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  • richard evans

Europe waits to see if Russia cut off gas supplies

Good morning

Another set of strong US employment numbers Friday actually seemed to bring some calm over the markets, the headline of +372k was about 100k higher than had been expected while the unemployment rate held at 3.6%. The hope is that US will avoid a recession even after a strong of sizeable rates rises from the Fed. The US dollar initially pushed higher but did lose some ground as we moved into the later afternoon. Any US dollar weakness didn’t last long mind you, the morning we see EURUSD at 1.0110 and GBPUSD down to 1.1960, having been 1.0180 and 1.2035 overnight.

It is now very much a waiting game to see whether the US dollar continues to climb. We are surely too close to parity in EURUSD to not see another test of that level. It is difficult to be anything other than bullish USD at this stage. In Europe there is much talk that Russia will cut off all gas supplies to Europe and even the idea of a rate rise in July cannot be enough to outweigh the string of rises we are seeing from the Fed. Some talk EURUSD could trade well below parity, I’ve even seen one suggestion it could hit 0.9000. Mind you ECBs Holzmann was reported to have said ECN should raise rates 1.25% by Sept, that’s really a 50bps and a 75bps rise in July and Sept, to counter inflation. Lets see if that gas is cut off first.

The strong US dollar is also evident against JPY, where new highs of 137.25 were seen overnight. I’m sorry to say that ex-PM Abe did succumb to his wounds last week and passed away, sending shockwaves through Japan. Meanwhile Kishida earned a landslide victory in Japan elections over the weekend, his government is likely to stick with the ‘Abenomics’ monetary policy. As such, the chance of easy monetary policy could lead to further yen weakness.

In the UK the race is on to find the next Conservative party leader. So far eleven candidates have put themselves forward, Rishi Sunak the current favourite at the bookies. Ben Wallace, who had been favourite last week, has slipped well down the list as he’s not yet put himself forward. Penny Mordaunt and Liz Truss are second and third favourites. Timetable for the contest will be decided today.

Covid continues to do the rounds, cases numbers remain high in the UK with one in twenty five reported to have the virus. We are still well down from the peak earlier this year but there is no doubt cases are on the rise. To prove the point, I know more people with Covid than I did this time last week. In China, there is still talk of another potential lock down in Shanghai as the latest Ba5 variant was reported to have been found.

Amazons Prime day deals begin tomorrow. Once again I don’t really need anything but I have no doubt I’ll think of things that I might look for to see if they are on special offer. For some reason I always think of LED torches, don’t ask me why. I do need to replace my petrol garden multi-tool so might have a look at those, although with temperatures up above 30 degrees today and looking likely to stay high for over a week I’m not really inclined to do much in the garden expect sit with a cold drink.

- 15.15 BoEs Bailey speaks

- 19.00 Feds Williams speaks

- 00.01 UK BRC retail sales

- 02.30 AUS NAB business confidence

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