BoEs Ramsden comments send GBP lower

Good morning

Last thing I wrote Friday was that we could be in for a quiet trading day.  I was right, for most of the time.  Until BoEs Ramsden spoke.  Ramsden could be regarded as one of the more hawkish BoE officials although has opted for ‘no change’ at the last three meetings.  On Friday afternoon he said he was more confident inflation that inflation pressure were easing, not exactly ground breaking stuff but enough for the market to sense rate cuts may be close  and certainly enough to send GBP lower.

GBPUSD dropped 100 pips from the 1.2465 area to 1.2365, while GBPEUR moved from 1.1685 to 1.1605.  GBP also fell in the crosses with the likes of GBPJPY and GBPAUD falling from 192.65 and 1.9405 to 191.00 and 1.9200 respectively.  We are mostly off those lows as I type, GBPUSD, GBPJPY and GBPAUD at 1.2380, 191.50 and 1.9245, although GBP does remain under pressure against EUR with GBPEUR at a lowly 1.1610.

The GBP weakness came as something of a surprise, and it is perhaps more surprising it has not regained some lost ground against EUR, given the recent comments from ECB officials have all been pointing towards a June cut and then more to follow through 2024.  EURUSD is holding up well, currently 1.0665.  Lagarde speaks later today, I presume she’ll offer more of the same June rate cut idea.

USDJPY is up at 154.70, yen remaining weak despite Ueda’s ongoing suggestions that Japan rates could rise if the weak yen is seen to be affecting inflation.  We have a BoJ rate meeting later this week and surely they will try to sound hawkish in an attempt to prevent further yen weakness.  Whether they go so far as to raise rates again remains to be seen, I’ve not seen anyone really looking for that yet but wonder if we’ll see that change as we get closer to the meeting.

With no major escalation in the Middle East after the Iranian and Israeli strikes, risk sentiment has improved with oil prices lower and the safe havens such as Yen and CHF also weaker.  Gold prices are off the recent highs as well, now $2,358, but there is some thinking that losses could be limited due to the ongoing central bank demand I mentioned recently.

A new US/China trade war could be hotting up as China slaps a 43% tariff on a widely-used US chemical, claiming it is damaging China’s own domestic industry.  We wait for a US response.  US have asked China to stop providing weapons-related material and technology to Russia, meanwhile US has at last approved a US$95bn aid package, much of which is earmarked for Ukraine who have been struggling against the Russian invasion without much needed arms and ammunition.

It is a light calendar today but will liven up as the week goes on with EU, UK and US PMIs tomorrow, Aussie inflation wednesday, US GDP Thursday, that BoJ rate announcement Friday and then the closely watched US PCE deflator on Friday afternoon.  Attention will also be on equity markets, with some players concerned we could see something of a collapse. Let’s hope not.

We had a decent weekend of sport, Man City overcame a determined Chelsea side to progress to the FA cup final, Chelsea ruing several missed goal opportunities.  But they main event was Coventry v Man Utd yesterday.  With Man Uts 3-0 up they seemed to be cruising to victory, before Coventry scored three goals to take the tie to extra time, and them even thought they had scored a late winner, before being disallowed by VAR for the tightest of offside decisions.  They lost on penalties, very disappointing for them but the thousands of fans they had at Wembley had plenty to cheer about.  An all-Manchester final it is then.   

Meanwhile, Aston Villa helped their chances of a top four finish with a win at Bournemouth, and Liverpool drew level on points with Arsenal at the top of the table after a win at Fulham, but remain second on goal difference.  Spurs didn’t play, in fact they aren’t playing until Sunday when they will be facing Arsenal. They’re going to struggle to get top four and I’m even fearful of the potential for them to drop down the table despite the ten point gap they currently enjoy.  Its going to be a terrific end to the season, that’s for sure.

Have a great day

-  11.00 Germany Buba monthly report

-  15.00 US consumer confidence

-  16.30 ECBs Lagarde, ,Villeroy speak

-  00.00 AUS Judo Bank services, manufacturing PMI

Israeli attack on Iran dominates headlines, initially sends oil and gold higher

Good morning

The slightlly improved risk sentiment we had seen over the past few days has been shattered with news of Israeli attacks on Iran.  Oil prices have moved higher with WTI up from $82 to $85.50 and Brent from $86.75 to a high of $90.70.  Gold also leapt higher from $2375 to $2417.  However all are well of those highs now, perhaps it was the headline ‘Israel launches attacks on Iran’ that sent them marching higher, particularly the speculation that one attack had hit an Iranian nuclear facility, but the somewhat limited scale of the attacks have encouraged the market this is not a major escalation.  Still, I don’t like where this is heading at all.

The US dollar also pushed higher against most majors on the reports, GBPUSD traded down to 1.2390, EURUSD to 1.0610, but these too have reverted to pre-attack levels around 1.2430 and 1.0645.  Yen proved itself as a safe haven currency once again, bucking the trend by strengthening against USD, USDJPY hitting 153.60 at one point but has not reverted to the 154.40 area.  Yen may also have had a bit if support from Ueda who reiterated the idea that, should they see a large impact on inflation from a weak yen, BoJ could raise rates.

It was another day full of central bank speakers yesterday.  ECB officials all seemed confient that barring any major surprises, they’d be cutting rates in June regardless of whether Fed were cutting rates.  ECBs Holzmann did however suggest that the number of ECB cuts could be limited if the Fed chose not to make any rate cuts.  Fed officials continue to play down any chance of a June cut, Kashkari said he’d be happy to keep rates unchanged while both Bostic and Williams are open to higher rates if needed, although their base case is for one 25bps cut this year.

This morning we have seen the latest retail sales data from the UK.  They don’t make great reading, the March headline came in at 0% against an expected +0.3%, while March excluding fuel was down to -0.3%.  The only glimmer of hope is a very slight upward revision to last months numbers.  GBP did drop a few points initially but very quickly shrugged off the data and is now higher than pre-release levels.  GBPSUD currently 1.2430, GBPEUR 1.1675.

Another disappointing night for English teams in Europe with Liverpool and West Ham both out of the Europa league.  This is the first time for a few seasons that England have not had a team in the semi-finals of either the Champions League or Europa league.  Aston Villa did scrape through their quarter final of the Europa conference, beating Lille on penalties.  Good, we could do with them concentrating on Europe and ignoring the premier league! 

FA cup semi-finals this weekend, Man City v Chelsea Saturday, Coventry v Man Utd Sunday.   Always difficult to bet against Man City but Chelsea at 4-1 might not be a bad shout.  We also have the Chinese grand prix to enjoy although looking at the forecast we could be in for some drier days over the weekend so might be better to get out and about. 

Not much on todays calendar to upset the markets although we do have any developments in the Middle East conflict to contend with.  Barring any further retaliations there, I’m wondering whether we could be in for a quiet day.  Famous last words perhaps!  

Have a great weekend

-  15.15 BoEs Ramsden speaks

-  15.30 Feds Goolsbee speaks

Fed officials continue to push back on rate cuts, while ECB look set to cut in June

Good morning

For much of the day yesterday GBPUSD was stuck in a 1.2445-1.2465 range although by the London close it was down at 1.2425. Since then a small bout of USD weakness, led in part by concerns raised by Japan and South Korea over the strong US Dollar, has helped GBPUSD higher again, now at 1.2480, the highest level since Monday.  EURUSD has done even better, now 1.0690 which is the highest since last week and has helped push GBPEUR back below 1.1700, now 1.1675.  The relative GBP weakness comes as BoEs Bailey confirms inflation is pretty much where BoE forecasts have it and that a larger decline is expected next month. 

USDJPY dipped below 154.00 overnight after Kanda mentioned an agreement with other G7 nations that excessive currency moves help no one, and FinMin Suzuki said he met with Yellen and his South Korean counterpart,  although the move was short-lived and as I type we are 154.25, 50 or so pips off the recent highs.  Dovish comments from BoJs Noguchi who made it clear BoJ must maintain an ultra-loose monetary policy encouraged the market to sell the Yen once again.  We’ll see inflation numbers out of Japan tonight.

AUD performed well overnight after what I think looked like mixed employment numbers.  The net change was -6,600 having been expected at +7,200 but this did come on higher full-time staff and lower part-time staff.  The unemployment rate was a touch higher at 3.8% than last month, which came in at 3.7% although fell short of market expectations of a rise to 3.9%.  So if I read these right, they are not great, just not quite as bad as some feared.

We’ve had plenty of central bank speakers this week and there are more to come today, many at the IMF’s semi-annual conference.  I’m expecting more of the same really, Fed officials pushing back on the idea of a June rate cut, while ECB officials are still looking at June cuts and ECBs Vasle went so far as to say he sees rates close to 3% by year end, a drop of up to 1% or more likely three or four 25bps cuts.

As each day passes the hope rises that Israel will not retaliate for Iran’s attack a few days ago.  We know that nothing is certain and further action by Israel cannot be discounted completely, but for the time being the lack of escalation is helping he markets to some extent. Oil prices are around US$5 off the recent highs with Brent at $87.30 and WTI just above $82.   Still, geopolitical events continue to pose the largest risks.

It was a disappointing night for English football as both Arsenal and Man City lost their respective champions league quarter final matches to Bayern Munich and Real Madrid.  We have Liverpool and West Ham in the Europa league this evening.  Liverpool have a mountain to climb after losing 3-0 in the first leg while West Ham will have to overcome a two goal deficit if they are to proceed to the next round. 

With Bayern going through and Leverkusen looking likely to progress, the chance of England getting a fifth champions league place looks highly unlikely.  Spurs will have to fight very hard to get that fourth spot.  England hopes could be on Aston Villa who hold a goal advantage over Lille in their Europa conference quarter final.

Looks like it could be dry today with temperatures reaching a heady 12°c by the afternoon.  Not exactly t-shirt weather and looking at the forecast it doesn’t look like getting much above there for the rest of April.  There is of course still rain on the calendar but not quite as much as we’ve had recently.  On the subject of rain, Dubai is trying to dry out after the floods they experienced due to huge amounts of rainfall.  There has been suggestions that could seeding contributed to the extreme weather, although experts suggest it was a storm that had been well forecast for a few days previously.

Other than the many central bank speakers, the calendar is relatively light.  We have US initial jobless claims and the philly fed manufacturing survey, both important but unlikely to drive the markets too far.  UK retail sales numbers will be out early tomorrow morning, it is thought they could be disappointing after the wet weather in March.

-  13.00 ECBs Nagel speaks

-  13.30 US philly fed survey, initial jobless claims

-  14.05 Feds Bowman speaks

-  14.15 Feds Williams speaks

-  15.00 US existing home sales

-  16.00 Feds Bostic speaks

-  18.30 ECBs Schnabel speaks

-  20.30 ECBs Nagel speaks

-  22.45 Feds Bostic speaks

-  00.30 Japan CPI

-  07.00 UK retail sales