GBP loses ground as Starmer faces resignation calls

Good morning

A bit of a nothing day yesterday, not much news to get our teeth into although once again the equity markets shrugged off the lack of an Iran peace deal and closed mostly in the black.  The US dollar was on the retreat with GBPUSD and EURUSD up a few pips, GBP having the better of it with GBPEUR at 1.1585, 20 pips or so higher than Friday’s close.  Since the London close though we’ve seen a change in GBP sentiment.  Having seen a high around 1.3650 yesterday, GBP dropped through the evening and overnight, currently 1.3540 as I type. 

A small part of this move could be blamed on Trump who has put a dent in risk sentiment by saying the Iran ceasefire is on ‘life support’, sending equities lower and oil and the US dollar higher, but EURUSD has been less affected, losing just around 40 pips or so compared to GBP’s 100+.  GBPEUR has come lower mas a result now 1.1525.  Overnight UK BRC retail sales data was far worse than expected but we’ve seen a spike higher to recent highs in UK bond yields this morning and I’m wondering if the pressure on UK PM Starmer to resign is starting to impact the markets.

USDJPY climbed to the 157.80 area this morning only to be sold off to the 156.80 area.  That move was brief, we are now back to 157.50 and I’m wondering whether it is worth looking at short dated downside USDJPY options.  Of course, they are not quite as cheap as we’d want, I’d hoped to see a one week 157.00-157.50 strike for 50 yen pips it would give us low risk and plenty to trade spot against on dips, but they are priced a bit higher than that.  Selling spot in the high-157s is an alternative but is a riskier move and hugely reliant on BoJ intervention.  Decent risk reward perhaps though.

I mentioned Hanatavirus yesterday, not that I am overly concerned mind you but it’s in the headlines and not going away.  I read that passengers from the affected cruise ship are in hospital in quarantine for a few days, then then self-isolate at home for a further six weeks as it can take that long for symptoms to show.  Given the long incubation period, the WHO say it is likely we will see further cases in the coming weeks.  My main worry is that I thought some passengers had disembarked the cruise ship a while ago and they are still roaming around free as far as I’m aware.  Watch this space!

Starmer was speaking, he made it abundantly clear he has no intention of stepping down, but I’m not sure his cabinet or his party are still offering him any support.  Quite what he will choose to do, or be forced to do, is unclear and to be honest there isn’t a great line up of people to take his place should he step down.  While Starmer continues to fight for his role as PM, Zak Polanski, head of the Greens, could have already knocked any outside chance he had to be seen as a serious politician.  He has made the absurd mistake of not paying his council tax.  Seriously, the idiocy of these people in the public eye who think they can get away without paying for things that everyday people have to, those very people he claims to want to help.  He’s certainly not the first, and won’t be the last, but I just fail to understand how people under so much scrutiny still flout the most basic of laws.

Now, of course I have to mention Spurs who scraped a draw against a Leeds side who certainly weren’t firing on all cylinders last night.  It was a match that summed up a lot of Spurs season.  Some good football at times, some interesting refereeing and VAR decisions for both teams, missed goal opportunities and individual errors that affected the outcome of the match.  I’d probably have taken a point before the match but the two dropped points keeps Spurs in a very vulnerable position.  Just two matches to go.

Unless we get anything new from Starmer or Iran, today’s main event should be US CPI inflation.  Headline is expected to rise from 3.3% to 3.7%m while core CPI may tick a little higher from 2.6 to 2.7%.  RBNZ inflation expectations due overnight.  GBPNZD is currently at 2.2775, not far off the lowest level for two months, I’d like to look at overnight calls or perhaps one week strangles as I can’t see it holding around these levels. 

Have a great day…

-  10.00 German ZEW

-  11.40 ECBs Elderson speaks

-  13.15 US ADP 4 week average

-  13.30 US CPI

-  18.00 Feds Goolsbee speaks

-  19.00 US monthly budget statement

-  02.30 AUS wage price index

-  04.00 RBNZ inflation expectations

Starmer to give 'last-ditch' speech after disastrous local election results

Good morning

Friday’s nonfarm payroll headline number came in at +115k, a lot higher than expected, with a small upward revision to previous data as well.  The unemployment rate was unchanged at 4.3%, the only negative thing was a lower than expected average earnings number, with a downward revision to the previous month.  The US dollar spiked higher initially as eyes were drawn to the headline number, then reversed as the details became clearer.  In the end the likes of GBPUSD and EURUSD ran into the weekend just smidge higher than pre-nonfarm levels.

European equities finished lower on Friday but US markets ended the week on a high, Nasdaq leading the way up 1.7%, still pushed by chip/AI stocks making some incredible gains.  Trump’s rebuttal of Iran’s response to the US peace plan led to oil prices and the USD pushing higher on the open, GBPUSD fell from 1.3630 to 1.3550, EURUSD from 1.1785 to 1.1745, both are now off those lower levels, around 1.3600 and 1.1765 respectively.  USDJPY finally succumbed to USD pressure, moving up from 156.55 to current levels around 157.15.

Canada released some weak jobs data on Friday, the unemployment rate ticked up to 6.9% and the net change in employment was -17.7k from an expected +15k.  The softer data, plus ongoing concerns over US/Canada trade relations, has seen USDCAD push from a low last week around 1.3580 to the 1.3710 area that has capped the upside since mid-April.  I’ve seen interest in upside USDCAD positioning through option, for example a one month (11^th June) 1.3750 call costing around 35 cad pips.

Starmer will be speaking this morning after the massive Labour losses in the local elections last week.  Pressure on him to resign is growing but he looks like he’ll cling on to power as long as he can, pulling in old stalwarts such as Gordon Brown and Harriet Harman in an effort to garner support.  Watch for comments about significant changes and closer ties to the EU.  There are growing concerns that Europe, UK included, will be more reliant on US energy supplies the longer the Strait of Hormuz is closed, which in turn would give Trump strong leverage in trade negotiations. 

Trump will meet China President Xi later this week, no doubt China will push US to end the Iran war and get the Strait of Hormuz open, I could imagine Trump asking for China help with that.  US TrsSec Bessent will stop off in Japan where he’ll meet PM Takaichi and FinMin Katayama, look out for any joint statement on currency intervention.

I’m watching this Hantavirus with a bit of interest although I don’t see it as ‘another Covid’.  Still, a degree of caution seems sensible and passengers on the ship with the outbreak are reportedly in quarantine.   

In sport, Arsenal held their lead at the top of the table, helped with a last minute VAR call that ruled out a West Ham equaliser.  I didn’t know whether to cheer or not!  The result ensures Leeds will avoid relegation, while Notts Forest’s point against Newcastle ensures their Premier League survival.  It is now between West Ham and Spurs, the latter faces a massive make or break match against Leeds this evening.

It’s a quiet economic calendar today.  We’ll have US CPI, PPi and retail sales through the week, plus UK and EU GDP numbers.  We’ll also have inflation expectations from NZ and Australia and plenty of speeches from central bankers.

Have a great day…

-  10.00 UK PM Starmer speaks

-  15.00 US existing home sales

-  00.01 UK BRC retail sales

-  07.00 German HICP

Ceasefire at risk after US and Iran attacks

Good morning

It was a down day in the equity markets yesterday and we could see further losses today as reports of US strikes on Iranian targets hit the newswires. The US insist they acted in self-defence and regard the ceasefire as still in place.  Oil prices spiked higher but have reversed those gains as fears of escalation seem to have diminished for now.  Trump is due to visit China next week and it has been reported that China officials are seeking an end to the Iran war before he makes the trip.  Trump still makes threats about large scale attacks on Iran if they don’t find an agreement soon.

China meanwhile has been buying gold again, with purchases in April reported to be as much as 260,000 ounces, taking advantage of the dip brought on by the Iran war to build their coffers further.  Gold is currently around $4,700, pretty much in the middle of the range seen through April of $4,500 to $4,900.

The US dollar had made gains through the afternoon with GBPUSD and EURUSD trading down from highs of 1.3630 and 1.1775 to 1.3545 and 1.1720, both pairs are now off those lows but it is GBP which has come off a bit worse, with GBPEUR currently 1.1565, 30 pips or so off the weeks highs, not a significant move but the lowest levels we’ve seen so far in May.  Trump has given the EU until 4^th July to make a trade deal or he’d raise tariffs considerably higher.  UDSJPY has crept up to 157.00 but so far we’ve seen little sign of any intervention, the most recent being back on Wednesday morning when spot was up around 157.80.

In the UK the news is awash with stories of Labour and Tory losses in the local elections although many results are still to be reported. Reform are the big winners so far, while Greens have so far made very little impact.  Plenty of articles suggesting Starmer should step down although he has given so sign he will go willingly.  Rayner and Burnham are said to be in the running with Rayner slightly out of favour according to some press reports. It could be a tough weekend for Starmer.

In happier news, Sir David Attenborough reaches 100 years of age today.  A very impressive feat for a man who has done so much in his life.  He was Controller of the BBC back in the 1960’s but is of course better known for his natural history programmes.  Indeed, it is strange to watch any wildlife series that doesn’t have him narrating. 

In sport, Villa overturned their one goal deficit with a 4-0 win over Notts Forest to put them into the Europa League final where they will meet Freiburg.  Crystal Palace became the third English team to make a European final by beating Shakhtar Donetsk, they will face Rayo Vallecano in the Conference League final.  Attention now turns to the Premier League fixtures this weekend starting with Liverpool v Chelsea this weekend which could be an interesting match.  Man City will be hoping to close the gap to Arsenal as they take on Brentford.  I’m hoping Arsenal beat West Ham on Sunday, Spurs then have to beat Leeds on Monday night, that’ll be difficult but it is a massively important match for Spurs. Well, I guess they all are at this stage.

Looking ahead to next week’s economic calendar, US CPI inflation looks like the highlight, we’ll also have US PPI and retail sales.  RBNZ inflation expectations are out in the early hours of Wednesday morning and UK GDP is out on Friday.  Before then of course we have today’s US nonfarm payrolls, a headline of around +60k is expected but there are some looking for a higher headline after the better than expected ADP number earlier in the week.  The unemployment rate is expected to stay at 4.3%.

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

-  10.45 Feds Cook speaks

-  13.30 US nonfarm payrolls

-  13.30 CAD employment

-  15.00 US Michigan sentiment survey

-  17.00 ECBs Schnabel speaks

-  17.15 ECBs Nagel speaks