Good morning
Back to work after a long weekend and RBA have ‘surprised’ with a 25bps rate rise to 3.85% to combat inflation and labour market strength. Why the “speech marks”? Well regular readers will know I had mentioned last week that UBS were still looking for a 25bps rise and I floated a couple of trade ideas based on AUD appreciation. I must admit that when GBPAUD reached its high of 1.9035 last Friday I’s lost a bit of hope that my 1.8700 GBPAUD put would come to anything, but the sharp push higher in AUD since the announcement sees the pair currently trading at 1.8625 putting us nicely in the money for a small outlay, while AUDUSD has clawed its way above 0.6700, enough to put in at least at breakeven levels.
In other news I see JPMorgan have snapped up First Republic Bank as regulators sought to avoid panic in the financial system. JPMorgan paid $10bn for the bank, which had been valued at more than $20bn at the start of last month. Not quite the deal HSBC got for SVB, they paid £1 for the US bank and have said they got a £1.2bn boost to profits as a result. I’m not sure that sounds particularly fair particularly to those investors who lost out as a result of the banks collapse. I do understand SVB and now First Republic have been saved but the deals brokered by regulators seem to be very much in favour of the big banks.
On the subject of large and potentially unfair corporate profits, I see BP have announced a £4bn quarterly profit. As you know I always say I have no problem with firms making profits, that is what they are there for, but with energy and fuel prices still high one has to wonder whether they are taking advantage of a difficult situation. Cut energy and fuel prices and make £2bn in profits. Helps the consumer and may even bring inflation down. Mind you with the government taking 30% corporation tax on energy firms, plus a 10% windfall tax, they are not going to want to see profits eroded any time soon. Just doesn’t sit right with me.
To the currency markets and GBPUSD is now 1.2505 having seen a strong rally Friday from 1.2445 to 1.2585. EURUSD didn’t manage the same push higher, it topped out around 1.1040 which meant GBPEUR was up at 1.1400 by the end of last week. GBP has been unable to hold those highs for now. Since December it has failed around the mid-1.14s on several occasions, I wonder whether we have seen profit taking ahead of that area.
Yen remains weak, USDJPY has half an eye looking at March highs around 138.00, currently 137.65. while GBPJPY is at a heady 172.00, surpassing the Oct 2022 highs and leaving us looking back to 2016 for levels above this area. EURJPY looks even stronger, now 151.30, I believe not seen these levels since all the way back in 2008, when the global financial crisis saw the pair trade down from around 170.00 to 113.00 in the space of a couple of months.
It’s a short week this week and another UK bank holiday on Monday but something tells me we are in for a bust few days. Some decent data this week, starting with EU inflation numbers this morning, several PMIs from around the world, and US employment numbers Friday. Ah, let’s not forget US and EU rate announcements. Both expected to lift rates another 25bps although ECB could surprise with a 50bps rise. Plenty of room for volatility ahead.
That’s all for now. I hope you enjoyed the long weekend, some cracking football matches to see including Spurs v which looked like being one of the finest comebacks of the season, Spurs being 3-0 down and getting it back to 3-3, only to gift Liverpool a late winner. Annoying but entertaining. Much like the golf I tried to play yesterday!
- 09.30 UK S&P manufacturing PMI
- 10.00 EU HICP
- 15.00 US factory orders
- 22.00 RBNZ financial stability report
- 23.45 NZ unemployment
- 00.00 AUS S&P services PMI
- 02.30 AUS retail sales
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