Feds Powell casts doubt on US rate cuts, but GBP up after UK inflation numbers

Good morning

It was an interesting day in the currency world yesterday, the US dollar weakened a little through the morning, pushing GBPUSD up to 1.2470 and EURUSD up to 1.0650, but those moves reversed through the afternoon, and a hawkish Powell sent USD higher still after the London close, taking GBPUSD and EURUSD down to 1.2405 and 1.0600 respectively.  

He mentioned the lack of progress on inflation so far in 2024, perhaps suggesting his previous ideas that Jan and Feb numbers were just a bump.  He also made it clear that Fed can only consider rate cuts if inflation falls.  The divergence in Fed and ECB views is clear, as Lagarde yesterday spoke of the potential for a June cut by ECB.  Even BoEs Bailey said that UK could well be cutting rates before the US.

USDJPY had an odd move lower, moving from 154.75 to 153.90 in a straight line but did work its way back to the 154.60 area.  The move was unexplained but is perhaps a sign of how nervous the markets are when it comes to certain yen moves.  CITI see 155.00 as something of a line in the sand for BoJ

Canadian inflation was pretty much in line with expectations yesterday, but with core coming in at 2%, down from 2.1% last month, CAD did see a bit of weakening which drove USDCAD to 1.3840 from 1.3780.  USDCAD now is 1.3820, having held above 1.3800 ever since the release.

NZ inflation overnight looked like it was heading in the right direction, coming in at 4% from 4.7% last time.  However the emphasis by RBNZ on non-tradeable inflation which accelerated sharply has helped NZD push higher after the release, not substantially but certainly a lot more than the headline would suggest is reasonable.  RBNZ will be on guard so watch for any hawkish talk from them in the coming weeks.   

GBP made gains after this mornings inflation release.  Both the headline and core reading were lower than last month but not quite as low as had been hoped.  GBPUSD has so far reached 1.2470, and with EURUSD holding around 1.0625, GBPEUR crept a little higher to 1.1735.

We’ll see EU inflation numbers later this morning, the rest of the calendar today is filled with a plethora of central bank officials speaking.  I’m out and about again visiting both existing clients and new clients, one of my favourite parts of this job although I’d prefer it to stay dry while I’m driving around.  We were hit with another deluge of hail yesterday, quite fun to watch but I’ve had enough of it given its now mid-April.   Nothing on the forecast to suggest it’ll get much warmer over the next week or two although as I type the sun is shining.

By now you are aware of my dislike for water firms, but I saw an article yesterday, not exactly certain when it was actually from, of the boss of United Utilities being asked about profits made (£300m) and dividends paid (452m), while trying to explain why it was reasonable to allow thousands of litres of waste flow into lake Windermere.  Their suggestion that they have invested some money over the years certainly didn’t make up for the amount of waste leaked and the incredible dividends paid.  I’ve not personally verified the numbers I’m quoting but I don’t really need to.  The lack of investment in infrastructure by water companies while paying away substantial sums to shareholders is nothing short of criminal.

In sport, the champions league saw a turnaround from the first legs in yesterdays matches with PSG and Dortmund overturning defeats in the first leg to beat Barcelona and Atletico Madrid to make it through to the semi-fianls.  This evening sees Man City and Arsenal in action against Bayern Munich and Real Madrid respectively.  Both first legs ended with scores even after some incredibly exciting football. Hoping for more of the same this evening.

Rory McIlroy has denied reports he could look to move to LIV golf in a deal rumoured to total around US$850m.  His strong anti-LIV stance would make such a deal unusual although there does come a point where the money is so large it is difficult to say no.  There is doubt over whether the claims were ever true but that never stopped anyone making a good story.  No smoke without fire mind you

Ah, speaking of smoke, the government, with cross-party support, have passed new laws that will make it illegal for anyone born after 2009 to buy cigarettes, although the act of smoking itself will not be outlawed so there would be nothing to prevent those people buying cigarettes overseas and bringing them into the country.  Not sure where I stand on this.  There is no denying that smoking is bad for the smoker and indeed for people around the smoker, but I’m not sure it is the governments job to tell us what we can or can’t do.  Well, I say that, but some substances are already banned so I guess it’s nothing new.  New Zealand tried to bring in a similar law but then overturned it late last year.  No doubt this will be a talking point for some time to come.

One more talking point is the weather in Dubai.  I might complain about rain here but we are used to it.  Anyone heading to Dubai for some winter/spring sun be warned.  The area has been hit by torrential rain, one years worth in just one day.  Flights were have been diverted as the airport was under water, and images show roads flooded, and cars homes partially submerged.  Other parts of UAE are also affected.    

That’s all for now, I have to get on the road for my meetings.  Have a great day…

-  10.00 EU HICP

-  13.05 BoEs Greene speaks

-  14.00 ECBs Cipllone speaks

-  16.45 ECBs Schnabel speaks

-  17.00 BoEs Bailey speaks

-  18.45 ECBs Lagarde speaks

-  19.00 BoEs Haskel speaks

-  19.00 Fed Beige book

-  22.30 Feds Mester speaks

-  00.15 Feds Bowman speaks

-  02.30 AUS unemployment

-  02.30 AUS NAB business confidence

Strong US data and doubts over rate cuts continues to support USD

Good morning

US data continues to beat expectations to the upside, yesterday it was retail sales that came in better than expected, both in terms of the headline and also a revision higher to the previous reading.  Rather than send the US dollar scurrying higher, it served more as general support which capped GBPUSD near the 1.2500 area and similarly EURUSD around 1.0665.  Neither pair has seen those levels since, GBPUSD currently 1.2445 and EURUSD 1.0620, leaving GBPEUR at 1.1715.

UK unemployment numbers out earlier this morning didn’t offer much help for GBP, with the unemployment rate ticking up to 4.2% from 4% expected and a drop of 156k in the employment numbers.  From an inflation perspective, the average earnings held up at 6% and 5.6% (excluding and including bonuses).

USDJPY took advantage of that additional support for USD, the pair climbed to a high of 154.60 earlier this morning, now just a few pips lower at 154.45.  We’ve has the usual verbal intervention but nothing more serious as yet.  HSBC have chances of intervention at 5 out of 5 although I have seen others who, while the acknowledge the increased risk due to the weak yen, think Japan are more likely to seek support from the G7 at their June meeting.

The key issue for the time being remains the possibility of Fed rate cuts.  Feds Daly was the latest Fed official to make it clear Fed do not need to rush into rate cuts, preferring to be sure inflation is heading back to 2% before calling for easing.  Meanwhile, UBS have raised the possibility of US rates moving higher to 6.5% by mid-2025 if inflation does not recede.  This is not their base case, that remains for two rate cuts this year, but is something they see as a possibility.

The world is waiting to see what response Israel will make over the Iran attacks.  Everyone, US, EU and Iran included, are making it clear they see no need for escalation although Israel still vow some sort of response.  If further action is taken by Israel, Iran have said they would respond.  Seems to be in the hands of the Israelis at the moment.

Canadian inflation numbers are out this afternoon and we’ll hear from BoCs Macklem this evening.  For the record USDCAD is up at 1.3800, the highest level since November, while GBPCAD is 1.7160.

We have plenty of other central bank officials on the calendar today including Feds Powell who I believe speaks with Macklem this evening.  Several other Fed and ECB officials on the calendar, while BoEs Bailey is also in todays line-up.  He speaks ahead of the UKs latest inflation numbers that are out early tomorrow morning.  The market is looking for a drop in both the headline and the core readings, at around 3.1% and 4,1% respectively.

In other news, two items caught my attention. One was the furore over the Chinese runner He Jie who won the Beijing half-marathon but only after the three leading African runners all seemed to slow and wave Jie through, waiting for him to cross the line first.  Organisers are investigating the incident, although there is an attempt to say the African runners were in fact pacemakers rather competitors.

The other item was that a couple were divorced by mistake after a computer error at law firm Vardag.  A staff member opened the wrong client file when trying to finalise a divorce for a different client.  The courts have said the decision has to stand.  The newly divorced couple were separated and in the throes of negotiating finances before their divorce was to be finalised.  I’m not sure how the divorce impacts those negotiations but from what I read the husband seems happier with the mistake than the ex-wife who was the one who filed for the divorce. 

Finally, Chelsea have their hopes of European football next year a boost with an impressive 6-0 win over Everton last night.  They have a game in hand over Man Utd who are currently in seventh place, and would go ahead of them on goal difference if they did get the three points in their next match.  Mind you they have the small issue of the FA cup semi-final against Man City to contend with first, that’s this coming Saturday.  Before then it’s back to Champions League quarter-final action today and tomorrow.  The first legs were incredibly exciting matches, lets hope for more of the same. 

Have a great day.  Not sure its going to be warm and sunny, forecast suggests a wet afternoon, but hopefully will be less wet and windy than yesterday.  And we can do without the hail as well please!

-  10.00 German ZEW

-  13.30 US housing starts, building permits

-  13.30 BoC CPi

-  14.00 Feds Jefferson speaks

-  14.15 US industrial production

-  15.30 ECBs Nagel speaks

-  17.30 ECBs Villeroy speaks

-  17.30 Feds Williams speaks

-  18.00 BoEs Bailey speaks

-  18.15 Feds Powell speaks

-  18.15 BoCs Macklem speaks

-  21.00 ECBs Nagel speaks

-  23.45 NZ CPI

-  00.50 Japan trade

-  07.00 UK CPI, RPI, PPI

I didn't win enough for picking the first three horses in the Grand National

Good morning

With so much going on in the world right now it would be easy for me to overlook a very important point, so I’ll get it out of the way first.  Anyone who read Friday's report will have seen the three names I picked out for the Grand National.  They finished first, second and third.  I’d backed all of them to finish in the top four, as such came out something of a winner although with small stakes and quite short odds it was hardly what anyone would call a huge windfall.  Had I thought of trying to name the top three I’d have won a considerable amount more money, but I guess I should be happy with what I have.  Doubt I’ll ever manage that feat again mind you.

The US dollar continued to push higher Friday, GBPUSD sank to 1.2430, EURUSD slipped to a low of 1.0625, both the lowest levels since November.  There had certainly been some safe-haven USD buying ahead of the weekend as the world waited to see whether Iran would attack Israel.  They did,  with a huge wave of drones and missiles, but Israeli defences together with US and UK help, the vast majority of those missiles were intercepted.  It is almost a win for all sides, Iran have retaliated in a large way but no major damage has been inflicted.  Now we wait to see whether Israel retaliate, I suspect they won’t, but the threat of escalation is certainly there and one Israeli official has been quoted as saying there would be a significant response, although US seem to have made it clear that they would not support any counter offensive against Iran.

The USD strength is not all about safe-haven buying though.  A series of strong economic data has pushed back the chance of rate cuts, remember it was not that long ago the market was looking for up to six rate cuts through 2024.  Now the market is fully pricing in just one cut, but some are thinking we’ll be lucky to see any cuts at all this year.  This compares with the ECB who look almost certain to cut in June, while BoE remains a bit more of a mystery but with a weaker economy than the US we must surely be looking at an earlier cut from BoE than Fed as well. 

The BoE review by ex-Fed Chairman Bernanake was concluded Friday, with a series of reforms to rate forecasts and guidance proposed.  BoE has said they will act on the proposals, but it wo;t be an overnight change, they have said there will be more specifics by the end of the year.

Meanwhile the situation in Ukraine is not sounding good, with talk of shortages in supplies for Ukrainian forces and Russia looking likely to make gains as it prepares for further pushes into Ukrainian territory.  Europe and US seem to have slowed down the provision of ammunition and supplies which will take its toll on Ukraine.  New sanctions over the weekend see deliveries of certain Russian metals banned, leading to a jump in metal prices on the LME.  Many, myself included, will be surprised that this was not already in place.

USDJPY continues to make new highs, it is now 153.95 and with a strong US dollar there is little Japan can do to turn the tide.  Intervention would likely offer just better levels for the market to get long, so for now I wouldn’t be surprised to see Japan sitting back and offering just the usual verbal intervention.  It would need pretty coordinated  action from other central banks to turn this trend.

I should mention gold as well, which spiked to $2,430 Friday afternoon but fell back almost $100 to $2,335 before closing at $2,345.  It did try to push higher when trading reopened but now sits just above $2,350.  It will take a brave man to bet against us seeing higher levels in gold through the week. 

We have a fairly busy week ahead with UK unemployment tomorrow, inflation Wednesday, and retail sales Friday, while we will also hear from BoEs Bailey a couple of times this week.  Before then we have US retail sales this afternoon, the week also brings EU, CAD, NZ and Japan inflation and Aussie employment.

In sport, congratulations to Scottie Scheffler who won the US Masters golf for the second time, and perhaps became one of the few pre-tournament favourites to win the green jacket.  It was a weekend of surprises in football, with both Liverpool and Arsenal losing and as such potentially putting the title into the hands of Man City.  With Villa winning and Spurs losing handsomely to Newcastle, a top four finish for Spurs is in jeopardy.  They still have to play Arsenal, Liverpool, Man City, and Chelsea, and they’ll need to raise their game if they are going to get any points from those.  A finish outside the top six could be a possibility.

We were treated to  some pretty decent weather over the weekend, with plenty of sunshine and temperatures creeping just above 20°c for some of the time.  I hope you enjoyed it while it lasted, we’re likely to see heavy wind and rain today and the rest of the week looks pretty miserable as well.  Even if it can stay dry, which seems unlikely, temperatures will be back below 15°c.  It has better be a decent summer!

-  10.00 EU industrial production

-  12.15 BoEs Breeden speaks

-  13.00 ECBs Lane speaks

-  13.30 US retail sales, NY empire state manufacturing survey

-  01.00 Feds Daly speaks

-  03.00 China GDP, industrial production

-  07.00 UK unemployment