Higher UK inflation makes further BoE cuts less likely

Good morning

A reasonably calm day in the currency markets yesterday, GBPUSD spent most of the time between 1.2595 and 1.2620 although GBP did push higher again against EUR, GBPEUR hitting a high just a couple of pips short of 1.2100 overnight, before settling back at 1.2075, where we sit now.  EUR suffering from that lower growth talk as well as the Ukraine peace talks which seem to split US and EU far more than anyone would have liked.

Overnight RBNZ cut rates 50bps as expected, NZD weakened initially but pared losses as RBNZ Gov Orr suggested the next couple of rate cuts would likely be 25bps each rather than the 50bps we’ve become used to in recent months.  GBPNZD currently 2.2035 having hit a high just over 2.2200 on the announcement

UK inflation this morning had been expected to rise from 2.56% last month to 2.8% this time, but it actually pushed even higher, coming in at a whopping 3%.  GBP did push higher on the release but fell back soon after, perhaps the market noting that the Core CPI reading was 3.7%, as had been expected. 

Aussie employment due tonight, I wonder whether they could come in lower than expected and whether RBA had a heads up on the data before their rate cut earlier this week.  I never know how much advance notice central banks get of data, but if I were in charge I know I’d be wanting to be a bit ahead of the curve.

Ukraine peace talks took place with US and Russia, but no Ukraine, which is a bit odd.  Trump seems intent on getting a peace deal even if it means Ukraine giving up land lost to the Russian invasion.  He also seems keen to have new elections which may see Zelensky ousted, the concern of course is that a pro-Russian could be elected.  Trump seems to be blaming Ukraine for the invasion and worryingly seems more on the Russian side.  Russia has said there can be no peace deal that involves EU forces on the ground in Ukraine.  I wonder why!

US equities are pushing higher with S&P500 hitting record highs yesterday.  Trump has intimated he may introduce a 25% tariff on imported cars.  Gold prices are on the move higher again, now $2,935 having failed just short of last week’s record high of $2,942.

In other news, NASA are tracking an asteroid called 2024 YR4 which was first detected in late December.  At the time they predicted an impact with earth was 1.2%.  They have now increased that to 3.1%, quite a hefty increase.  It may sound low but is only 1 in 33 and I wouldn’t be surprised if those odds increase again.  22 Dec 2032 is the key date.  Perhaps we should drag Bruce Willis out of retirement while downloading Aerosmith’s ‘I don’t want to miss a thing’….

Man City in action this evening against Real Madrid.  Madrid have a 3-2 advantage from the first leg and with them at home they are favourites to go through to the next round.  City will have to pull off something very special.  They are beginning to return to form but this will be a tough one.

That’s about all for now, I’m up in London today for a couple of meetings and will be on the tube before 9am.  That’s a bit early for me.  I might not even get a seat.  Mind you, I’m getting to that age where someone may offer their seat to me.  What on earth would I do if they did?  Stand all the way?  Or politely accept and sit comfortably.  Decisions, decisions……

Have a great day

-  13.30 US housing starts, building permits

-  19.00 FOMC minutes

-  22.00 Feds Jefferson speaks

-  00.30 AUS employment

-  01.15 PBoC rate announcement

RBA cut for first time since Nov 2020. RBNZ to cut another 50bps tonight. UK inflation tomorrow.

Good morning

I’ve been out of the office for a couple of days, spent much of the weekend up in Norfolk which is always a terrific place if only it were just a bit easier to get to.  I guess the difficulty in getting there, and by difficult I really mean slow, is part of what has kept it broadly unchanged for so long and therefore what gives it much of its charm.  Mind you I wasn’t saying that on Saturday night when we were nearly caught in a blizzard on some pretty rural road.

As we do in the UK, when I mention snow and blizzard, what I mean is it was quite heavy and started to settle, not quite the snow that other parts of the world get, but when you are in the middle of nowhere in the evening, pitch black, with the most snow I’ve seen for a long time not only falling, but actually settling on the roads, it can be quite alarming.  Of course we made steady progress to where we were staying and arrived with the minimum of fuss, but it was exciting for a while.  Fortunately the next couple of days were clearer and we actually got a decent amount of sunshine yesterday before we made our way home. 

So here I am, back at my desk and wondering what has changed.  Well, USD is still soft despite last weeks higher than expected CPI and PPI, the market focussing more on the softer US retail sales data that came out on Friday.  GBPUSD has seen a high around 1.2630, we are now just 15 pips or so off that level, while EURUSD did reach up to 1.0510 after the US sales numbers last week but failed to hold those gains and is now 1.0460, which puts GBPEUR back up to 1.2060, matching the high from early Feb, EUR held back on warnings that Eurozone growth will be lower than had been forecast back in November.

Elsewhere, RBA< one of the more hawkish central banks, cut rates overnight 25bps from 4.35% to 4.10%, the first cut since the Covid era which saw rates cut from 0.25% to 0.1% back in November 2020.  Rates had been 4.35% since November 2023.  The move had been widely expected and as a result AUD is broadly unchanged.  RBA did warn that upside inflation risks are still very much alive and as a results played down the chances of further rate cuts.

Plenty of talk over peace in Ukraine, with Trump seeking to find a solution, seemingly regardless of Ukraine’s acceptance.  In the end Ukraine will probably have little choice but to accept whatever peace deal comes along but they are determined to be included in the talks, which is fair enough.  They will no doubt need to agree to give up swathes of land already captured by Russia since the invasion began.  There is growing talk of peacekeepers on the ground in Ukraine after a peace deal, which would likely put UK and EU forces, perhaps also US forces, within an arms reach of the Russian army.  The Telegraph has an article that suggests Trump is demanding a US$500bn payback from Ukraine in reparations which would pretty much US owns the country and its resources and infrastructure for pretty much always.  Another US state?

UK employment numbers this morning looked decent enough, the overall unemployment rate held at 4.4% rather than increasing to 4.5% as had been expected but this alone isn’t enough to offer any major optimism.  Even the better employment change at +107k was partly offset by a higher claimant count. 

In sport, Spurs actually managed a second premier league win in a row over the weekend, an important one at that as it moved them up to 12th in the table, but there is a worrying points gap now between 12th place and the European places.  The result pushed Man Utd down to 15th, Everton moved above them as their revival continues.  Liverpool are seven points clear at the top, Arsenal now clear in second with Forest and Man City talking the next two spots.  Bournemouth are flying high in fifth having taken a decent 13 points our of the last 18 available. 

Also in football, I see Leeds got a couple of late goals to turn what would have been a disappointing (for Mark) loss against Sunderland into a win that put them back to the top of the table.  Meanwhile I see Burnley, currently third in the Championship, have conceded only nine goals in 33 league matches so far, a pretty impressive feat.  They have now gone 1,000 minutes without conceding a league goal.  Incredible. 

Back to the markets and today has a slightly limited calendar, Canadian inflation numbers likely to be the highlight, while overnight the expectation is that RBNZ will cut rates by 50bps again to bring rates to 3.75%.

Early tomorrow morning we’ll have the latest inflation numbers from the UK, we’re thinking both CPI and core CPI will show gains which may well keep GBP reasonably supported.

In the meantime, have a great day.  I see more sunshine peeking in through the window, a welcome sign after what feels like weeks of grey, low cloud.

-  09.30 BoEs Bailey speaks

-  10.00 German ZEW

-  13.30 US NY empire state manufacturing survey

-  13.30 CAD CPI

-  14.00 ECBs Cipollone speaks

-  15.20 Feds Daly speaks

-  18.00 Feds Barr speaks

-  21.45 NZ PPI

-  23.50 Japan trade

-  01.00 RBNZ rate announcement

-  07.00 UK CPI, PPI, RPI

USD retreats despite US CPI coming in higher than expected

Good morning

The spell of USD weakness came to an abrupt end as the latest US CPI inflation data was released yesterday afternoon.  Both headline and core were higher than expected, coming in at 3% and 3.3% respectively.  The USD initially pushed higher, GBPUSD traded from 1.2455 to 1.2375, EURUSD from 1.0380 to 1.0315.  What followed was a bit of indecision, with the market pushed one way and then the other.  Comments from Feds Powell were the same as the previous day, with no mention at all of the inflation data that had been released an hour or so earlier.  In the end it was the USD sellers who were happiest, with GBPUSD and EURUSD trading steadily higher through the night. 

This morning the UK’s latest GDP numbers were released and made quite pleasant reading, the monthly, quarterly and yearly readings coming in at 0.4%, 0.1% and 1.4%, all well above expectations, with an upward revision to the previous year on year number to round off the good news.  Perhaps NIESR were right after all with their bullish growth forecasts.  GBP pushed higher, with GBPUSD moving up from 1.2485 to 1.2515, although it has been unable to hold those gains and as I type is back around the 1.2480 area. 

GBP had lost ground the EUR yesterday, dropping to the 1.1970 area after the London close.  The GDP data did give the pair a bit of a boost, it briefly regained 1.2000 but as with GBPUSD was unable to hold its gains and now trades back at 1.1980.  EUR is finding support after suggestions from ECBs Nagel that the ECB’s latest rate cut cycle may have run its course, although I see ECBs Vujcic has said three more cuts this year is not reasonable.  Quite a difference of opinion there. 

Also supporting EUR are the headlines about possible Ukraine/Russia peace talks, Trump has said he’s spoken to Putin and may well meet him in Saudi Arabia, while China also seem to want to get involved in the peace talks.  Whether those talks would involve Ukraine remains to be seen, I’m not so sure they would be happy having the US carve up their land in talks with Putin.  However I see US Treasury Secretary went to visit Zelensky to discuss a minerals deal, which would likely serve to protect Ukraine after the invasion is over.  Perhaps a peace deal is closer than we think.  I still think Ukraine will want to recover land it has lost since the Russian invasion but this seems an unlikely outcome.

Aussie and NZ inflation expectations were out overnight, Aussie numbers were above forecast at 4.6% while NZ data was lower at 2.06%.  I’d have expected this to push AUDNZD higher but it actually a smidge lower now at 1.1115, having seen a high yesterday of 1.1140.  However it remains above 1.1100 having broken up at the start of this week, levels not seen since Nov 2024, back then the rally lasted only a few days before slipping back to the 1.10 region. 

In sport, England lost to India in yesterday ODI to leave the series at an unpleasant 3-0.   Liverpool drew with Everton in a rousing Merseyside derby, the last to be played at Goodison Park with Everton moving to their new ground next season.  And Leeds lead at the top of the Championship is reduced back to two points as both Sheffield Utd and Burnley won last night.  Plenty of Premier League action at the weekend, if you want to see goals you may wish to tune in to Spurs v Man Utd on Sunday, with both teams separated by just two points down in 14th and 13th respectively.  The loser could see themselves as low as 16th in the table if other results go against them.  Yikes!

US PPI today will be in focus particularly given the higher than expected CPI yesterday.  I’m out and about for the next couple of days and am away Monday as well, so I’ve added to the calendar in case I’m not around to send out a report.  I’ll be hoping for some quieter markets while I’m out of the office.

That’s about all for now, have a great day and I’ll take the opportunity to bid you a wonderful weekend as well.

-  09.00 ECB economic bulletin

-  10.00 EU industrial production

-  13.30 US PPI, initial jobless claims

-  17.00 ECBs Nagel speaks

-  21.30 NZ business PMI

Friday

-  10.00 EU GDP

-  13.30 US retail sales

-  14.15 US industrial production

-  21.00 Feds Logan speaks

Monday

-  11.00 Bundesbank monthly report

-  14.30 Feds Harker speaks

-  03.30 RBA rate announcement

-  04.30 RBA press conference

-  07.00 UK unemployment