• richard evans

Good morning

The US dollar resumed its march higher yesterday with GBP, EUR and JPY all weakening against for now, the unstoppable dollar. GBPUSD traded down to 1.2105, EURUSD to 1.0435 and USDJPY up to 137.00 marking yet another new high in this cycle. USD has lost a little ground since then, USDJPY is at 136.15, GBPUSD a little higher at 1.2150 although EURUSD is still near those lows after Lagarde yesterday affirmed her commitment to a 25bps rate rise in July rather than 50bps. This helped GBP push a little higher against EUR to 0.8590 (GBPEUR 1.1640).

Powell was relatively optimistic on the US economy, while BoEs Bailey warned that he expects a further increase in inflation. New BoE member Dhingra has sounded dovish, saying new data shows a slowdown is more imminent. Meanwhile UK data out this morning was very much in line with expectations, GBP q/q at 0.8% with y/y 8.7%. EUs Sefcovic warns UK that EU will cancel deals on food, banking and data sharing if UK try to change NI protocol. He does say EU are still open to talks but cannot agree on any hard border in Ireland.

An interesting point made by HSBC yesterday that while there hasn’t been much in the way of fundamental changes in the past couple of weeks, most of their fundamental indicators have gone from bad to worse. They are concerned that the risk of recession is well under-priced and are reducing their holdings of risk assets.

Also interesting to see that CITI took profit just below parity on a short EURCHF position that they had initiated in the mid 1.01’s, at almost exactly the same time and rate that a reasonable French bank went short EURCHF looking for a leg lower to 0.09600. I really feel frustrated that I’d not really looked more at downside EURCHF once SNB lifted rates 50bps a couple of weeks ago. Hindsight is a wonderful thing, I know.

Russia don’t like the idea of Finland and Sweden joining NATO, Putin warns Russia would respond if NATO set up infrastructure there. Tensions are rising. I’m sure Russia are also very unhappy with Turkey for dropping their veto which allowed Finland and Sweden in the door.

Finally, I note that Heinz have stopped supplying Tesco with some of our favourite products such as baked beans, ketchup and tomato soup in a row over pricing. Heinz have said production costs are rising, Tesco have said they are not willing to pass unjustifiable price increases onto their customers. It is highly likely the dispute will be resolved at some point soon but I don’t think this will be the last we see of such disagreements. Difficult to know who is right. Tesco of course look like the good guys, fighting for lower prices for the customer, but we also know they have a habit of using their clout to beat down suppliers unreasonably.

- 08.55 German unemployment

- 10.00 EU unemployment

- 13.30 US personal income/spending, PCE, initial jobless claims

- 13.30 CAD GDP

- 23.45 NZ building permits

- 00.30 Japan unemployment, Tokyo CPI

- 00.50 Japan tankan manufacturing index

- 02.45 China caixin manufacturing PMI

  • richard evans

Good morning

USD pushed higher yesterday as risk sentiment waned once again, this time a lower than expected US consumer confidence number seems to be a key drive. GBPUSD fell through the afternoon to reach 1.2175 overnight, an area it tested once again this morning. Currently at 1.2190. EURUSD saw a similar move, trading down to 1.0505 yesterday and actually traded to 1.0485 this morning although has ticked back above 1.0500 as I type. GBP has fluctuated a few points either way against EUR but now at 0.8620 (GBPEUR 1.1600) it is back to where we were this time yesterday morning.

The stronger dollar has sent USDJPY higher, currently 136.15 although the declines in EUR and GBP mean EURJPY and GBPJPY are both a little lower than yesterday at 143.00 and 165.85 respectively.

The consumer confidence number is not the first US release that has been weaker than expected, leading to some to look for a smaller 50bps rate rise by Fed at their next meeting, rather than the 75bps that most are calling for. This would likely see USD retreat, we’ve so far seen little sign of this but certainly worth watching to see if this thinking spreads in the coming weeks before the FOMC meet on 27th July. US GDP out this afternoon although this is the final reading so unlikely to impact markets. Feds Daly has played down chances of a recession but the ‘R’ word still appears on a regular basis.

In Europe, France have cut their 2022 growth forecast to 2.5% from the 4% they expected earlier in the year, blaming much of the drop on the Russian invasion of Ukraine. Turkey have dropped their veto which opens the door for Finland and Sweden to join NATO, likely to be discussed at todays NATO meeting where Russia are obviously high on the agenda but challenges posed by China are also on the table.

Aussie retail sales beat expectation overnight although this hasn’t offered any support for AUD with AUDUSD down to 0.6885, AUDNZD to 1.1040 and GBPAUD back up to 1.7700 from 1.7600 yesterday afternoon. RBA rate meeting next week, RBAs Lowe has indicated either a 25 or 50bps rate rise is likely, market seems more focussed currently on a 50bps move.

ECB forum in Sintra continues with Powell, Lagarde and Bailey appearing on the panel this afternoon. Some attention actually on Bailey and whether he will offer any thinking on a possible 50bps rate rise from BoE, rather than the more standard 25bps move. UK GDP out early tomorrow morning will attract some attention, question for today is whether GBP can at least hold current levels or whether further declines are likely. For the moment a lot depends on the US dollar. That 1.2320 area looks a long way away now!

- 09.45 ECBs de Guindos speaks

- 10.00 EU confidence data

- 11.15 ECBs Schnabel speaks

- 11.30 Feds Mester speaks

- 13.00 German CPI, HICP

- 13.30 US GDP, Core PCE

- 14.00 Feds Powell, ECBs Lagarde, BoEs Bailey speak

- 16.00 ECBs L:agarde speaks

- 00.50 Japan industrial production

- 02.00 China NBS manufacturing, non-manufacturing PMIs

- 07.00 UK GDP

- 07.00 German retail sales

  • richard evans

Good morning

Another reasonably quiet day in the world of currencies, and the overnight session was equally lacking in excitement. GBPUSD tested that upside area again yesterday and actually looked like it may break, but fell back quickly to the recent range lows. 1.2260-1.2320 remains the main range, other than a couple of blips to both the upside and downside, currently bank in the middle at 1.2290 but if anything looking more vulnerable to a pullback to the range lows.

GBP a touch lower against EUR at 0.8625 (GBPEUR 1.1595) as UK MPs vote for further talks on NI protocol. EURUSD 1.0590, we have several ECB officials speaking today at their banking forum at Sintra, Portugal, including Lagarde who makes the opening speech. We will look for any information on the tools ECB will look at to avoid fragmentation, although the main event is likely to be tomorrow when Feds Powell and BoEs Bailey join Lagarde for a policy panel.

USDJPY has ticked a little higher to trade back up to the 135.75 area, taking EURJPY to 143.70 with the key 144.20 almost in sight, while GBPJPY moved up to 166.80 but watch 167.30, I think it could struggle to break above there.

Gold is back to the lower end of the recent range at $1825, a series of lower highs over the past couple of weeks has perhaps deterred longs from building positions. Key areas for me now are $1820 and $1840. Surely gold cannot hang around in this range for much longer.

Moodys has said that the Russian missed coupon payment does constitute a default and warns that further defaults are likely. Russian meanwhile have made it clear that an NATO encroachment on Crimea could lead to WWIII, this comes as NATO place 300,000 troops on a state of high readiness. The UKs head of army has said we must be prepared to fight the threat posed by Russia. G7 and others have criticised the Russian attack on a Ukrainian shopping centre yesterday, some calling it a war crime. NATO’s summit begins today in Madrid, watch for any word on Finland or Sweden joining.

Congratulations to England on winning the third and final test match against New Zealand, completing a 3-0 win in the series with both sides playing some exceptional cricket. England now take on India in the fifth test of the series that began last year and was cut short by positive Covid tests in the Indian camp. India lead the series 2-1 but England do look a different side to that from last year.

Finally, I read with interest that China have developed robotic fish that can swim around collecting minute plastic particles that could otherwise be digested by animals that live in the sea. A fantastic idea although surely this means larger sea animals will then just go and eat the robotic fish. Not so much curing a problem as creating a problem perhaps.

Finally, June positions in our currency purchase programs expire today. For those not in a program I’ll send the results around later in the week or early next week.

- 09.00 ECBs Lagarde speaks

- 09.30 ECBs Lane speaks

- 10.30 ECBs Elderson speaks

- 12.00 BoEs Cunliffe speaks

- 12.00 ECBs Panetta speaks

- 13.30 US goods trade balance, wholesale inventories

- 15.00 US consumer confidence

- 00.01 UK BRC shop prices

- 00.50 Japan retail trade

- 02.30 AUS retail sales