Trump comments once again send markets into turmoil

Good morning

Decent enough US retail sales and ISM manufacturing numbers did little to support the US dollar yesterday, instead it continued to weaken into the London close with GBPUSD touching 1.3345 and EURUSD reaching 1.1625.  All eyes however were on Trump overnight, his previous speech had sent equities higher, and oil and USD lower, on hopes of speedy end to Iranian hostilities.  Trump began his overnight speech saying the ‘hard part is done’ and that the military objective will be completed shortly, all well and good, but he followed that up by adding that if no deal is reached he’d hit Iran hard and, rather undiplomatically, warned he would bomb Iran back to the Stone Age. 

The latter part was enough to send markets into a reversal, stocks moved lower, oil and USD pushed higher. GBPUSD and EURUSD have traded to lows of 1.3200 and 1.1515, while USDJPY is up at 159.60. 

This continued change of tone by Trump is affecting Trump’s credibility but also could have deeper implications for the financial markets.  His threats to force peace through intimidation have not worked in the past and they won’t work now.  The longer he tries to take this approach the longer the war will go on, and with it of course the disruption in supplies through the Strait of Hormuz.  Trump has made it clear that the US have enough oil, particularly now they have access to Venezuelan supplies as well, and although he insists the Strait will reopen once the war ends, he has also made it clear that he will leave the Strait for his ‘allies’ to sort out.

We have seen reports of large military strikes on alleged Iranian missile manufacturing bases which are likely hidden deep underground.  It wouldn’t surprise me at all if Trump is looking at these attacks, presuming they are successful, hence leading him to say the war is coming to an end, only to later find the attacks have not been completely successful and therefore has to continue until he is satisfied.  All this would be more acceptable if he had set a clear mandate and gave updates on progress rather than his rather playground-like speeches.

It is a real shame that we have to look so much at war rather than the good things that are happening.  The US yesterday launched Artemis II, the first manned space mission to the moon for some 50 years.  The spacecraft is currently orbiting earth and assuming all goes to plan will zoom off to orbit the moon and in doing so could see humans travelling the furthest from earth than ever before.  There will be no moon landing, this still seems a step too far for current technology, we’ll need to wait for Artemis IV for that, which I have to say does raise the old issue of how on earth they managed to land on the moon back in 1969.  When I was a kid this was a magical and fascinating achievement.  I’m not a moon-landing denier but please excuse me for becoming more sceptical over the years.

In other news, clients with interest in Indian Rupee will be asking why GBPINR has seen some wild moves.  It was in the mid-123’s yesterday evening, bounced to 125+ overnight before dropping to current levels around 122.85.  The reason is down to RBI announcing restrictions on the size of open positions domestic banks can have in forward INR transactions for clients.  Without going into huge detail, RBI are trying to prevent speculative arbitrage traders from taking positions in onshore forward contracts and offsetting them with offshore NDF transactions.  INR has appreciated as a result.

We don’t have much on the calendar today, US jobs data in the form of initial claims and challenger job cuts but tomorrow’s nonfarms will of course be the main event.  It is unfortunate they come on a major bank holiday, normally I’d be concerned about lack of liquidity over such an important number but to be honest we are unlikely to see anything more volatile than what we get when Trump speaks.  With a long bank holiday here in the UK there is I’m afraid plenty of opportunity for him to again say something to push markets wildly.

The weekend brings FA cup quarter final action which, if results go right could see Port Vale and Southampton in the semi- finals if they can beat Chelsea and Arsenal respectively. Man City take on Liverpool, while there will be an interesting tie on Sunday as two of Spurs close bottom of the table rivals, West Ham and Leeds, battle it out to take the remaining semi-final spot.  Good, lets’s hope they both take their eye off the league.  The Cup weekend means Spurs have a few days to get working under new manager de Zerbi.

Have a great day, and a fantastic long weekend as and when it comes.  We are not planning on being at our desks over the holidays but we are always ready, willing and able should anything arise that needs taking case of.

-  09.00 ECBs economic bulleting

-  12.30 US initial jobless claims, challenger job cuts

-  Friday

-  13.30 US nonfarm payrolls

-  14.45 US S&P composite PMI