Good morning
With so much going on in the world right now it would be easy for me to overlook a very important point, so I’ll get it out of the way first. Anyone who read Friday's report will have seen the three names I picked out for the Grand National. They finished first, second and third. I’d backed all of them to finish in the top four, as such came out something of a winner although with small stakes and quite short odds it was hardly what anyone would call a huge windfall. Had I thought of trying to name the top three I’d have won a considerable amount more money, but I guess I should be happy with what I have. Doubt I’ll ever manage that feat again mind you.
The US dollar continued to push higher Friday, GBPUSD sank to 1.2430, EURUSD slipped to a low of 1.0625, both the lowest levels since November. There had certainly been some safe-haven USD buying ahead of the weekend as the world waited to see whether Iran would attack Israel. They did, with a huge wave of drones and missiles, but Israeli defences together with US and UK help, the vast majority of those missiles were intercepted. It is almost a win for all sides, Iran have retaliated in a large way but no major damage has been inflicted. Now we wait to see whether Israel retaliate, I suspect they won’t, but the threat of escalation is certainly there and one Israeli official has been quoted as saying there would be a significant response, although US seem to have made it clear that they would not support any counter offensive against Iran.
The USD strength is not all about safe-haven buying though. A series of strong economic data has pushed back the chance of rate cuts, remember it was not that long ago the market was looking for up to six rate cuts through 2024. Now the market is fully pricing in just one cut, but some are thinking we’ll be lucky to see any cuts at all this year. This compares with the ECB who look almost certain to cut in June, while BoE remains a bit more of a mystery but with a weaker economy than the US we must surely be looking at an earlier cut from BoE than Fed as well.
The BoE review by ex-Fed Chairman Bernanake was concluded Friday, with a series of reforms to rate forecasts and guidance proposed. BoE has said they will act on the proposals, but it wo;t be an overnight change, they have said there will be more specifics by the end of the year.
Meanwhile the situation in Ukraine is not sounding good, with talk of shortages in supplies for Ukrainian forces and Russia looking likely to make gains as it prepares for further pushes into Ukrainian territory. Europe and US seem to have slowed down the provision of ammunition and supplies which will take its toll on Ukraine. New sanctions over the weekend see deliveries of certain Russian metals banned, leading to a jump in metal prices on the LME. Many, myself included, will be surprised that this was not already in place.
USDJPY continues to make new highs, it is now 153.95 and with a strong US dollar there is little Japan can do to turn the tide. Intervention would likely offer just better levels for the market to get long, so for now I wouldn’t be surprised to see Japan sitting back and offering just the usual verbal intervention. It would need pretty coordinated action from other central banks to turn this trend.
I should mention gold as well, which spiked to $2,430 Friday afternoon but fell back almost $100 to $2,335 before closing at $2,345. It did try to push higher when trading reopened but now sits just above $2,350. It will take a brave man to bet against us seeing higher levels in gold through the week.
We have a fairly busy week ahead with UK unemployment tomorrow, inflation Wednesday, and retail sales Friday, while we will also hear from BoEs Bailey a couple of times this week. Before then we have US retail sales this afternoon, the week also brings EU, CAD, NZ and Japan inflation and Aussie employment.
In sport, congratulations to Scottie Scheffler who won the US Masters golf for the second time, and perhaps became one of the few pre-tournament favourites to win the green jacket. It was a weekend of surprises in football, with both Liverpool and Arsenal losing and as such potentially putting the title into the hands of Man City. With Villa winning and Spurs losing handsomely to Newcastle, a top four finish for Spurs is in jeopardy. They still have to play Arsenal, Liverpool, Man City, and Chelsea, and they’ll need to raise their game if they are going to get any points from those. A finish outside the top six could be a possibility.
We were treated to some pretty decent weather over the weekend, with plenty of sunshine and temperatures creeping just above 20°c for some of the time. I hope you enjoyed it while it lasted, we’re likely to see heavy wind and rain today and the rest of the week looks pretty miserable as well. Even if it can stay dry, which seems unlikely, temperatures will be back below 15°c. It has better be a decent summer!
- 10.00 EU industrial production
- 12.15 BoEs Breeden speaks
- 13.00 ECBs Lane speaks
- 13.30 US retail sales, NY empire state manufacturing survey
- 01.00 Feds Daly speaks
- 03.00 China GDP, industrial production
- 07.00 UK unemployment