Good morning
It’s a little cooler this morning after some quite incredible temperatures yesterday. I’d looked at our grass in the day which is obviously so dry and brown, almost straw-like, and said to my wife that its clear how fires can spread so quickly when everything is so dry. Minutes later news reports were coming through about fires breaking out including some only a few miles away from us. The worst was in Wennington, East London where a fire that started in fields quickly spread to nearby houses.
I hadn’t been outside much during the day but when I did step outside it was noticeably warmer. We did however get a bit of rain and a brief thunderstorm, more are expected today. Temperatures should be back to the high 20’s. If I’m not mistaken that’s the end of the seriously hot spell.
One area that is remaining super-hot though is inflation, the UK reported a headline up at 9.4% this morning, a little above estimates, while core CPI held at 5.8%. BoEs Bailey talked of a possible 50bps rise at the next rate meeting. GBPUSD holding around 1.2000. The race for the next PM is on, we’ll be losing one of the remaining three today. Truss is now bookies favourite, followed by Sunak, with Mordaunt slipping back.
More positive risk sentiment has seen the US dollar weaken in the past day or so, yesterday US equities ended up around 2.5-3.0%, many Asian equities followed suit. Talk that Russia may resume energy supplies to Europe helped. Whether this rally can be sustained is another matter.
Some attention on EU current account data this morning. The last two months have shown deficits and it is thought another deficit is likely, perhaps even larger than the –EUR5.8bn reported last time. EU current account has been in a surplus for many years, the invasion of Ukraine seems to be the catalyst here. Historically, when EU has a current account deficit, EURUSD was either moving lower or below parity. Just maybe worth keeping an eye on. EURUSD now testing yesterdays highs around 1.0260 on general USD weakness, plus talk of a possible 50bps rate rise from ECB tomorrow. We are not far off the high since that sharp move lower on 5th July.
Draghi speaks today, still a question over whether he will resign or give the coalition another try. An election is quite likely, which could actually give Draghi additional support, but if the political situation in Italy remains uncertain then I’d imagine the German-Italy bond yield spread will widen. Maybe ECB’s new fragmentation tool will be called upon soon!
RBAs Lowe seems to have offered support to AUD even though his comments were not too dissimilar to the RBA minutes that were released yesterday. He did say RBA was on track to continue raising rates in the coming months. AUDUSD now 0.6910, AUDNZD 1.1050 but take a look at GBPAUD, now 1.7370 and not far off a support line that goes back to late 2017, coming in at approximately 1.7200.
China has seen a spike in Covid cases, it is difficult to know what the real situation is out there but we do know they are battling hard to keep their zero-Covid strategy working. Covid is certainly here with us in the UK, with one on twenty reported to have the virus. A new variant, Centaurus, is being talked about. The list of symptoms of Covid now is long, and covers almost every ailment including high temperatures, cough, aches, headache, sore throat, nausea, feeling tired. I know a few people who have been ill with many of these symptoms but not tested positive, it is likely they had an illness other than Covid but I wouldn’t be surprised if the lateral flow tests are not quite as accurate as they perhaps used to be.
My eldest returns from a week’s holiday in Kavos where I have no doubt most of his time was spent in parties, crowded bars, nightclubs etc. I’m sure he’ll have many of those symptoms listed above but hopefully just because that’s what you get after a week of heavy partying. Might have to put him into quarantine for a few days though just in case. Won’t bother him, after a week in Kavos I reckon he’ll happily sleep for another week to get over it.
- 08.30 Draghi speaks
- 09.00 EU current account
- 13.30 CAD CPI
- 15.00 US existing home sales
- 15.00 EU consumer confidence
- 23.45 NZ trade balance
- 00.50 Japan trade balance
- 02.30 AUS NAB business confidence
- 04.00 BoJ rate announcement
- 07.00 BoJ press conference
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