Some talk of possible US rate cuts get the market excited

Good morning

Global equity markets had another decent day yesterday as talk of US negotiating deals with other countries continued.  Trump also mentioned that ‘we have been meeting with China’ although the details of this are a little sketchy, other than China saying US should cancel all unilateral tariffs before any talks take place.   There was some suggestion that China were looking to drop their own 125% tariffs but we’ve seen no confirmation of this.   

The real key yesterday though was some slightly dovish comments from Feds Hammack who suggested a June rate cut by the Fed could be possible, while Feds Waller said that he’d support a rate cut if it looked as though Trump’s tariffs were putting US workers at risk.  Kashkari added that he was worried about possible rising unemployment but that as yet he’d seen no sign of it.

Given Fed officials have come across a lot more neutral recently, this could mark a shift in attitude and if so is quite a turning point.  Of course, those Fed officials speaking about possible rate cuts could just be laying their CVs at Trumps door for as and when Powell goes, but the fact is we all see risks to the US and global economy and rate cuts could well be needed to support the economy.

Yesterday’s initial claims were a touch higher which put Wallers comments more at the fore, while the US labour market will be in focus next week with the usual JOLTS, Challenger and the big one, the nonfarm payrolls. 

The rate cut talk sent USD lower through the day, GBPUSD traded up to 1.3345 into the NY close and EURUSD came within a pip or two of 1.1400.  Overnight some steady USD buying took both pairs lower to hit 1.3275 and 1.1315 respectively, some talk that Trump wants to ensure the US dollar remains the reserve currency possibly the reason for USD strength.  Those pairs now sit at 1.3305 and 1.1350 which leaves GBPEUR at 1.1720, with markets eyeing the 1.1740 area that has served as resistance for the past three weeks.  Better than expected UK retail sales data this morning seems to have helped GBP hold its gains.

Meanwhile US continues to pressure Russia and Ukraine to find a peace deal.  Trump is threatening to withdraw from talks if the two sides cannot agree a ceasefire.  He says Crimean is really lost and pretty much the best Ukraine can hope for is for Russia to stop their offensive and take no more Ukrainian land.  It remains clear that Trump would settle for new borders to be drawn to reflect land currently held by Russia, it is also clear Trump would love to be the guy who brought peace to the region and I think he’d take that regardless of the cost to Ukraine.

After a reasonably quiet week on the data front this week, next week gets busier.  I’ve mentioned the US employment numbers due out, but we’ll also have other major data in the form of GDP, core PCE and ISM manufacturing PMI from the US.  We’ll see the latest EU GDP and inflation numbers, while down under we’ll have Aussie inflation, trade balance and retail sales.  Nothing really of note from the UK next week but we’ll be looking for any news on trade talks with the US .

To the weekend and plenty of football action with the FA cup semi-finals as well as premier league matches which includes Liverpool v Spurs, which is likely to see Liverpool win the league title, it would certainly be a huge surprise if Spurs could pull anything remotely special out of the bag.  In the Championship, Burnley have the chance to go top if they can beat QPR, with rivals Leeds not playing until Monday.

Boxing fans will be looking forward to the Benn/Eubank fight taking place on Saturday although it is unlikely to reach the levels of their fathers world title fight back in 1990 that saw Eubank Sr beat Nigel Benn.  This fight should have taken place back in Oct 2022 but was cancelled due to Benn Jr failing a drugs test.  Eubank Jr is favourite to win this one.

The weather looks OK for the weekend but as we move into next week the forecast suggests temperatures could get as high as 25°c which has given rise to some rather dramatic headlines in the papers of a mini-heatwave.  Hardly a heatwave, but those temperatures will be very welcome!

Have a great day and a terrific weekend as and when it comes…

-  13.30 CAD retail sales

-  15.00 US michigan sentiment survey

-  20.15 BoEs Greene speaks

Equities and USD up on vague hopes of softening in US/China trade war

Good morning

Most global equity indices had a positive day yesterday, really only China markets were down in Asian trading overnight after a major bank issued a downgrade on Hong Kong stocks.  Currency markets have been reasonably calm, we had a bit of USD buying through the day yesterday and again overnight which saw GBPUSD trade down to 1.3245, EURUSD to 1.1310 and USDJPY up to 143.50.  The dollar has been unable to hold onto those gains, each of those pairs now trade 1.3280, 1.1350 and 142.70.  GBPEUR had been up to 1.1720, now back to 1.1700.

Trump continues to use more friendly language.  He backtracked on the idea of firing Powell, although has again said Powell is wrong in not lowering interest rates, and he has appeared far more open to a trade deal with China, going so far as to suggest he could cut tariffs to help de-escalate a trade war.  Even so, we are a long way from a deal being struck.  I do recall back in the early 2020’s US and China had signed the first stage of a trade deal. 

That deal was signed on 15th Jan 2020 Jan, but just five days later I wrote in my daily report ‘I’m more than a little worried about this virus outbreak in China……’.  As we know, Covid hit hard and any trade agreements were pretty much null and void as a result.  Those trade talks had taken an eternity to agree so I don’t expect any rapid solutions to this particular trade war.  China meanwhile is said to be close to lifting sanctions on EU officials in a hope to strike some sort of deal with the European trading bloc. 

On the subject of trade deals, UK is looking at reducing US car and farm tariffs in order to get a deal over the line, but will not accept their chlorinated chicken or hormone-treated beef.  I have seen a few snippets on Twitter that show ingredients for the same products in both the US and UK, and the difference is quite amazing.  Skittles and McDonalds chips are two that stick out.  Quite why the US put up with so many weird and even toxic ingredients is beyond me.  Regardless, BoEs Bailey has warned that even a UK/US trade deal wouldn’t be enough to save the UK from an economic slump. 

Trump’s attempts to find peace in Ukraine seems to be failing, for which he really seems to blame Ukraine which is a bit harsh given they are the country that has been invaded.  He has made it clear that Ukraine should accept Crimea is lost to Russia and we know he’d happily draw new borders to give Russia land taken during the invasion.   There was some talk that US might look to lift sanctions on Russia but this has since been denied.  Even so, the US does still seem to be on a very different page to Ukraine and Europe.

Arsenal could only manage a draw with Crystal Palace last night which means Liverpool require just one point from their last three matches in order to lift the premier league title.  Rather typically, their next match is against Spurs so to compound a pretty dire season, Spurs are very likely to be the team that finally hands the trophy to Liverpool.  Arsenal are almost assured of second place although statistically Man City and Forest could go above them, highly unlikely scenarios mind you.   Four points separate the five teams below Arsenal so there is everything to play for over the last two or three matches of the season.

Not the busiest calendar today , US durable goods is really the highlight.  Early tomorrow morning we’ll have UK retail sales.  I’m out this evening seeing the Book of Mormon, possibly the most un-PC show out there.  When I first saw it some years ago there was quite a large security presence due to threats made.  I’m not sure if that is still the case or whether it is now more accepted.   I’ll report back tomorrow.

Have a great day…

-  09.00 German IFO

-  11.00 German Buba monthly review

-  13.00 ECBs Nagel speaks

-  13.30 US durable goods, initial jobless claims

-  14.00 ECBs Lane speaks

-  14.25 BoEs Lombardelli speaks

-  15.00 US existing home sales

-  22.00 Feds Kashkari speaks

-  00.01 UK GfK consumer confidence

-  00.30 Japan Tokyo CPI

-  07.00 UK retail sales

Are we seeing a Trump u-turn?

Good morning

It felt like a bit of a holiday day yesterday and judging by the number of email bounce backs I got from sending my reports yesterday it would seem that many people are indeed still in a bit of holiday mode.  Most kids are back to school this week so those readers whose commute involves driving a car should prepare for a bit more traffic. 

The IMF meeting took most of the headlines yesterday, as they lowered global growth forecasts from 3.3% to 2.8%.  They said that US is likely to be hardest hit among advanced economies this year, with growth forecasts lowered from the 2.7% they forecast in January to just 1.8%.  Trump should take note from the IMF chief economist who made it clear that central banks should remain independent. 

This follows Trump’s attack on Powell that send the US markets lower on Monday, although we did see a rebound in US prices yesterday and European exchanges were generally up on the day as Trump suggested he had no plans to fire Feds Powell.  Trump also said he’d be ‘very nice’ to China if they came to the trade negotiations table, some talk of a Trump/Xi meeting in early May.  Asian equities were higher overnight and futures prices point to higher levels in global markets again today.

The US dollar was broadly unchanged with GBPUSD spending most of the day in the high 1.33’s and EURUSD in the high 1.14’s although into the London close there was a little USD buying that took those pairs off their highs and also helped USDJPY tick up to 141.25 from the morning low below 140.00.  IMF then said that it is possible the UK sees three rate cuts this year, driven by a slower economy despite sticky inflation.  UK growth forecasts slashed from 1.6% to 1.1%.

GBPUSD slipped below 1.3300 briefly, now 1.3315, although has fared better than its European neighbour which is currently 1.1395, leaving GBPEUR higher at just short of 1.1700, perhaps reports that US are negotiating a trade deal with the UK is helping GBP.  Markets seem to be ignoring the latest ONS government borrowing numbers which show a deficit of £152bn, some £15bn higher than the OBR forecast from just a month ago at Reeves spring statement.  Questions over Reeves fiscal policy faces some pretty serious questions.

Tesla stock price rose 5% yesterday as Musk announces he’ll reduce his DOGE role in the wake of a backlash against his electric vehicles.  With some more conciliatory talk coming from Trump and his White House crew, whether over China or Powell, I wonder whether this is a deliberate softening of approach given the widespread opposition the government policies have faced.  When I say ‘softening’, some would say ‘u-turn’.

Putin has suggested he is open to peace talks and says the Ukrainian invasion could be halted along the current front line.  It would seem that Putin would want the US, and the world, to agree that Crimea is recognised as part of Russia, rather than an illegal annex.  Ukraine will not want that, but it is becoming apparent there is little chance of peace unless Ukraine accept they will have to give up some ground.

Man City got a last minute win against Aston Villa last night which sent them into third just above Forest, while Villa’s chances of a top four or five finish are hit hard. Arsenal will be looking to secure their second place in the league as they take on Crystal Palace who have only won one league match in the last five they have played.

Today is all about PMI’s.  Up first is the EU release, UK follows 30 minutes later and then we have the US equivalent in the afternoon.  We’ll also hear from several central bank officials and UK Chancellor Rachel Reeves speaks at the IMF conference, let’s hope they don’t ask her too many difficult questions, I’m of course talking about CV based questions rather than her fiscal policy.

Anyone lucky enough to have gone to warmer climates over the Easter holidays will be brought smartly down to earth today, we’ve had some pretty heavy rain here and the forecast suggests it’ll take a few more hours to dry.  Looking ahead though, the very end of April in forecast to see temperatures above 20°c.  Other than this morning, we’ve not had bad weather recently, but it’s not been hugely warm.  I’m looking forward to May and some hotter weather.

Have a great day…

-  09.00 EU services, manufacturing PMIs

-  09.30 UK S&P services, manufacturing PMIs

-  11.30 BoEs Pill speaks

-  14.00 Feds Goolsbee speaks

-  14.30 Feds Muslaem speaks

-  14.35 Feds Waller speaks

-  14.45 US S&P services, manufacturing PMIs

-  15.00 US new home sales

-  18.15 BoEs Bailey speaks

-  19.00 BoEs Breeden speaks

-  19.00 Feds Beige book

-  20.15 ECBs Lane speaks

-  20.45 ECBs Cipollone speaks