Still no US/Iran peace deal, sentiment sours

Good morning

Although we have seen an extension of the Israel/Lebanon ceasefire, the lack of any helpful news from US/Iran peace talks is weighing on sentiment, indeed tensions seem to be on the rise over the Strait of Hormuz.  European and US stocks were lower yesterday, although Asian markets were a bit more mixed.  Oil prices are volatile, Brent has traded up to $107.40 yesterday evening but have opened sharply lower this morning, currently just a few cents off $100, while WTI had hit $98.40 yesterday and now trades $96.30. 

The US dollar has made gains across the board, GBPUSD finally broke below that 1.3480 area to hit a low around 1.3450 and has since struggled to make any decent recovery, currently 1.3465.  EURUSD is down at 1.1680 leaving GBPEUR at 1.1530, having had a brief test of the 1.1555 area yesterday.  USDJPY remains stuck in the 159’s, actually testing 159.85 overnight but once again failing ahead of 160.00, now off a few pips at 159.65.  The market is looking at 160 as a line in the sand for officials, a break above could trigger intervention.

This morning’s UK retail sales this morning looked good on the face of it but higher energy pricing was a major contributing factor and that’s more of a necessity than a luxury.  Excluding fuel, retail sales were up on last month but that’s offset in part by a downward revision to last month’s numbers.  The data didn’t bring about any moves in GBP worth talking about. 

BoEs Breeden has said equity markets are not pricing in enough risk to the global economy and as such are expected to fall, although she drew the line at giving any idea on scale or timeline.  While I could expect this sort of comment from a trader or bank economist, this is quite an odd statement for a central banker.  In fairness, she said her job is not to predict markets but to ensure the financial system is ready in case it does.

It hasn’t been the busiest of weeks data-wise but next week looks like a different story.  We have rate announcements from Fed, BoE, ECB, BoJ and BoC, as well as EU, German and Aussie CPI inflation, EU GDP and core PCE and GDP from the US. 

Looking ahead to the weekend, this spell of lovely weather looks like it will continue with temperatures around 20°c for Saturday and Sunday although we may get slightly less sunshine than we’ve enjoyed in recent days.  Weekend premier league action kicks off this evening with Sunderland v Notts Forest, Spurs will be desperately hoping Forest don’t get any points.  Tomorrow sees Spurs take on already demoted Wolves.  The two teams drew back in September but only a win will really be good enough for Spurs league survival hopes.  West Ham, another possible for relegation, take on Everton.  Arsenal could regain their league lead if they can beat out of form Newcastle.

Meanwhile, in the FA cup, Man City take on Southampton in the semi-final on Saturday, while Leeds will be hoping to overcome a manager less Chelsea side who have been struggling to score goals recently.  The matches are just one leg and will be decided on the day, going to a penalty shoot-out if needed.  Fortunately the tube lines should be back up and running properly in time for the matches at Wembley after strikes this week pretty much brought the service to a halt.

Before then we have today to get through.  Canadian retail sales and US michigan sentiment numbers may well be overlooked given there is so much focus on the Middle East right now, I’m thinking we could be in for a quiet day but I’ll be watching equity markets for further signs of souring risk sentiment.  Let’s hope Breeden isn’t too right!

Have a great day and a great weekend as and when it comes…

-  09.00 German IFO

-  13.30 CAD retail sales

-  15.00 US Michigan sentiment survey