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  • richard evans

GBP struggling as Omicron may delay BoE rate rise

Good morning

US nonfarm headline came in weaker than expected at +210k although an unemployment rate of 4.2% against 4.5% expected seemed to make up for the disappointing headline. USD didn’t do too much initially, EURUSD actually where it was Friday morning at 1.1290 but GBP had a rough end to the week, not helped by BoEs Saunders who, while generally hawkish, actually said Omicron might not vote for a rate rise until he sees the impact the Omicron variant may have on the economy. GBP fell on Saunders comments but rallied briefly on the US nonfarm release as USD weakened. That didn’t last long, and GBP fell again, trading down to 1.3210 although as I type it has recovered a little to 1.3240.

GBP fared badly against EUR as well, with EURGBP trading up to 0.8545 (GBPEUR 1.1700). I had seen some interest in buying GBP against EUR earlier in the week, looking for 0.8200 (GBPEUR 1.2195) on central bank policy divergence….this either looks a worse idea now or a brilliant time to get in, depending on your view. Broadbent speaks today, perhaps he’ll offer some clues over a Dec rate move.

China trade data due tonight, I would not be surprised to see another trade surplus in the $80-85 billion area. Not all great in China though, as yet another China developer, Sunshine, fails to meet bonds repayments, while Evergrande shares fall, to an eleven year low as the company says there is no guarantee it will have enough funds to meet debt repayments.

RBA rate meeting takes place in the early hours of tomorrow morning. No rate rises are expected but we’ll be watching to see any comment on possible rate moves through 2022. Markets are pricing in rate rises next year, RBA have not been keen to follow up these views and they could well cite uncertainties over Omicron to support their neutral stance for now. With the next RBA meeting not until Feb 2022 I think RBA could actually give a more dovish message which may lead to some further AUD weakness. AUDNZD is already at the lower end of recent ranges at 1.0400 while AUDUSD has tested briefly below 0.7000, levels not seen since Nov 2020. At these levels I’d imagine trades grabbing at the chance of buying AUD if RBA are in an y way less dovish than I think they could be.

China and Russia both seem to be preparing for invasions, according to US intelligence. Russias troop build-up on the Ukraine border makes a clear threat to Ukraine while US say Chinese military action looks like a test of their capabilities and even a rehearsal for an attack. Meanwhile talks with Iran over their nuclear programme have not gone well, with Iran seeming to go back on all the compromises they made in the previous rounds of talks.

Still far too early to know much about Omicron although I have seen a few articles suggesting it initially looks less severe than initially feared. It feels as though the market is just praying for some better news, the last thing anyone wants right now is a more transmissible and more severe variant doing the rounds, particularly one that may evade existing vaccinations.

Some interesting sport over the weekend. A particularly exciting F1 race, a few late winners scored in the Premier League, Spurs managing to win albeit not too convincingly against bottom of the table Norwich. The highlight however was of course the young U15s who put on an exceptional performance to reach the last sixteen of the county cup with a victory over a team who, on paper at least, are higher up the leagues than my lot. It starts getting more serious from here. The next round will be against an academy outfit whose prime role is to showcase top young players to professional clubs. Going to be interesting, thats for sure.

- 09.30 UK markit construction PMI

- 11.30 BoEs Broadbent speaks

- 23.30 Japan household spending

- 00.01 UK BRC sales

- 00.30 AUS house prices

- 02.00 China trade balance

- 03.30 RBA rate announcement

- 05.00 Japan leading index

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