Trump upsets markets over possible Iranian attack comments

Good morning

Fed did leave rates unchanged yesterday evening in a vote that was split 8-4, Miran being one of the four looking for a rate cut, the others looking to move away from any easing bias.  Miran aside then, it was a reasonably hawkish tone backed up by decent economic growth and no sign of a collapse in the job markets. All this of course offset by the higher energy prices and uncertainty brought on by the Iran war.   

Four dissenters in the voting is the widest we’ve seen since 1992 and shows that incoming Fed Chair Warsh may be stepping in at a time when the Fed is more divided than ever. Powell has said he’ll stay on at the Fed when Warsh takes over, but took the opportunity of what is likely his last speech as Chair to talk of the challenges such as political pressure and legal accusations presented by Trump.  Trump countered by saying Powell is only staying on as he can’t get a job elsewhere.

The US dollar pushed higher after the meeting although those gains were shallow.  Trump upset recent optimism overnight by talking of possible short and powerful strikes on Iran to break the deadlock in the Strait of Hormuz, while Iran talked of severe consequences for US troops in the region should US undertake any new military action.  Oil prices spiked, Brent traded to almost $115, some reports suggest it got as high as $126 , and WTI got close to $111, both are around $3 off those highs as I type.  Asian equities dropped, EU and US markets are expected to follow suit today despite some impressive earnings figures from US firms yesterday, while UK bond yields creep back towards recent highs.

 GBPUSD saw a low towards 1.3455 and EURUSD dropped to 1.1655, each now 25 pips or so off those lows.  USDJPY took advantage of this USD strength and has traded to 160.70, now off a little at 160.45 but so far no sign of the intervention many feared on a break of 160.  AUD and NZD have weakened as we’d expect although AUDNZD remains above 1.22. 

In mildly more hopeful news, Trump said he had spoken with Putin and signalled some sort of peace deal may be close.  There will be a ceasefire but this is only set to last one day, the May Day holiday.  Trump and Putin did talk about Iran, their nuclear plans and proposals for extending the Middle East ceasefire.

In sport, Arsenal drew 1-1 at Atletico Madrid last night to give them a great chance of making the Champions League final in the home leg of the semi next week.  The game lacked the free-scoring momentum of the PSG/Bayern match but Arsenal fans will be cheered by a stronger performance than they’d perhaps feared.  Notts Forest take on Aston Villa this evening in the first leg of their Europa League semi-final, ensuring one English team will make the final.  Crystal Palace play Shakatar Donetsk in the Europa Conference League semi-final.  It is possible England will have a representative in all three European cup finals.

We have a bust calendar today, with EU GDP and inflation this morning followed by both BoE and ECB rate meetings. Both are expected to keep rates unchanged, the big questions is whether there is a significant hawkish tone from Bailey or Lagarde at their respective press conferences.  I’m also looking at the BoE voting split, it was 9-0 in favour of a hold last time, I would not be surprised to see one or two votes for a rate rise at the meeting today.  As if all that wasn’t enough, this afternoon brings US GDP and Core PCE, the latter being one of the Fed favourite measures of inflation.   

So, with all this data alongside Trump’s talk of possible military action in Iran, we have plenty of potential for volatility as we move into month-end.  There is an old saying in the equity markets, ‘sell in May and go away’, I think this is far less relevant in the modern financial markets but a lot depends whether Trump carries out his threat to strike Iran again.

Have a great day…

-  08.55 German unemployment

-  09.00 German GDP

-  10.00 EU GDP, HICP

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  13.15 ECB rate announcement

-  13.30 US GDP, Core PCR, initial jobless claims

-  13.45 ECB press conference

-  14.45 US Chicago PMI

-  23.45 NZ building permits

-  00.30 Japan Tokyo CPI

-  02.30 AUS PPI