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Eyes remain fixed on Middle East

Good morning

The world remains on alert over the Gaza-Israel actions. There is a real risk of an escalation of the crisis with Lebanon and Iran, among others, suggesting they will go up against Israel and US if Israel do indeed take stronger action in Gaza. I’d really like to think Israel are committed to going after Hamas and see Palestinians as innocent bystanders but I’m not sure this is true. Suggestion is that Biden was urging Israel to take it easy when they met last week. So far we have not seen the large-scale ground offensive that Israel seem to be building up to. Some talk that hostage release negotiations are holding back the offensive.

There is so much more going on than Hamas/Israel. Russia’s Lavrov is due to visit Iran today. I seem to recall Iran were arming Russia in their invasion of Ukraine, but if the Middle East situation does escalate, Iran could well hold back from giving arms to Russia. Are Russia worried? We’ll likely never know.

The Feds blackout period ahead of their 1st Nov rate announcement is now in place. The Fed officials that have spoken recently seem to share a similar message, namely rates are likely to remain high for a long period of time, could potentially move higher again if need be but they can afford to be patient. The US economy is looking like good, with the chances of a recession receding as time goes on. Meanwhile Bloomberg reports that markets may be underestimating the chance of further US rate rises, particularly if oil prices remain high on Middle East concerns, potentially supporting inflation. I’ve seen a similar comment on ECB as well and no doubt the UK will face a similar quandary should energy prices continue to push higher.

USDJPY traded up to 150.10 overnight although it didn’t register on my charts. The move was brief, USDJPY now back just a few pips below 150.00. While there was no sign of intervention, it is possible Japan are selling USDJPY on rallies, not in enough size to take it significantly lower, but instead just to have some sort of upside cap. China are also doing their utmost to prevent further CNY depreciation, having fixed USDCNY on a 7.17 handle every day since mid-Sept, despite USDCNY really trading into the 7.30s.

GBPUSD seems settled in the mid-1.21s, EURUSD just short of 1.0600 which puts GBPEUR a smidge below 1.1500. The key is really whether we see further safe-haven USD buying and then whether US rate expectations are seen increasing. I’m thinking they’ll skip November, particularly given the precarious Middle East situation, but leave the door open for December.

It is a light calendar today although it does get busier through the week, early tomorrow morning we have the latest UK employment data as well as various PMIs from EU, UK and US. Aussie inflation and BoC rate announcement are on offer Wednesday, while we get the latest ECB rate announcement on Thursday. Plenty to keep us going.

Hope you all stayed dry over the weekend. There were a few pictures of some rather devastating floods around the country and the news suggests the flood risks will remain for another few days. The week looks set to be a bit miserable, more about drizzle than heavy rain mind you. Yesterday I was walking around London in a shirt and a light jacket, even then I felt too warm at times. If only every winters day was like that. Actually ventured into the Spitalfield/Brick Lane sort of area as its been a while since I was there last. Quite a change I must say and well worth a visit. The area is regarded as Londons melting pot, and it was reassuring to see various creeds, races and religions all getting on in one place.

In sport, England were thrashed in the cricket but almost caused an upset in the rugby, with South Africa leaving it until very late in the match to score the winning points. English hearts well and truly broken. And on the subject of sad events, the great footballer Sir Bobby Charlton passed away on Saturday at the age of 86. Easy to say he has had a full life, surviving the Munich air disaster that claimed the lives of many of his Man Utd team mates, before going on to win the world cup in 1966 with England. Somehow though 86 doesn’t sound so old these days. He was certainly one of the true greats.

- 11.00 Buba monthly report

- 15.00 EU consumer confidence

- 23.00 AUS S&P manufacturing, services PMI

- 07.00 UK unemployment

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