RBNZ surprise with 50bps rate rise

Good morning

USD weakness continues to be the key theme. EURUSD has been up to 1.0970, GBPUSD to 1.2525 and gold has enjoyed a run higher, now up at $2025/oz, not a million miles off the record highs of around $2070 made back in 2020. Weaker than expected US factory orders yesterday didn’t help the USD but it looks like it was the JOLTS jobs data that really helped USD reach new lows. JOLTS was not exactly weak but was lower than expected, with the previous reading revised lower as well. This comes ahead of Fridays US nonfarm payroll number.

RBNZ surprise with a 50bps rate rise to take their rates to 5.25% which sent NZD higher, GBPNZD trading from a high yesterday of 1.9875 to 1.9580, while AUDNZD fell from 1.0790 to just below 1.0600. GBPNZD has recovered to around 1.9700 but with RBNZ signalling the potential for further rises expect NZD to have some support.

RBAs Lowe did speak overnight, saying that although RBA left rates unchanged this week, rates had probably not yet peaked. With GBPAUD now up at 1.8600 it would seem not everyone believed him.

Trump was arrested and has pleaded not guilty to the 34 charges. Talk he may face additional and possibly more serious charges over the 2020 election and the 2021 attacks on the US Capitol.

Finland has joined NATO, prompted by the Russian invasion of Ukraine, while Sweden’s application for membership is currently being blocked by Turkey and Hungary.

Bloomberg has suggested that Canada’s Toronto-Dominion Bank could be the next bank to come under pressure, citing its exposure to a slowing Canada housing market plus its large stake on the broker Charles Schwab. I’d mentioned them back in late March after their shares plunged over fears clients were pulling money out. They remain near the recent lows. Toronto Dominion shares though seem to be holding around $60 for the time being having been down to around $55 in March. Not sure if Bloomberg are right or if they are just trying to find someone to target.

It’s a long weekend coming up in the UK with holidays Friday and Monday, and some people are certainly already in holiday mode. Just remember that Friday does see the US nonfarm payroll number, and while we are also hoping to enjoy a bit of time off there is potential for some volatility around that release, as such we’ll be watching closely just in case. No rest for the wicked…

- 09.00 EU S&P composite PMI

- 09.30 UK S&P composite PMI

- 13.15 US ADP employment

- 13.30 US goods trade balance

- 13.30 CAD Intl merchandise trade

- 14.45 US S&P services, composite PMI

- 15.00 US services ISM

- 02.30 AUS trade balance

- 02.45 China caixin services PMI

GBPUSD higher as i type....now 1.2470

Good morning

US dollar weakened through the day yesterday and that theme has continued into this morning, with GBPUSD at 1.2435 as I type, EURUSD testing that 1.0920/30 that has held a few times in the past couple of weeks. GBPEUR back up to high 1.13s, not quite breaking 1.1400 yet. Further upside for both EUR and GBP is possible, but depends greatly on overall risk sentiment. As we have seen recently, if sentiment turns sour, USD will push higher.

Plenty of thinking though that ECB have potential to increase rates further than the market currently prices in and as such there is ongoing interest in upside EURUSD trades. For now corporate interest seems happy to sell GBPUSD at these levels, or close to,.

RBA left rates unchanged this morning, AUD weakened on the release with GBPAUD trading from 1.8285 up to 1.8360 initially and then onto 1.8400 this morning. RBA statement did include the line ‘some tightening may well be needed’ which is slightly less hawkish than the previous ‘further tightening will be needed’.

RBNZ rate announcement tonight where a 25bps is expected but I do wonder whether the market will now consider ‘no change’ as a possibility. Its an outside chance, given the expectations for two 25bps rises, one tonight and one next month. AUDNZD now 1.0725, support noted at 1.0675. RBAs Lowe speaks tonight, soon after the RBNZ announcement. If we see decent NZD upside after the RBNZ, I wonder whether Lowe will try to sound a bit more hawkish to give AUD some support.

We are going to have some weird times in the US political arena. Trump seems to have increased his lead in the Republican presidential nominations for 2024, at the same time he faces charges in a New York court today. He is expected to plead not guilty. You’ll know I wasn’t completely against Trumps Presidency first time round, but I don’t think the world needs him in charge of the US for a second term. Enough is enough. I am still amazed though at the lack of decent candidates the US can offer out of the 330 million or so people living there.

Oil prices are stable after the rally yesterday that came as a result of the surprise announcement of OPEC+ production cuts. US have voiced their unhappiness at the cuts but they have little clout these days and their words will fall on deaf ears.

Don’t be fooled by the sunshine this morning, its freezing outside, we’ve had a thick frost. However it should warm up through the day, the rest of the week the weather looks pretty mixed. Make the most of the sunshine while you can.

- 15.00 US factory orders, JOLTS job openings

- 16.30 BoEs Pill speaks

- 17.30 Feds Cook speaks

- 23.00 AUS S&P services PMI

- 02.00 RBNZ rate announcement

- 02.30 RBAs Lowe speaks

Oil prices higher as OPEC+ surprise with production cut

Good morning

I hope you had a terrific weekend.

We awake this morning to a bit of a ‘risk-off’ feeling. Oil prices have leapt higher as OPEC+ announce production cuts of just over one million barrels per day, a move designed to support the stability of the oil market, they say. The US are not happy with the surprise move while futures prices suggest a mixed opening in the share markets.

Meanwhile USD has continued to move a little higher as it had done through late Friday trading. GBPUSD reached as low as 1.2275 this morning, now 1.2305, while EURUSD moved to 1.0790, now 1.0820. BoEs Haldanes comment that we could see a pause in UK rate rises did help GBP trade towards the lower end of what had been quite a tight range in GBPEUR overnight, now 1.1370

I don’t think ECBs de Guindos helped matters over the weekend, warning of risks that ECB are monitoring closely in the financial sector, adding that inflation likely to remain firmer for longer. ECBs Panetta said something we have been thinking for a while now, that firms are keeping prices higher than necessary to take advantage of higher profits, which in turn boosts inflation, in turn leading to higher rates.

RBA rate announcement in the early hours of tomorrow morning. There is a difference of opinion on this one, some see a 25bps rise most likely while others see RBA taking a pause, after raising 25bps back in the early March meeting. Back then they mentioned that although further tightening would be needed, inflation had peaked and growth had slowed. GBPAUD 1.8405 for the record.

I’ve noticed a little more talk recently over the possible BRICS currency. This has been talked about for a while now but I thought it had died down a bit but at the next BRICS summit in August it is likely to be high on the agenda. For years I’ve mentioned, on and off, the impact of currencies losing their reserve currency status. USD has been the reserve currency for so long now but the playing field is changing.

In football, Arsenal continue to lead the way with Man City following closely behind. Spurs play this evening, a crucial match if Spurs want to keep their hopes of a top-four finish alive. Three Premier leagues teams without a permanent manager now after Chelsea and Leicester removed Potter and Rodgers, Spurs having recently parted company with Conte.

All about PMIs today, although the larger geopolitical risks remain the key driver. It’s a bit chilly here but look like it’ll warm up and indeed we should have some decent sun over the next couple of days, a decent enough start for the kids holidays, just as long as you’re not trying to get out of Dover….

- 09.00 EU S&P manufacturing PMI

- 09.30 UK S&P manufacturing PMI

- 14.30 CAD S&P manufacturing PMI

- 14.45 US S&P manufacturing PMI

- 15.00 US manufacturing ISM

- 15.30 BoC business outlook survey

- 23.00 NZ business confidence

- 05.30 RBA rate announcement