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  • richard evans

Markets quiet ahead of US Independence Day

Good morning


It was indeed a fairly quiet day in the markets yesterday and today must surely follow suit given it is one of the biggest US holidays on the calendar. As I type GBPUSD is 1.2700, EURUSD 1.0910 and USDJPY 144.45, all showing a smidge of US dollar weakness but nothing particularly significant. In the crosses, GBP is barely changed with GBPEUR at 1.1640 and GBPJPY at 183.50.


Goldman Sachs have cut their US core PCE inflation forecasts through the rest of 2023. If this feeling is shared by the Fed then we may see more reluctance to push rates higher. Fed minutes tomorrow evening might give us more of an idea about the Fed decision to keep rates unchanged and their plans for the future though Powell has stressed that no decisions have been made about future rate moves.


Meanwhile though, in the UK the feeling is more rate rises are needed to lower inflation by reducing demand, according to an adviser to Chancellor Hunt. The choice is perhaps a mild recession now, or a deeper recession if nothing is done. A lose-lose situation really. I do continue to think high prices on energy, food and general living is to blame for much of the inflation although I do know core inflation excluding food and energy is also strong. But this is more down to high prices than high demand.


We have read that supermarkets, banks and energy firms are all profiting from higher rates and higher prices at the expense of the consumer. In addition, I would like to know what effect pay rises for public sector workers has on inflation. Maybe not a lot, and I’m not going to say nurses don’t deserve a pay rise, but it would be interesting to know to what extent public sector pay rises are ultimately impacting on UK interest rates.


GBPAUD has moved lower, AUD getting a bit stronger despite RBA leaving rates unchanged overnight at 4.1%. AUD had initially weakened, GBPAUD trading up from 1.9000 to 1.9100 but we are now back just below 1.9000 with an eye on those late June lows around 1.8940. RBA are in the rare category of central banks that don’t give much warning or guidance with regards to policy changes. Keeps everyone on their toes, that’s for sure. For now RBA want to assess the impact of recent rate moves but say they will raise rates again if required.


Turkish inflation numbers will be out tomorrow. These come after the recent 6.5% rate rise from CBRT, but despite some official intervention giving TRY a brief helping hand, USDTRY is now up at 26.06, EURTRY 28.44 and GBPTRY at 33.14.


China are reported to be limiting exports of some rare-earth metals used in chip-manufacturing. We have seen US reducing chip sales to China for fear of them being used in military systems or supercomputers, but I think China are the main county digging the required materials out of the ground. I’d do the same if I was China. Why should I sell materials to other countries that I don’t get to use. Same with smartphones. We all walk around with them now but again I believe much of the material used comes from China. They could easily pull the plug, couldn’t they?


In other news I see Zuckerbergs Meta is introducing a new platform to rival Twitter. Threads will go live on Thursday and it is thought many Twitter users could move to the new platform after Musk has added several features to his platform that has upset and confused users such as buying a ‘blue tick’ and limiting the number of posts a reader can see in one day.


Zuckerberg does have a knack of reproducing systems that are similar to others, for example Reels is his version of TikTok, Stories is his version of Snapchat. I’ve not seen Threads but understand it to be pretty similar to Twitter. The fact that it will be linked to Instagram means it will be starting with hundreds of millions of accounts and as such could hit the ground running. It’ll all be the same stuff on there to scroll through though.


Not much on the calendar today, time perhaps for those Independence Day reruns….


- 13.00 ECBs Nagel speaks

- 14.30 CAD BoC business outlook survey, S&P manufacturing PMI

- 00.00 AUS S&P services PMI

- 02.45 China caixin services PMI



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