Reports of military action in Iran spooks markets

Good morning

I am get more than a little frustrated at the on/off nature of peace talks with Iran.  One minute we hear a deal is pretty much ready to be signed, the next we hear of renewed hostilities with attacks reported by both US and Iran.  US equities managed to close higher but most Asian markets were lower overnight and European indices are also lower this morning.  The US dollar has pushed higher with GBPUSD and EURUSD trading to lows around 1.3370 and 1.1585 in the early hours of this morning, USDJPY rallied to 159.65 at the same time.  Oil prices pushed higher overnight as well but have lost around 50% of those gains, Brent is now around $94.50 and WTI $91.00. 

Since then we’ve seen USD lose some of those gains, levels now for those pairs are 1.3400, 1.1610 and 159.50, no sign of intervention as yet from Japan.  GBPEUR is broadly unchanged around 1.1540.  I’ve seen some talk of France suggesting UK built EVs should qualify for EU subsidies and tax breaks, highly unusual for France to be on our side, does this possibly signal a change in stance from our EU cousins? 

On the subject of EV’s, a friend wrote in his daily column yesterday about the new Ferrari EV that has been unveiled, the Luce.  It is fast, very fast, and looks more practical than other Ferrari’s, with room on board for five people and a range of some 330 miles.  The interior has been designed with something of a retro feel and I think it really works.  If it were in my price range I’d consider it for sure, but at almost £500,000 I’m a long way from its target market.  The car’s release did not sit well with investors, a drop in Ferrari shares from 350 to 330 or so must have hurt, but I have a feeling Ferrari could be onto something, if there are enough buyers with that sort of money.  I remember Porsche being laughed at when the Cayenne was released, that car is now talked about as being Porsche’s saviour. 

AUD has lost a bit of ground, partly down to lower risk sentiment but also helped by that lower CPI number yesterday which puts a question mark over further RBA rate rises.  GBPAUD is 1.8820, not so different to yesterday given GBP’s decline as well, but AUD is notably lower against NZD, that pair now just below 1.2100 with some banks considering lower levels still, looking for potential unwinds of the long AUDNZD positions that have been put on in recent weeks.  With a more hawkish RBNZ it could be worth looking at some downside, maybe a 2 month (30 July) 1.1900 for around 40 nzd pips or even a 1.2000 strike for 70 nzd pips. 

We’ve heard from several central bank officials in recent days, ECB members seem to be pointing towards a rate rise and Fed officials also sound more hawkish.  Feds Cook, Jefferson and Kashkari all yesterday warned of higher inflation and seem prepared to raise rates if need be.  Kashkari also mentioned the relatively stable labour market, next weeks nonfarms could be more important than ever ahead of June’s FOMC meeting.  Trump wouldn’t be happy if Warsh’s first meeting as Fed chair leads to a rate rise.

Meanwhile BoE have not sounded quite as hawkish.  The last meeting saw one member vote for a rate rise, I’m not sure we’ve seen enough yet to turn that around significantly and with some generally weaker UK economic data I think they’ll more likely remain unchanged at their meeting next month.  Is there room for GBP downside?  For now, its really more about whether we get peace in Iran or not.  As we’ve seen several times, USD weakens on news of a peace deal and rallies on talk of military escalation. 

So, how much GBPUSD do I need to sell to earn me the £500,000 for the Ferrari?

Have a great day…

-  09.30 ECBs Cipollone speaks

-  10.00 EU consumer confidence

-  12.30 ECB minutes

-  13.30 US core PCE, GDP, durable goods, initial jobless claims

-  13.55 Feds Williams speaks

-  15.00 US new home sales

-  15.15 Feds Musalem speaks

-  16.40 BoEs Breeden speaks

-  16.45 ECBs Schnabel speaks

-  18.10 Feds Musalem speaks

-  00.30 Japan Tokyo CPI

-  00.50 Japan retail trade