Yen rallies on repatriation talk and possible intervention

Good morning

I’ll have to start with Japanese Yen given it is the big mover.  I mentioned yesterday morning that UDSJPY had dropped from 160.40 to 159.50, it continued that trend and as I type it sits around 156.40.  GBPJPY, which not so long ago had been in the mid-217’s, is now 211.50.   There is talk of intervention although we’ve seen nothing to confirm any official action.  I have seen renewed talk of repatriation of foreign assets, Japan is the largest holder of US bonds outside the US.  If Japan continues to raise rates, at some point Japanese investors may be more encouraged to hold domestic bonds rather than US bonds.  The potential knock-on is a threat to both the cost of US borrowing and also to USDJPY.

BoC left rates unchanged as expected yesterday although CAD pushed higher as Macklem talked of possible rate rises if inflation continues to run too high, preferring to look at prices rather than economic concerns over trade wars with US.  He went so far as to comment on ‘a few hikes’ rather than just one.  USDCAD is down to 1.3825, over 100 points lower than yesterdays peak, while GBPCAD is down to 1.8650, some 175 points lower than yesterdays highs. 

Aussie trade surprised to the upside yesterday with a surplus of AUD 1.9bn and a significant revision higher to the previous which is now reported as AUD2.34bn.  With Aussie PMI’s also on the firm side I’d have expected AUD to push a bit higher, but GBPAUD now at 1.8825 it is above pre-release levels which saw a low around 1.8790.  AUDNZD is also off its recent highs, now 1.2230.

UK PM Burnham has come under pressure at his first PMQ as UK borrowing costs hit nearly thirty year highs.  The next UK budget will come on 28^th October and markets are sending a clear signal to Burnham that a massive spending spree will not be taken well.  Burnham is doing his best to calm markets, talking of his fiscal responsibility, although he’ll find it difficult to back up his optimistic talk without more spending.  He is in a tricky positon, made worse by the issues over defence spending.  Remember, Burnham’s chancellor, Healey, resigned from his post as Defence Secretary under Starmer over defence funding.  Burnham is being told that talk alone will not be enough to keep Britain safe.

Germany and Poland are both looking toward Russia as the source of recent drone and cyber attacks, and we know Russia have been behind attacks in this country as well.  The threat does not seem to be going away, with Putin talking of attacking UK assets after handing Ukraine the Storm Shadow missile blueprints.  NATO is still perhaps a suitable deterrent to keep Russia from directly attacking a NATO member.  But what if Argentina decided to invade the Falkland Islands again, would we have the assets or indeed the determination to fight?

Meanwhile Trump has said the recent strikes on Iran will be short, aimed at stopping Iran from rebuilding missile and radar bases.  Reports are that shipping is increasing in SoH, oil prices have steadied with WTI and Brent currently $90 and $95 respectively.  There is talk that Trump is considering announcing and end to the Iran war, preferring to continue with financial sanctions, although this seems a bit premature to me. 

US PMI’s the highlight of today’s calendar but attention is already on tomorrow’s key US nonfarm payroll release.  With markets looking a bit volatile it probably isn’t the best time to leave the office although I would quite like to take some time out to visit the Bayeux Tapestry that the French have loaned to the British Museum.  The tapestry, which tells the story of the Battle of Hastings, is nearly 1,000 years old.  The fact France and England have been allies for many years is all the more poignant given that today, 3^rd September back in 1939, was the day Britain and France, who had a pact to defend Poland, declared war on Germany after it’s invasion of Poland. 

Have a great day…

-  09.00 EU composite PMI

-  10.00 EU PPI

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  13.30 Feds Waller speaks

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI

-  20.00 Feds Hammack speaks

RBNZ raises rates but NZD falls

Good morning

I listened to new PM Burnham as he spoke to the House of Commons for the first time since his appointment well over one month ago.  He does speak some sense at times, for example he mentioned the abject failure of our water companies, something regular readers will know is a constant bother of mine.  However I remain unimpressed with his idea of No 10 North and his plans for devolution of power which I can only think will bring increased spending and even more inefficiencies.  He is going to have to get a grip of spending pretty quickly. 

30 year yields are now at their highest level since March 1998, higher than the Truss/Kwarteng debacle.  It would be easy to blame this on Labour, yields were around 1.2% lower when they took power in July 2024, but they have been on the rise since the Covid era of 2020 so it isn’t all Labour’s fault.  And a quick glance at US and EU yields shows similar moves higher from 2020.  However UK 30 year yields are currently 5.89%, US 30’s are 5.3% and EU 3.85% so although we can give Burnham some leeway, the UK is clearly worse off than its Western counterparts.

GBP is broadly unmoved by these higher yields.  GBPUSD is currently 1.3495, led more by USD strength than anything.  In the crosses it sits around 1.1665 against EUR, 215.50 against Yen, and 1.8900, 2.3125 and 1.8790 against AUD, NZD and CAD.

The main mover of that bunch is NZD, which has weakened from yesterday’s 2.2920 area against GBP, while AUDNZD has pushed up to 1.2245, not far from the May highs around 1.2285 which in turn were the highest levels seen since 2013.  This follows the RBNZ rate increase of 25bps overnight which takes NZ rates to 2.75%.  The move was widely expected but it was RBNZ Gov Breman’s comments that further tightening is highly uncertain and that they are likely to assess the impact of this move before deciding on any other policy change that sent NZD lower.  This dovish shift puts RBNZ’s own rate projections below the levels the market had priced in prior to the meeting.  Although inflation is too high, RBNZ must factor in concerns over the economy and the employment market, with unemployment running at 5.6%m the highest level for eleven years.

Yen has had a bit of a move, pushing higher despite a generally stronger US dollar.  USDJPY has slipped from overnight highs of 160.40 to 159.50, led in part by some hawkish comments from BoJs Ueda who has hinted that a September rate rise is becoming more likely.  His colleague at the BoJ, Takata has also offered some hawkish comments overnight as he argues BoJ should act to prevent inflation from accelerating.  GBPJPY had hit a high yesterday of 216.80, the pair now sits at 215.50.

Geopolitical issues rear their heads again.  US and Iran have again traded military strikes which unsurprisingly has sent oil price higher yet again, WTI and Crude reaching $92.25 and $97.00 respectively although both are a couple of dollars off those highs as I type.  Germany has accused Russia of being behind the recent attempted drone attack at Leipzig airport which they say is part of ongoing Russia operations in Europe.  There is some thinking these operations are designed to split European support for Ukraine, indeed it is possible the right-wing German opposition party AfD, who want to stop support for Ukraine and reopen ties with Russia, could claim a victory in the Saxony-Anhalt elections this Sunday.

To cap it all off, US and Canadian trade disputes has led to Trump renaming Lake Ontario to Lake America.  Trump is putting pressure on the likes of Apple and Google to change the name for US users on their mapping software although a quick search this morning still shows the name as ‘Lake Ontario’ in the UK.  BoC are liekly to leave their rates unchanged at their meeting this afternoon, I’d imagine the press conference will bring some comments regarding the break down in recent US/Canada trade talks.

We have Burnham in Parliament again today as he faces a potentially tough line of questioning in PMQs.  US ADP employment could well come and go with minimal fuss, while Aussie PMIs and trade balance are the highlight overnight.

Have a great day…

-  13.15 US ADP

-  14.45 BoC rate announcement

-  15.00 US factory orders

-  15.30 BoC press conference

-  19.00 Feds beige book

-  00.00 AUS S&P services PMI

-  02.30 AUS trade balance

Feds Warsh sends USD higher with interest rate talk

Good morning

To all UK readers, I hope you had a magnificent long weekend.  Can’t believe we’re in September already, I know I said last year that 2025 had gone absurdly quickly but 2026 feels like a sprint in comparison.  Schools should be going back this week so commuters who drive are likely to notice an increase in traffic on the roads, hopefully it means I get less email out of office bouncebacks when I send the daily report out.

The weather over the weekend was nowhere near as bad as forecast, yes we had some rain but there were many hot and sunny spells to enjoy.  Certainly enough decent weather for the England v Pakistan cricket test match to have enough play to finish, England once again winning by a decent margin of 194 runs which has led to the Pakistani head coach and seven players being sent home and replaced with a host of new cricketers, five of whom are uncapped.  The third and final test of the series starts next week.

If a team can change dramatically after two losses, I’d hate to be in the Spurs dressing room.  A loss at the weekend to Newcastle leaves Spurs languishing at the bottom of the league table, a horrendous state of affairs particularly given the massive spending so far this season.  The transfer deadline come this evening, there had been talk that Spurs would make at least one more big signing although if I were a player I’m not sure I’d be heading their way right now.  Onwards and upwards and all that!   Arsenal ground out a result against Villa yesterday, the sort you have to win if you’re going to win the title.  They are level on points at the top with Man City and Chelsea, and Hull are also up there after two decent wins.    

To the markets, and Feds Warsh sent the US dollar marching higher on Friday when he spoke at Jackson Hole, saying persistent inflation could well be enough for the Fed to raise interest rates later this month.  That would certainly risk the wrath of Trump who chose Warsh for his more dovish stance, however with the higher energy prices as a result of the US/Iran war I think the Fed could be left with little choice.  GBPUSD, which had been as high as 1.3650 last week, has dropped as low as 1.3525.  EURUSD has suffered as well, trading down from 1.1680 or so to 1.1575.  US inflation numbers are due on 11^th Sept, just a few days before the Fed’s rate announcement on 16^th September. 

That same USD strength took USDJPY to 160.20, just 65 pips from the July highs which will no doubt bring comments from Japanese officials but I’m not sure the US will have the same appetite for intervention as they had one month ago when they joined Japan in buying Yen which took USDJPY from 160.85 to 155.25.  The pair has been on an upward trend since that intervention.  GBPJPY did trade to the mid 217’s last week but is currently back to 216.50.

Meanwhile oil prices have risen again as news emerged over the weekend of renewed military hostilities between US and Iran, WTI and Brent are now $87.50 and $92.30, up some 10% from last week’s lows of $79.70 and $84.50 or so.

Looking ahead to this week, US employment numbers are likely to dominate the headlines with JOLTS today, ADP tomorrow, Challenger on Thursday and the main event, the nonfarm payrolls, on Friday.  There are still plenty of other numbers to keep us on our toes including US ISM PMI’s today, Aussie GDP and RBNZ rate announcement overnight.  RBNZ are expected to raise rates 25bps, that is pretty much priced in.  AUD and NZD have suffered on reports of the new US/Iran attacks, GBPNZD currently 2.2955 which is the highest we’ve seen for nearly two weeks, an odd bit of weakness for NZD given rates are likely to rise.  AUDNZD has risen to 1.2125, the highest that pair has been since early July.  GBPAUD currently 1.8935 still near its lows since late June but up from the 1.8850 lows last week.

The week also brings Canadian rate announcement which follows last weeks better than expected Canadian GDP numbers.  Those numbers weren’t enough to prevent CAD weakening against USD after Warsh spoke although USDCAD is now 1.3875, up a bit from pre-Warsh levels around 1.3855 but CAD has held its ground reasonably well.  GBPCAD is 1.8780, a few points off Monday’s lows but still well below last week’s highs around 1.8910.

Have a great day…

-  10.00 EU HICP

-  13.30 ECBs Nagel speaks

-  14.05 Feds Barr speaks

-  14.30 CAD S&P manufacturing PMI

-  15.00 US ISM manufacturing PMI, JOLTS

-  18.00 ECBs Vujcic speaks

-  23.45 NZ building permits

-  02.30 AUS GDP

-  03.00 RBNZ rate announcement

-  04.00 RBNZ press conference