Good morning
Well I’ve been out and about for the past couple of days, what did I miss? BoC and ECB both cut rates 25bps, you’d be right to think this could have led to a bit of volatility but the reality is that things have been pretty stable, Certainly in the case of ECB, the cut was widely expected and priced in, indeed according to some sources some ECB officials thought it was a mistake how early ECB had seemed to commit to a rate cut, making it nigh on impossible to keep rates on hold even if they had wanted to. As it turned out, all but one member, Holzmann, voted for a cut this time, but we would not be surprised if ECB rein in their forward guidance for future meetings. A July rate cut looks unlikely at this stage.
Despite the cut, the tone of the accompanying statement was mildly hawkish, talking of the ongoing need for restrictive rates. Inflation forecasts for 2025 were raised from 2% to 2.2%, 2026 was kept unchanged at 1.9%. EURUSD has seen a 40 pip range since Tuesday, from 1.0860 to 1.0900, we are now at the upper end of that range. GBPEUR continues to fail to break that upper level around 1.1770, now 1.1745. As a reminder we’ve not been above there, other than very brief spikes, since August 2022. If you are the type to worry about a few pips over a couple of years, lets call the big level 1.1800 and then there is no debate.
CAD weakened initially on the BoC rate cut of 25bps that took rates to 4.75%, however the move was limited and we have failed to see any major follow through. USDCAD was 1.3675 at the time of the announcement, it pushed up to 1.3740 but has since made its way back lower and is now almost exactly where we were pre-rate announcement. GBPCAD now 1.7500 having seen a post-announcement high of 1.7530. No fireworks here.
GBPUSD is currently 1.2790 having also been in a fairly tight range over the past few days, 1.2760 the lower end and 1.2810 the upper. GBPJPY is back below 199, now 198.80.
Overnight we had the latest China trade data which shows a hefty $82.6bn surplus, roughly $10bn higher than had been expected, led by a healthy rise in exports.
Main event today is the US nonfarm payroll numbers. A headline in the region of +175k is expected, similar to last month. I have seen some looking for a lower headline which would indicate further slowing of the US nobs market, if we do see a lower number I would expect Fed rate cut expectations to start ramping up. The unemployment rate is expected to stay at 3.9%, while average earnings are also expected to come in the same as last month, also at 3.9%. Key risk today must surely be for a weaker USD on any weaker than expected data.
In other news, there seems to be something of an E-Coli outbreak which experts have said is likely to be from a nationally distributed food item. However we’ve not been told what that food item may be, so it is difficult to avoid it. Is it just coincidence that we have rising E-Coli cases with increased discharges on untreated waste by water companies? Surely not.
The D-Day celebrations yesterday were, as one would expect, rather moving. I use the word ‘celebration’ carefully, as the end result was worth celebrating but with it came a huge cost. The photos of young men lining up in landing craft is fairly horrifying, especially as a father of two boys who are around the same age as those lads. Their unflinching bravery, in the face of so much death and injury, is incredible. Sunak covered himself in glory by leaving the event early in order to make a TV interview. He has since apologised, but seriously, its just another mistake and I am left wondering who advises these people?
There is another TV debate this evening, this time on the BBC with seven parties including Reform, which has seen an uptick in the polls of some 5% since Nigel Farage announced he is going to stand at the next election. I do still wonder whether Reform will take votes off Tories, but at the expense of Labour. Tory voters do want change but voting for Labour would be a step too far.
England are playing their final friendly ahead of the Euro 2024 tournament this evening, taking on Iceland. The tournament itself starts one week from today with Germany taking on Scotland in the first match. I’m actually on holiday for a lot of the Euros and counted some 28 matches taking place while I’m away. Don’t worry, I won’t be watching them all, but I’m sure there will be a bar or two showing the matches just in case I need a break from the 30+ temperatures that are forecast.
No such temperatures here unfortunately, it doesn’t look like it will get the right side of 20°c any time soon, although we might be in for a dry weekend. I leave on 17th June, my guess is the weather here will turn fantastic on 18th June. I won’t be complaining mind you, just mildly worried how long the grass will be by the time I get back.
Have a great weekend as and when it comes
- 10.00 EU GDP, unemployment
- 13.30 US nonfarm payrolls
- 13.30 CAD employment
- 15.15 ECBs Lagarde speaks
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