Good morning
US retail sales a little stronger with upward revisions to last month. This served to put a stop to the USD selling we’d seen in previous days, the somewhat fickle market thinking that perhaps the US economy isn’t about to fall apart and that a 25bps cut today would be sufficient for now.
GBP was under pressure across the board yesterday as markets started to consider the possibility of a BoE rate cut Thursday. GBPUSD, which at one stage had been up at 1.3030, was back down at 1.3160, while GBPEUR which had been at 1.1880 was back down to 1.1840. In the crosses, GBPAUD, GBPNZD and GBPCAD all lost ground, showing highs to lows yesterday of 1.9580 to 1.9480, 2.1355 to 2.1280 and 1.7985 to 1.7895.
This morning GBP has made a little recovery with GBPUSD and GBPEUR now 1.3190 and 1.1855, pushed up a touch by a stronger than expected core CPI reading earlier this morning. RPI and core PPI were also higher than hoped, possibly the final nail in the coffin for those looking for a BoE rate cut tomorrow.
Of those GBP crosses, AUD and CAD are still at a similar level, but GBPNZD has slipped further, now 2.1220. The stronger NZD was down it seems to a decent Westpac consumer confidence number and a lift in milk prices. It’s a bit of a surprise coming ahead of tonight’s NZ GDP which is not expected to make good reading.
CAD CPI came in softer than expected which adds to the expectation of a 50bps cut by BoC at their next meeting in October. We’ll have the BoC minutes this evening and I’m expecting them to show to what extent a 50bps cut was discussed at the last meeting.
We are all familiar with James Bond, Ethan Hunt and Jason Bourne but we’re never sure how much of it really has any connection to real life. Well, perhaps espionage and sabotage is more rife than we think. I’ve been reading about the Iranian pagers that have been exploding, killing several Hezbollah members and injuring thousands more. Apparently Israeli Mossad agents planted explosives in some 5,000 pagers, which they were going to trigger as part of a coordinated attack on Hezbollah. They feared Hezbollah had wind of the plan so had to detonate the devices early. Iran obviously very unhappy, expect retaliation. Quite an incredible story, look out for a film about it in the coming years.
It actually reminded me of another film made about another Mossad plan, The Red Sea Diving Resort. Based on a refurbished hotel in Sudan, it was really a front set up and run by Mossad agents. Weill worth a watch, if I remember correctly.
So, to the FOMC. Therer are decent arguments for a smaller or larger cut. We’ll get the latest dot plot and growth forecasts which will give an insight into current Fed thinking. I’ve mentioned before that some in the market are looking for Fed cuts on 2024 of up to 1.25%, that’s two 50bps cuts and one 25bps cut. So one could argue whether its 25bps or 50bps today is less important than whether the dot plot suggests the 1.25% in 2024.
If pushed I’m going for 25bps only as I would fear that a 50bps cut would signal a degree of panic. No real point trying to second guess this one, might as well toss a coin. What us more important is that our clients are protected from any extreme volatility arising from the announcement, and on the whole I believe they are. Anyone, client or otherwise, who wants to discuss their particular position is welcome to contact us for impartial advice.
- 09.00 South Africa CPI
- 10.00 EU HICP
- 12.00 ECBs Nagel speaks
- 13.30 US housing starts, building permits
- 18.30 BoC minutes
- 19.00 FOMC rate announcement
- 19.30 FOMC press conference
- 23.45 NZ GDP
- 02.30 AUS unemployment
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