RBA raise rates but offer a slightly less hawkish outlook

Good morning

I hope UK readers had a great long weekend.  The weather was good, far better here than had been forecast although I did spend a lot of my time indoors, sorting out the front garage which seemed to have built up a lot of stuff over time.  It looks a lot neater now but I don’t think I got rid of much which means it’s all still in there, just better placed.  I’m sure I need it all!

In sport, Spurs managed another win against a Villa side who seemed to be thinking more about their Europa League semi-final this week.  Villa’s opponents in the semi-final is Notts Forest who have seen a resurgence of form in recent matches, including their 3-1  win over Chelsea at the weekend, a result than ensures Chelsea will not be playing Champions League football next season.  Man Utd continued their run of form with a win over Liverpool, while Arsenal extended their lead at the top and will be pleased to see Man City manage a draw against Everton after a chaotic and thoroughly entertaining end to their match, which gives Arsenal the advantage in the title race. 

In other sport Antonelli won the Miami F1 GP, the first race for five weeks due to the Middle East conflict.  The motorsport world mourns the loss of Alex Zanardi at the age of 59 after an incredible career that saw him race in F1 and become an Indycar champion before losing his legs in a horrific crash, then becoming a Paralympic gold medallist and world champion in cycling before anoth er crash a few years ago left him with serious head injuries.  A bit of a legend.   Finally, in snooker, it was China’s Wu who lifted to world champion trophy, beating Shaun Murphy by winning the final and deciding frame. 

Of course, there has been plenty of news over the weekend for us to get out teeth into, namely the Iran conflict which seems further from peace than ever, the ceasefire seems to be holding by just the narrowest of threads although there are reports of US attacks on Iranian boats after Iran fired missiles at both military and commercial ships in the Strait of Hormuz.  US markets were lower as a result, Asian markets followed suit and European markets are expected to open lower this morning as well.  Oil prices remain well supported, with WTI at $104 and Brent at $113.

The US dollar has strengthened in line with the reduced risk sentiment.  GBPUSD is 1.3530 and EURUSD is 1.1685 which puts GBPEUR around 1.1580.  UDSJPY is around 157.20, this is the area that has brought sharp moves lower on Friday and Monday morning, and again Monday evening.  Watch this space. 

RBA raised rates 25bps to 4.35% at their meeting earlier this morning.  The move was widely expected with a pretty hawkish 8-1 vote in favour of the increase.  Overall though the meeting was perhaps less hawkish than some imagined.  RBA forecasts assume an early end to the Middle East conflict and see fuel prices falling soon after.  While RBA are certainly wary of inflation risks to the upside they have said that policy is now well placed after three rate rises which puts a higher bar for another rate rise in the short term.  I guess a lot will depend on whether their rather optimistic outlook for the Middle East is correct.  AUD is lower as a result, with GBPAUD 1.8925, AUDNZD 1.2170 and AUDUSD at 0.7150, dragged lower by the generally stronger US dollar.

Today brings US ISM services PMI, we’ll also hear from ECBs Lagarde who speaks after some hawkish comments from Nagel over the weekend who said a June rate rise was pretty much certain unless there is a drastic improvement in the inflation outlook soon.  We’ll have US JOLTS data, the first in a series of US jobs data that finishes with the nonfarm payrolls on Friday, by far the biggest economic release this week. 

Local elections will be held in the UK on Thursday, this is the first time all three of my ‘kids’ will be eligible to vote.  I try to steer them but their vote is completely up to them, I am sure there is one who perhaps won’t be voting as I’d hope but as long as they turn up to vote I feel my job is done.  Mind you, I confess to not being 100% which candidate will get my vote this time.  We are at an interesting point in UK politics.

Arsenal are back in action this evening as they take on Atletico Madrid in the second leg of the Champions League semi-final with honours even after the first leg,

Have a great day…

-  13.30 ECBs Lagarde speaks

-  14.45 US S&P composite PMI

-  15.00 US ISM Services PMI, JOLTS, new home sales

-  15.00 Feds Bowman speaks

-  16.40 ECBs Lane speaks

-  17.30 Feds Barr speaks

-  23.45 NZ unemployment