Good morning, welcome to November
US data releases will be one hour earlier at 12.30 or 14.00 london time due to the clock changes.
In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.
US change their clocks this weekend so we’ll be back to normal next week
GBP took quite a sharp tumble yesterday afternoon, which saw GBPUSD fall from around 1.3000 to 1.2845, GBPEUR made a similar move from around 1.1940 to 1.1840, other GBP crosses were also sharply lower. This was a GBP move, led by a pretty hefty sell-off in UK gilts which suggests the market is looking for less rate cuts from BoE after the budget and higher costs for government borrowing. Now, you’d be right in thinking that higher rates would lead to a higher GBP but the market doesn’t like the uncertainty the budget has created, particularly from the vastly higher borrowing, up to some £140billion over the next few years, and the potential upside impact on inflation the budget brings. We’re still looking at a 25bps rate cut next week, but fewer cuts through next year.
OBR’s report shows GDP is expected to rise from its pre-budget forecasts in 2024 and 2025 due to the short term measures, but for 2026 onwards GDP is forecast to be lower. Great work! At least it wasn’t a Truss/Kwarteng style GBP collapse but it is hardly a glowing endorsement. This morning some of the GBP losses have been reversed, GBPUSD is now just above 1.2900 and GBPEUR is around 1.1885, while the GBP crosses are all well off yesterdays lows.
In other news, Israel have warned of a possible attack from Iran out of Iraq, while Iran do seem to have confirmed plans for retaliation Oil prices have shifted higher. Meanwhile, Ukraine have warned that their troops could well be facing North Korean forces fighting alongside Russian soldiers within days. Despite hopes, both wars do seem to be escalating and more countries are being brought into the conflicts. Worrying.
Also worrying is the news that Spain could face more heavy rain as the death toll from the recent storms continues to rise, with an unknown number of people still missing.
Today brings US nonfarm payrolls. The market is looking for a low headline, something around the +115k area with numbers likely to have been affected by both hurricanes and strikes. So a soft number may see less market reaction than we’d otherwise expect. However a stronger headline could give the market reason to believe the Fed will slow the pace of rate cuts and USD could end the week higher.
As always, its not just the headline we need to watch. The unemployment rate, currently 4.1% is expected to remain unchanged although I have seen a couple of decent banks looking for that to print a touch higher. Average hourly earnings should remain unchanged at 4%. A 25bps cut by the Fed next week is pretty much priced in but what happens beyond there is highly uncertain.
To the weekend, England rugby team will take on the mighty all-blacks tomorrow afternoon, and Englands cricket team will face West Indies again having been well and truly demolished in the first ODI. Plenty of premier league matches including Spurs v Villa on Sunday, followed by Man Utd v Chelsea, a tough test for interim manager Van Nistelrooy.
But we’re not quite at the weekend yet. Enjoy the day ahead, I’m hopeful we’ve seen the end of the sharp moves in GBP, and that we won’t see too much volatility over the nonfarms, but you just never know. Of course, still plenty of event risk next week including the US election and the BoE and Fed rate announcements, so make sure you get some rest over the weekend. For me, it looks like it’ll be collecting the ever growing carpet of leaves once again.
- 12.30 US nonfarm payrolls
- 12.30 CAD S&P manufacturing PMI
- 14.00 US manufacturing ISM
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