• richard evans

Good morning

US stocks ended the week on a high, S&P was up over 3% as some US data came out weaker than expected, raising some doubt as to how far and how quickly Fed will push rates.

Friday was reasonably quiet once again in the currency markets, GBP struggled to hold onto any gains, GBPUSD testing and failing at 1.2320 just as it had done a few times earlier in the week, before slipping back to the 1.2265 area. This morning we have seen a weaker US dollar which has helped GBPUSD to just breach 1.2300 but whether we can finally break that 1.2320 area remains to be seen. EURUSD has also ticked higher through most of Thursday and Friday, now 1.0570, which means EURGBP sits at 0.8600 (GBPEUR 1.1630). UK MPs will have their first vote today on plans to drop part of the NI protocol. With support for Johnson waning it will be interesting to see how many MPs toe the party line. Johnson meanwhile has suggested he’ll look at another term in office. EUs von der Leyen has said it will make funds available to EU nations to prevent the need for those countries to go to China looking for money.

For those with Turkish interest, TRY has made a push higher as new rules are announced by the Turkish banking regulator that restrict loans to corporates if they hold more than TRY15m in foreign currencies. The idea is that firms may be forced to switch to TRY deposits or purchase domestic bonds. USDTRY had been trading around 17.35, dropped to 16.05 early this morning but has recovered to 16.70 as I type.

The G7 are in a meeting that started yesterday and runs until tomorrow, while NATO meets Tuesday until Thursday. G7 are worried about the global economic situation, concerned that high prices are here to stay. G7 announce a ban on Russian gold which looks to prevent Russia earning from exporting gold. Gold prices remarkably stable at $1835/oz, although some resistance creeping in around $1845.

Russia seems to have defaulted on US and EUR denominated bonds for the first time in a century, having failed to make coupon payments. Russia point out they have the means to pay, funds are ready but sanctions make it impossible to get payments to international bond holders. Russia don’t see it as a default, calling the situation a farce. It shouldn’t affect Russia’s chances of borrowing from western markets, sanctions have already put paid to that, but it could see some Russian debt becoming immediately payable. Quite how they would manage this is uncertain.

As Zelensky addresses the G7, asking for additional weapons, Russia continue their offensive against Ukraine and it seems they are making ground in the East of the country, with many cities almost reduced to just rubble. G7 confirm their indefinite support to Ukraine. Many reports of grain being stolen and taken to Russia, as Ukraine struggles to export its grain due to ports being blocked.

Two more pieces of news got my attention over the weekend. Firstly, the cricket, where, barring any collapse, England look set to win the third and final test against New Zealand after what really has been a great series which has seen the fortunes of both sides fluctuate regularly. I have to say as well, from the outside, it seems as though the matches have been played in a well-mannered and sporting way which is always good to see.

The other piece of news is the decision by the US supreme court who voted to overturn the right to an abortion. Protests have been seen, and having recently watched the Handmaids Tale I can see how the US are being likened to the strict rules of Gilead. I know it’s a tricky subject for many, one that certainly polarises views, but to remove rights from US citizens is a major step, one that Biden calls a terrible decision. Democracy?

- 13.30 US durable goods orders

- 15.00 US pending home sales

- 19.30 ECBs Lagarde speaks

- 20.00 ECBs Schnabel speaks

- 07.00 german GfK consumer confidence

  • richard evans

Good morning

UK retail sales this morning showed a fall of 0.5% in May, a little less than expected although the previous month reading was revised lower and the year on year number was lower than expected at -4.7%. In answer to one of the questions I raised a while back, it would seem that actual pounds spent in that time went up, suggesting consumers are buying less goods but for more money. Overnight the consumer confidence number hit an all-time low, which is quite something when you think we have had Brexit and a pandemic in recent years, while the Conservatives are in a state of disarray this morning having lost two by-elections, Oliver Dowden the party chairman has resigned.

Despite all of this GBP seems to be holding up reasonably well, GBPUSD at 1.2270 as I type, one hundred points or so off yesterdays lows. We’ve failed a few times trying to break higher this week, a series of lower highs suggests 1.2285-1.2300 is becoming a key area. GBP a bit higher against the Euro, with EURGBP at 0.8580 (GBPEUR 1.1655). We have tested this area several times this week, each time it has failed to break lower. Well worth watching.

EURUSD is doing what it does best, trade within a tight range overnight and I would not be at all surprised if we held 30 pips either side of current levels (1.0525) for a while now. German IFO this morning is always watched closely but I don’t think it ever has a significant impact on the Euro. Famous last words? ECbs Kazimir has said he sees rates at 1.5-2.0% in a years time, pointing out that some EU nations might face short recession.

We do have a couple of other ECB officials speaking today and we look for any rate clues from them. EU have granted Ukraine candidate status bringing it closer to EU membership. Western nations continue to offer support to Ukraine in the form of military hardware, whether this is enough to hold back a Russian army that seems to be steadily taking ground is another matter.

Some attention still on Yen. USDJPY slipped back to 134.35 this morning after trying to test up to 135.20 overnight. Too early to say whether the weak yen trend has turned or whether we are just seeing some end of week profit taking. EURJPY has been dragged down to 141.65, GBPJPY to the short term support area around 165.00.

So we are getting near to the weekend. The weather looks as though it will be decent, although a little cooler than the previous few days. I’m hoping this means hayfever might not be quite as bad so perhaps I’ll be able to spend some time doing chores in the garden. If I do have to stay indoors at least it looks like we could have another great test against New Zealand. Now I come to think of it, that hayfever is already pretty bad!

I’ve also got to sort out a problem with my football team. Following or success last season I have had numerous new players asking to join, leading me to consider making two teams for next season. Plenty of logistical issues to resolve of course but it’s a possibility. Mind you, I have just been reading that for the world up in Qatar later this year, teams will be allowed a squad of 26, with all 15 non-players allowed to be named as a substitute. I bet those 15 don’t have their parents sending Southgate text messages asking why their son wasn’t playing……

- 09.00 German IFO

- 12.30 ECBs de Guindos speaks

- 12.30 RBAs Lowe speaks

- 13.30 BoEs Pill speaks

- 14.45 BoEs Haskell speaks

- 15.00 US Michigan sentiment survey, new home sales

- 20.30 CFTC position data

Good morning

Feds Powell made it clear that more rate rises are appropriate, noting that inflation in the US is more about demand than in other countries. Overall, the picture remains the same, rate rises to come, another 75bps next time round seems most likely, Powell is not taking 100bps completely off the table but its not expected. His commitment to fighting inflation will not, he hopes, trigger a recession but does add that a soft landing will be very challenging. Powell speaks again later this afternoon.

Euro is firmer helped in part by a Reuters poll that sees ECB rates at 0.75% by year end, starting with a 25bps rise in a months time. There is some talk of a 50bps rise although for now 25bps seems more likely. Either way, come September it is highly likely we will move away from negative rates in the Eurozone. Meanwhile Macron has said he will be working to find a new majority in the coming weeks, that could well be harder than he thinks. A spell of USD strength this morning sees EURUSD trade sharply lower from 1.0575 to 1.0505 but it has held gains against GBP, EURGBP currently 0.8620 (GBPEUR 1.0600). EU leaders are meeting later today, before then we will have EU PMI data, those released so far have come in lower than expected so I’m not sure we’ll see any support from this data.

GBP itself is struggling, GBPUSD had tested just above 1.2300 yesterday but as I type that USD strength I talked of has seen the pair trade to 1.2180. Another rtain strike today and I see that Merseyrail have agreed a 7% pay rise which I assume sets something of a precedent for other rail operators and indeed other unions. Already talk of another wave of rail strikes in early July if talks lead to nothing. Retail sales numbers early tomorrow morning expecting to show a significant decline.

USDJPY traded lower overnight as Nakao, an official at Japans MoF, said FX intervention cannot be ruled out, although he did add that coordinated intervention would likely prove very difficult. USDJPY, which had been up at 136.60 this time yesterday, traded down to 135.15. Currently 135.50. With USDJPY lower and GBPUSD lower it is no surprise GBPJPY has slipped, currently 165.00. GBP is holding up against AUD, which is under pressure on lower commodity prices. GBPAUD 1.7715.

So, after a fairly quiet start to the week we are starting to see markets take something of an uncertain and nervous stance. Difficult to work out a lot about direction although GBP looks one of the most vulnerable currencies right now.

- 09.00 ECB economic bulletin

- 09.00 EU S&P manufacturing, services PMIs

- 09.30 UK S&P manufacturing, services PMIs

- 13.30 US initial jobless claims

- 14.45 US S&P manufacturing, services PMIs

- 15.00 Feds Powell speaks

- 21.30 US bank stress test data

- 00.01 UK GfK consumer confidence

- 00.30 Japan CPI

- 07.00 UK retail sales