and Bahrain.  This comes after peace talks seem to have reached a stalemate.  Oil prices are unsurprisingly higher but still remain below $100, while the US dollar has pushed just a little higher with GBPUSD and EURUSD now 1.3450 and 1.1620, and USDJPY 159.95. 

BoJs Ueda speaks this morning, his last scheduled communication ahead of the BoJ rate meeting on 16^th June.  We’ll be watching closely for any clues as to the direction of rates, the markets are pricing in a decent chance of a rate rise but if Ueda comes across more dovish we could see USDJPY try to trade higher, bringing further intervention risk.  

Main events on the economic calendar today include US ADP employment and the ISM services PMI.  Overnight we’ll get the latest Aussie trade figures and then we’ll hear from RBAs Bullock an hour before the London open Thursday.

Have a great day…

-  09.00 EU composite PMI

-  09.50 BoJs Ueda speaks

-  10.00 EU PPI

-  10.50 ECBs Elderson speaks

-  13.15 US ADP employment

-  14.00 Feds Barr speaks

-  14.30 ECBs Cipollone speaks

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI

-  19.00 Fed beige book

-  02.30 AUS trade balance

-  06.00 RBAs Bullock speaks

Trump still insists Iran deal is close

Good morning

What a difference a day makes.  We’ve gone from warm weather and beautiful sunshine to heavy rain and cooler temperatures.  Fortunately the weather held out long enough for my golf weekend, so I guess I can’t complain too much.  There are reasons to welcome the rain.  The farmers and our gardens will be happy, but above all it means the London Underground workers who are on strike yet again today will not be able to enjoy barbeques or rounds of golf that I’m sure they all had lined up instead of being at work. 

Another day, another raft of comments from Trump about a possible Iran ceasefire extension.  He has said that a deal with Iran to reopen the Strait of Hormuz could come over the next week.  Still, there were also reports that Iran had cut off all dialogue with the US due to Israeli action in Lebanon but Trump has said he’s spoken to Israel who have agreed to hold off any attacks on Beirut, and has also spoken with Hezbollah to ask them not to attack Israel.  As always, until we have a proper deal, it is impossible to guess what the outcome will actually be.

In terms of markets, US equities ended positively but European and Asian markets were mostly lower.  Oil prices are higher than yesterdays open but off the highs that came with the Iranian cutting off dialogue news.  GBPUSD is 1.3475, EURUSD 1.1650 which leaves GBPEUR a touch higher at 1.1570.  UK’s Lord Livermore, financial secretary to the treasury, has said it is inevitable that UK will rejoin the EU at some point as it is in the economic interest of the country to do so.  I am sure he won’t the last minister to publicly make such a statement. 

GBP is holding up pretty well despite BoEs Bailey last week saying UK is running with high inflation and low growth, which makes rate decisions a real balancing act, one that BoE are more likely to be patient on.  BoE are different from other central bank in this regard, with RBNZ, RBA and ECB all talking about potential rate rises, with Fed not so certain under Warsh’s new Chairmanship.

USDJPY remains in the high 159’s despite renewed verbal intervention from Japan FinMin Katayama who used the old ‘we are ready to act as appropriate’ phrase to remind the market they are watching FX levels closely. 

Most other news seems to be about AI firms seeking to raise money with Google talking about raising $80bn for AI infrastructure and Anthropic, valued at almost US$1trn, filing for an IPO.  I’d imagine any share offerings such as these will be snapped up.  It is difficult to know whether AI firms are over or undervalued at the moment, some of the numbers are incredible but we’re certainly at the very start of what could be a revolutionary industry and who knows where that could lead.  Of course there will be AI firms that fail to live up to their valuations but others must

The calendar today includes EU inflation numbers and US JOLTS job openings, the first of the US jobs data this week.  We will hear from several central bankers including BoEs Bailey this afternoon.  Overnight we’ll have the latest Aussie GDP and services PMI numbers. 

Have a great day…

-  10.00 EU HICP

-  14.35 ECBs Vujcic speaks

-  15.00 US JOLTS

-  15.00 BoEs Bailey speaks

-  16.10 ECBs Sleijpen speaks

-  18.00 BoEs Greene speaks

-  23.45 NZ building permits

-  00.00 AUS S&P services PMI

-  02.30 AUS GDP

Currency markets quiet ahead of key US employment data

Good morning

Well here we are, the start of June, it’s a sunny morning but according to the forecasts we’re on for some cooler and wetter weather than we’ve become used to.  I guess we could do with some rain, the grass needs it and the farmers will no doubt need it too.  But I’d become quite used to not having to worry about taking a coat of umbrella, or even a jumper anywhere.  Ah well, it is the UK. 

I survived my golf weekend where I did manage to play some golf and occasionally hit the ball quite well.  I blamed a lot of my poor shots on my recently replaced shoulder but on reflection I made those same shots well before the operation so perhaps I’m just back to where I started.  Mind you given I hadn’t played for pretty much one year I can excuse myself for some of the ridiculous errors I made, certainly in the short game. 

So, to the markets and a quick glance at currency levels suggests I didn’t miss much on Friday other than some late afternoon USD weakness that took GBPUSD and EURUSD up to 1.3485 and 1.1685, and USDJPY down to 159.10.  Reports this morning of US attacks on Iranian missile sites, and Iranian attacks in response, saw a bit of USD buying but so far only enough to take us 20-30 pips off Fridays highs.

Questions still remain over when, or indeed if, a deal will be struck with Iran and then what the impact is on oil prices and inflation in general.  There is a strong feeling that even if a peace agreemnt was struck today, there would be a lasting impact on energy prices for a considerable time. ECB rates are liekly to be raised this month and if US employment data due out this week shows ongoing resilience in the labour market there is a decent chance Fed will look at higher rates as well.  Mind you, new Fed Chair Warsh has made it clear he’d prefer to use alternative inflaiton measures such as timmed-mean data as they tend to filter out short term shocks.  There are plenty of reasons for and agaisnt this.  For now BoE don’t seem to be quite as eager to raise rates but at some point they’ll be forced to act if inflation remains elevated.

US ISM manufacturing PMI is the highlight of the calendar today.  We’ll have the latest inflaiton numbers out of EU tomorrow morning, but the main event will be the US nonfarm payroll release on Friday.

Ah, and commiserations to Arsenal for losing to PSG in the Champions League final on Saturday.  They came so close to holding onto their 1-0 lead but PSG finally broke down the Arsenal defence, taking the game to extra time and penalties.  Never a good way to lose.

Have a great day…

-  10.00 EU unemployment

-  14.30 CAD S&P manufacturing PMI

-  15.00 US ISM manufacturing PMI

-  02.30 AUS building permits