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  • richard evans

BoE keep rates unchanged, now attention on US employment numbers

Good morning

For this week, US data releases will be one hour earlier at 12.30 or 14.00 london time due to the clock changes.

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

US change their clocks this weekend so we’ll be back to normal next week

BoE did indeed leave rates unchanged at yesterdays meeting. Forecasts from BoE suggests inflation could be below 2% within three years if interest rates are kept at current levels. Rates will be restrictive for a long time to come but this doesn’t mean rates will stay at 5.25% for the next three years. However it does reduce the prospect of any further rate rises which in turn makes it more likely that the next rate move, whenever it comes, is down. Don’t expect anything until at least mid-2024 although some don’t think we’ll see a reduction until 2025.

The vote was 6-3 in favour of staying on hold this time compared to 5-4 last. BoEs Bailey once again talked of an expected drop in inflation in October, but BoE forecasts also suggest zero UK growth through 2024. We hear from BoEs Haskel today, one of the three who voted for a 25bps rise, so expect some hawkish comments from him.

GBPUSD traded up to around 1.2225 after the announcement. It has been unable to hold those gains but for now seems comfortable around the 1.2190 area. Similarly, EURUSD traded up to 1.0665 yesterday, now a bit lower at 1.0630. GBPEUR has so far been unable to regain 1.1500, now 1.1470, EUR perhaps finding some support from Schnabel’s comments who said that while good work has been done in getting inflation down from its peak, the door to further rate rises is not yet closed.

We have PMIs from US today but highlight is likely to be US employment numbers this afternoon. After the larger than expected headline of +336k last month, a headline around +200k is expected.

We also see CAD employment numbers this afternoon, USDCAD is currently 1.3740, down from Wednesdays high around 1.3900, itself the highest level seen since Oct 2022. A strong number today may back up BoCs comments from earlier in the week that rates may need to move up further, one of the few major central banks to talk of higher rates.

No sign of a ceasefire in Gaza, there have been reports doing the rounds that Hezbollah will join the fight. Their leader is due to address his followers sometime today, the address had been announced a few days ago which has led to increased speculation about its content. There is a real danger of a wider conflict and if Iran-backed Hezbollah are dragged into the battle, there must be more chance of US helping Israel. Watch this space.

I was out much of yesterday so haven’t yet seen Sunak’s interview with Elon Musk on AI. However there is no doubt AI could help greatly, in the world of medicine for example, but it is also potentially damaging and somehow needs to be controlled. I have no idea how it can be controlled, and I’m not sure anyone else knows either. I’m not talking about human-killing robots (just yet) but our future will likely see some very genuine, but actually very fake, news reports and it will become increasingly difficult to pick out the real from the made up stuff.

Storm Ciaran has passed, we didn’t get much of it but I did see some images from my cousin who knows someone in Jersey and it was pretty appalling, every house in their street had windows blown, missing roof tiles and in some cases the whole roof had gone. I’ve seen pictures of Tuscany which has witnessed wide-scale flooding. Montemurlo, near Florence, reported 20cm of rain since Thursday afternoon, causing the river Bisenzio to burst its banks and there are videos of cars being swept away by torrents of water flowing down streets.

Venice is reported to have seen the highest water levels since 1872 which left much of the city under water although its peak tide of 154cm was still 33cm lower than seen in 2019 and 40cm lower than the highest ever tide recorded in 1966.

As I type I have sunlight pouring in through the windows which is a pleasant change from the dreary, miserable rain we’ve been having over the past few days. I’d like to say the sun is here to stay but the forecast suggest otherwise, with more rain to come today and tomorrow. Still, we’ll be able to sit back and enjoy watching England take on Australia in the wold cup cricket. Think I might give that one a miss actually. We can look forward to a weekend full of premier league football, Spurs don’t play until Monday so it likely they’ll be toppled from their current spot at the top of the table unless we see some surprising results from other matches. It was good while it lasted.

- 10.00 EU unemployment

- 12.15 BoEs Pill speaks

- 12.30 US nonfarm payrolls

- 12.30 CAD employment

- 13.45 US S&P composite PMI

- 14.00 US services ISM

- 16.00 BoEs Haskel speaks

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