Good morning
An incredibly strong nonfarm payroll headline from the US, together with a surprise reduction in the unemployment rate to 4.1%, a rise in the average hourly earnings number and upward revisions to previous releases all served to limit expectations of another 50bps rate cut by the Fed in November. Indeed the markets are now pricing in pretty much a 25bps cut for November. Indeed, some of the bigger banks are now looking for 25bps rate cuts from the Fed at their next five or six meetings. We’ll hear from several Fed officials later today.
As a result we saw USD strength which took GBPUSD from 1.3170 to 1.3070 (now 1.3100), while EURUSD slipped from 1.1030 to 1.0950 (now 1.0970). GBP has made ground over the Euro after hitting those lows Thursday following BoEs Bailey comments, GBPEUR had been as low as 1.1860 but has since recovered to the 1.1960 area. A rate cut this month from ECB is highly likely according to many ECB officials, although there is still two weeks to go until the meeting and as we know plenty can happen in that time. Still, a rate cut looks probable and the upside for EUR is likely to be capped ahead of the announcement.
USDJPY also made gains, trading just above 149.00 for a brief time, now 148.40. The Yen weakness isn’t just down to the stronger US dollar, we have also witnessed some dovish talk from BoJ officials and new PM Ishiba which helped push yen lower. GBPJPY currently 194.25.
Looking ahead, China markets reopen tomorrow after a week or so of holidays. Remember the last trading day saw huge gains in Chinese equities following the announcement of stimulus measures, tomorrow is likely to see further gains with some commentators looking for a rally of around 15%. There is also some suggestion that China could introduce yet more measures to show just how serious they are in supporting the economy.
In the early hours of Wednesday morning we’ll have the latest rate decision from RBNZ. A 50bps is widely expected, there are still some looking for a more sedate 25bps but overall the market is pricing in the larger cut. RBA minutes tonight likely to confirm Aussie rate cuts are not likely any time soon, no sirprise then that AUDNZD is close to two month highs at 1.1045.
The highlight of the week is likely to be the US CPI inflation release on Thursday. The market is hoping for softer numbers, but any upward surprise is likely to knock the idea of a strong of Fed rate cuts and we could well see a stronger US dollar. If they do come as expected I’d not really expect much in the way of market impact. Bold words perhaps!
Today marks one year since the shocking Hamas attacks on Israel that killed around 1,200 people and triggered the ongoing Israeli offensives in Gaza and Lebanon. Of course, we also have the very real potential for further escalation as Israel continues to talk of possible retaliation on Iran following their recent missile attack. So far this retaliation has not materialised, but it certainly remains a real possibility.
Probably best I don’t dwell too much on the weekend sport. Spurs looked comfortable at 2-0 at half time to Brighton, only to lose 3-2, while Mark’s Leeds conceded a late equaliser by Sunderland which was either a goalkeeping howler or a shocking bounce. We now look forward to international action, England take on Greece on Thursday evening.
The forecast for the week seems to have changed, it looks warmer and drier than when I looked last week, we could up near 20°c today. Meanwhile, Florida, still reeling from Helene, is bracing itself for another hurricane to make landfall Wednesday, which could see some 500,000 people evacuated. We still don’t know the full extent of the damage from Helene but I have seen some pretty incredible before/after pictures and read some horrific stories that, if true, suggest a death toll far greater than that currently reported.
Apologies, didn’t mean to finish on that sad note. I’m thinking the markets might be quiet ahead of China market reopening and the data later in the week. Have a great day.
- 10.00 EU retail sales
- 18.00 Feds Bowman speaks
- 18.50 Feds Kashkari speaks
- 23.00 Feds Bostic speaks
- 23.30 Feds Musalem speaks
- 00.01 UK BRC retail sales
- 00.50 Japan current account
- 01.30 RBA minutes
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