Intervention pushes USDJPY lower

Good morning

Welcome to May, it’s lovely and sunny this morning, temperatures are expected to hit 25°c this afternoon so I may go and enjoy it while it’s here, the next few days are forecast to be rather more wet, not really a surprise given it’s the bank holiday weekend.  In fact apart from today, every day until mid-May is forecast to have some rain. Ah well, the garden needs it I guess.

So, where to begin?  Well let’s start with USDJPY which had hit 160.70 yesterday morning, I wrote that we’d not yet seen any signs of intervention but then Japanese banks came in and sold large amounts of US dollars, some $60bn was reported but I’d imagine the real number could be larger.  USDJPY dropped and then dropped again as another wave of selling came in, the pair fell as low as 155.55.  It did start to tick higher, reaching about 157.30, but this morning we’ve seen another bout of yen buying that has again taken the pair to the mid-155’s.  As I type it’s at 156.30 but the market is now very aware that we’ve moved on from just verbal intervention to the real thing.

The huge US dollar selling had a knock-on effect in other majors.  GBPUSD has traded as high as 1.3620, EURUSD to 1.1745.  Of course these moves are not just a result of USD selling.  Yesterday saw the latest BoE and ECB rate meetings and while both kept rates unchanged as had been expected, both had a hawkish tone.  BoE saw one member, Pill, vote for a rate rise and BoE’s own forecasts match the market view that rates are likely to rise 50bps to 4.25% but they are trying to remain cautious and seem happy to overlook higher energy-led inflation for now, only looking to raise if second-round price pressures emerge. Still, there is a shift to a tightening bias.

The ECB meeting came after the latest EU GDP and inflation numbers which showed a headline rise to 3% although core inflation was a touch lower than expected at 2.2%.  EU GDP was weaker than had been expected at 0.8% from 1.2% last time.  Lagarde acknowledged the weaker data but this hasn’t stopped the market looking for a 25bps rat rise in June, something Lagarde, while not committing to, didn’t deny was possible.   

I’ve mentioned a few times recently that I don’t see how higher rates will help against inflation driven higher solely on higher energy pricing.  BoE seem to have a similar view, while ECB, with lower rates to start with, perhaps have more room to raise rates a little.  So a June rise looks likely from ECB but less likely for BoE, this still hasn’t stopped GBP pushing higher against EUR, now up at 1.1600. 

US data on offer yesterday included core PCE which came in bang in line with expectations and GDP which was on the softer side at 2% from an expected 2.3%.  Earnings from US companies, particularly tech firms, continues to come in strong, but there is a feeling that this is masking some underlying weakness in consumer activity.  Hasn’t stopped US indices ending the month on a positive footing with S&P up 1% and DowJones up 1.6% yesterday.

It’s a public holiday in Europe today but not in the UK, ours comes on Monday, May 4^th, otherwise known as Star Wars day.  BoEs Pill speaks today which could be interesting given he was the member who voted for a rate rise yesterday.  I’ve added in Monday’s calendar, not much of note there other than the RBA rate meeting in the early hours of Tuesday morning, where they are expected to raise rates 25bps to 4.35%.  GBPAUD currently 1.8910, AUDNZD 1.2205 and AUDUSD just short of 0.7200.

Plenty of sporting action over the weekend.  Premier league action this evening sees Leeds take on Burnley, tomorrow I’ll be having to cheer for Brentford who play West Ham as Spurs will be in even more trouble if West Ham get any more points.  Arsenal can extend their lead at the top of the league if they beat Fulham with Man City not playing until Monday.  Spurs will be looking for much-needed points against Aston Villa on Sunday, can’t say I’m confident.  Man Utd v Liverpool could a great match, then Chelsea v Forest on Monday, as much as I like Forest I don’t want them getting any more points either.

Formula 1 returns with the Miami Grand Prix.  There are a few rule changes aimed at addressing some driver concerns over the new power units so we may see less of the speed change when cars decelerate to harvest battery power, something that led to Ollie Bearman’s huge crash in the Japanese GP which saw him experience some 50g on impact with the barriers.  In a much slower sport, the snooker World Championship is at the semi-final stage, with the final taking place on Sunday and Monday.

Meanwhile eyes will be on Saudi Arabia who have pulled out of bankrolling the LIV golf tour, which has raised the possibility that the quite absurd spending could fall in Saudi football as well.  PIF have already sold their holding in Al-Hilal.  We’ve seen many high-profile players lured to Saudi Arabia by multi-million pound deals, but that money may dry up as well.  Newcastle Utd fans could well be worried if Saudi Arabia loses interest in football spending, although there are reports that the club will see a large investment in the coming days.  

Have a great day, and a great weekend as and when it comes…

-  12.15 BoEs Pill speaks

-  14.30 CAD S&P manufacturing PMI

-  15.00 US ISM manufacturing PMI

Monday

-  15.00 US factory orders

-  17.50 Feds Williams speaks

-  00.00 AUS S&P services PMI

-  05.30 RBA rate announcement