Trump signals possible de-escalation

Good morning

Plenty of volatility yesterday amid comments from Trump which on the face of it suggested the Iranians were happy to look for peace, sending equities higher, oil and USD lower.  Who really knows whether the Iranians have indeed become more compliant, or whether Trump is simply backing down a little given the Iranian regime showed no sign of backing down despite Trump’s various threats and military action.  Reports suggest Iran knew nothing of the talks Trump referred to but let’s be honest, we have no idea what we should believe or what is propaganda. 

If anything it could be said Trump was fearful of the Iranian response should US escalate its attacks.  Perhaps unfairly, but ‘TACO’ springs to mind once again.  Iran has shown that despite facing massive bombardements it is still an active power although it isn’t entirely clear who is actually running the country.  Iran continues to control the Strait of Hormuz, it still has the ability to launch drone and missile attacks and there is no sign of the regime change many thought would happen quite quickly.  

The threat of months of energy market disuption could be enough in itself to bring an end to hostilities and the mention of some sort of peace has brought some calm to the markets.  We don’t know whether this will continue but for now at least we have seen a turnaround in markets.  European equities which at one stage were down around 2% moved into positive territory, US markets openeed up over 2% although closed just over 1% higher and Asian markets overnight recovered a good portion of their losses the previous night. 

I would like to look at trading patterns around Trump’s comments.  Thre moves were dramatic and unexpected, there have been some reports of large positions being put on ahead of Trump which instantly made a large profit although I’m only getting that off the internet so I have no idea whether ts true.  I wouldn’t be surprised mind you.

The US dollar has been a decent barometer of risk sentiment and with the news GBPUSD hit a a high of 1.3480, EURUSD hit 1.1640 and USDJPY slipped to around 158.00 through the afternoon as USD weakness took hold.  The initial optimism waned a touch as the day drew on and US dollar has since regained some its losses, as I type GBPUSD is back to 1.3400, EURUSD 1.1595 and USDJPY 158.50, still a lot weaker than levels yesterday morning but off the intiial lows as thoughts of a complete de-escalation diminsh somewhat.   

AUD and NZD remain weaker though, now 1.9230 and 2.30 against GBP.  NZD has actually pushed a touch higher aghainst AUD, AUDNZD now 1.1955, pretty much 200 pips doen from last weeks highs.  Comments from RBNZs Breman suggesting RBNZ could lift rates if oil-driven nflation presists helped push NZD higher.  Breman did add that they would overlook short-term inflation spikes but the mere suggestion that RBNZ could be thinking of rate rises was enough to help NZD higher. 

It is easy to ignore other news amid such uncertainty in the Middle East but life does goes on elsewhere.  Trumo has urged EU to agree a trade deal or risk losing access to LNG at favourable pricing.  EU meanwhile has signed a deal with Australia that gives EU greater access to Aussie critical minerals while also allowing Aussie firms to join the EU’s new weapon program, something I guess neither the US nor China will be too happy with. 

Today brings EU, UK and US manufacturing and services PMIs as well as a host of ECB officials, overnight we’ll have BoJ minutes and Aussie CPI, and early tomorrow morning we’ll have the latest UK CPI, RPI and PPI inflation.  Of course we’ll also be watching for any additoinal comments from Trump on Iran.

Have a great day…

-  09.00 EU services, manufacturing PMIs

-  09.30 UK S&P services, manufacturing PMIs

-  10.00 ECBs Kocher speaks

-  12.00 ECBs Sleijpen speaks

-  12.15 US ADP employment 4 week average

-  13.30 ECBs Cipollone speaks

-  13.45 US S&P services, manufacturing PMIs

-  15.00 ECBs Nagel speaks

-  15.45 ECBs Lane speaks

-  22.30 Feds Barr speaks

-  23.50 BoJ minutes

-  00.30 AUS CPI

-  07.00 UK CPI, PPI, RPI