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  • richard evans

Can't predict the markets, can i predict the Euros?

I would not be at all surprised to see a fairly quiet day in the markets today after yesterdays rather interesting moves. Slightly talking my own book here as I rather fancy the idea of a couple of beers in the sun a bit later. Mind you it doesn’t look quite as splendid today as it does on Sunday and into early next week, with temperatures set to hit 28 degrees.

The Euro 2020 tournament begins today with Italy taking on Turkey. France remain favourites for the title at 5-1 but who can ever write off the Germans? I still fancy Italy at 8-1, they always seem to plough their way through to the latter stages, although I did mention Turkey earlier in the week as a possible outside bet at 80-1. There is usually a surprise somewhere in the field, perhaps a couple of quid on the 2018 world cup finalists Croatia at 50-1 could be worth a bet. All this talk and no mention of England, second favourites at 7-1. The trouble is, being an England fan is like being a Spurs fan. A lot of promise, optimism and expectation, but generally failing to deliver when it matters. Anyway, for the next month there’s plenty of football to watch. Doesn’t get much better than that.

USD – It is fair to say that the market moves after the strong US inflation number yesterday were the complete opposite of what would normally be expected. I’m not sure how an inflation print at 5%, so much higher than already high expectations can lead to lower yields, lower dollar and higher equities. US 10 year yields are now below 1.45%. The market really must believe the Fed and their temporary inflation thinking but even so the moves yesterday took me by surprise.

EUR –ECB yesterday kept everything unchanged, including the pace of asset purchases which on the face of it is pretty dovish. However there was a more positive tone, with upward revisions to forecasts and the use of the term ‘broadly balanced’ to describe growth risks, a phrase not seen since Dec 2018. We later heard that three members of the ECB actually wanted asset purchases under PEPP to be scaled back. EURUSD at 1.2180, has been close to 1.2200 but as yet not managed to break through.

GBP – GBP began yesterday very much on the back foot, the tensions with EU over the NI protocol taking its toll. GBPUSD slipped to 1.4080 while EURGBP climbed to 0.8640 (GBPEUR 1.1575). GBP then recovered after the US inflation release, GBPUSD pushed up to 1.4170 and EURGBP dropped back below 0.8600 (1.1630). It has been broadly unmoved by the UK data released this morning, focus still seems to be on the EU/UK border issues. Macron says he would veto any attempt to renegotiate the deal struck back in December, pressure on the UK to abide by the agreement.

Meanwhile the reopening that had been hoped for by 21 June looks quite likely to be pushed back as Covid infection cases rise. We need to see if hospital admissions climb at a similar rate. If so, the vaccines may not be doing quite the job we hope which would not only be bad for the UK but for the world in general. Worrying times. BoEs Bailey speaks this morning but I doubt he’ll say anything to help us breach the 1.4200 area.

XAU – Chatting to a regular reader about gold yesterday reminded me I’d not written much about the yellow metal recently. Back in mid-April I had looked at upside gold options, taking my choice between a two month $1800 call for $25/oz or the $1800 call knocking out at $1875 for just $5/oz. I chose the latter for a cheap play. Certainly a lesson that you get what you pay for. Mine has been knocked out while the more expensive option is $100 in the money with a week still to run. Can’t win them all, but that’s little consolation.

- 09.30 BoEs Bailey speaks

- 13.30 CAD capacity utilisation

- 15.00 US Michigan sentiment survey

- 16.00 BoCs Beaudry speaks

- 20.30 US CFTC position data

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