Starmer holds his ground, Trump on his way to China

Good morning

US CPI inflation came in a touch higher than expected at 3.8% yesterday which helped the US dollar hold onto gains made after Trump’s ‘live support comment regarding the Iran ceasefire.  GBPUSD, currently 1.3525, saw a low around 1.3500 yesterday, some 150 pips off the weeks highs as we waited to see how a challenge to Starmer’s leadership would pan out.  EURUSD has seen less impact, moving from a high around 1.1785 to current levels just around 1.1720.  The higher CPI has put Fed rate rises on the agenda, while ECBs Nagel has said ECB rate rises are increasiongly more likely, but bear in mind ECB rates are currently well below those in the US and UK. 

Several ministers have resigned and nearly 80 Labour MP’s have called for Starmer to resign but another 100 or so have signed a statement backing Starmer.  He’s made it clear he’s going nowhere.  Reports are he’ll have a showdown with Wes Streeting today but Starmer must go into that with confidence given Streeting’s lack of a proper leadership challenge.  For now, things are calmer and the possibility of a change at the top of the Labour party is less likely.  This has been reflected in lower UK govt bond yields this morning.  We have the Kings Speech later this morning where government plans for the next year are announced.  Tougher immigration and closer ties with the EU are likely to be on the agenda. 

Trump has set off for China ahead of tomorrow’s meeting with President Xi.  Iran is likely to be on the agenda although Trump has suggested this isn’t an important issue and that US can handle Iran themselves, adding that trade talks are of far more significance.  Several very high business leaders are on their way to China with Trump including Elon Musk and Nvidia’s Huang.  China is a more solid, stronger beat than it was when Trump visited back in 2017.  Xi, never one to be pushed around, will be more confident this time that he is in a position of strength.  No doubt Trump will tell us the meetings went great and China have agreed to everything.

Reports suggest UK will send ships, fighter jets and drones to the Middle East as part of a Hormuz peacekeeping force if things settle down.  For now though there must be equal chance of US asserting dominance by renewing their bombing campaign as there is of a peace agreement, unless Trump persuades Xi to step in and somehow force Iran into a deal. Meanwhile Reuters reports that Saudi Arabia had carried out strikes in Iran during the recent conflict in retaliation for Iranian attacks.

NZD weakened a touch despite RBNZ’s inflation expectations rising to 2.53% from 2.37%.  GBPNZD had traded to 2.2700 overnight but is now up to 2.2785, while AUDNZD has moved up to 1.2185 from around 1.2145. 

Man City will hope to keep their league title chances alive as they take on Crystal Palace this evening.  A defeat for City would almost certainly hand Arsenal the title, barring a major turnaround in Arsenal’s last two matches.  In golf, the US PGA championship begins tomorrow, Scottie Scheffler is favourite with Rory Mcilory second favourite despite him having to pull out of a warm up wound with a toe injury.

Today brings EU GDP and employment numbers, ECBs Lagarde will be speaking later and I’ll be interested to see if she follows Nagel’s hawkish tone.  In the UK we have the Kings speech this morning, and UK GDP numbers early tomorrow morning.  In between those we’ll have Aussie inflation expectations overnight, surely likely to be up on last months 5.9%.  As all this goes on, remember USDJPY is still in the high 157’s which means further intervention could be seen.

Have a great day…

-  10.00 EU GDP, employment, industrial production

-  11.30 UK Kings speech

-  13.30 US PPI

-  16.00 BoEs Mann speaks

-  18.15 Feds Kashkari speaks

-  20.00 ECBs Lane speaks

-  20.15 ECBs Lagarde speaks

-  02.00 AUS consumer inflation expectations

-  07.00 UK GDP, industrial production