Uncertainty reigns as Q1 draws to an end

Good morning

Last day of Q1 today, those three months have gone pretty quick.  It’s certainly been a tumultuous time recently, particularly the last month since the war on Iran began.  At least the weather is a bit milder, we are into British Summer Time and its getting lighter earlier and darker later.  Add to that, UK PM Starmer looks like he is getting tough on Unions, warning Doctors that they will lose the latest jobs deal if they insist on pushing through with their upcoming six day strike.

Trump was on the wires yesterday once again talking about potential deals with Iran, and did add that talks were with a new and more reasonable Iranian regime that would enable an end to US military action.  While Trump gives hope of a simple end to the war, the markets didn’t seem so sure, equities were somewhat mixed and oil prices remained elevated.  Overnight we’ve had some promising comments on Iran which initially sent oil prices lower but the optimism didn’t last long as reports emerge of an attack on a Kuwaiti oil tanker, and oil has regained some but not all of those losses.

Feds Powell spoke in the afternoon, if anything I think he came across a little on the dovish side, saying current policy is still restrictive.  He is looking at inflation risks but would prefer to overlook short-term supply shocks.  He did touch on independence, saying Fed needs to be non-political.  He does think Warsh will get confirmed, he will stay as Fed Chair until then.  Feds Miran was also on the wires, no surprise he was dovish, saying he expects a full 1% of rate cuts through 2026 and sees inflation back to target within a year.

European equities were strong yesterday although US and Asian markets took a turn for the worse overnight, Japan’s Nikkei ending the month down over 12.5% which Reuters says is the largest monthly drop since 2008.  Markets are looking a bit mixed this morning, not really knowing how best to play Trump’s latest musings.

GBP struggled yesterday, partly as a result of renewed USD strength which also took EURUSD down to 1.1450 but GBP is affected to a greater extent, dropping to 1.3160 against USD and to 1.1495 against EUR.  For GBPUSD, this is the lowest level since November and interestingly has slipped below a trend line I have been watching since April 2025 of the lows from that point and November, while against EUR we did see these levels back in early March.  There has been some hawkish talk from ECB recently which could go some way to explain Euro’s relative strength as could the German inflation number yesterday morning that came in above expectations. This morning’s in-line UK GDP release had minimal market impact, GBPUSD now 1.3205 led more by a little US weakness.

GBP also dropped back against the likes of AUD and NZD yesterday, hitting lows of 1.9225 and 2.3025, well below yesterday’s highs although GBP has since recovered some of those losses.  For NZD, there are some thinking we could be in for another bout of NZD weakness, the difficulty is finding another currency to purchase against it.  GBP is looking too fragile, JPY could be a contender although at 91.00 it is already 200 pips lower than it was this time last week.  With much rate attention on RBA, perhaps we could look for further gains in AUDNZD, particularly given RBA’s mildly  hawkish although somewhat cautious minutes overnight.

We had seen GBPUSD as high as 1.3865 earlier this year but it had slipped from those highs through February, then since the Iranian war began we have had USD strength.  We know this war could go on a long time and the repercussions will likely be felt long beyond any end of hostilities.  However if we do see an end to the war I do think we are likely to see USD weakness, we did experience that a week or so ago when Trump said he’d stop attacks on Iranian power plants, so imagine what we’d get if peace did happen to break out. 

With GBPUSD around here I think we could prepare for an upside move just in case we do get any pleasant surprises.  With vols as they are option prices are higher than I’d really like, a two month 1.3400 gbpusd call costs almost 100 usd pips, adding a knock out at 1.3950 halves that which feels more palatable in the short term although comes with its own risks.  I’ll continue watching for now but do think some sort of downside USD trade is worth looking at.  Perhaps upside EURUSD, or AUDUSD…I keep coming back to a higher AUD at the moment.

In sport, England’s footballers take on Japan this evening in their final match before the world cup finals in June.   Not sure what team he’ll put out this evening but I’d imagine by now he’ll know most of his starting eleven so those playing tonight could well be fighting for a few places, which could mean we could well see players deeming their own individual performances are more important than the team performance, something we also saw against Uruguay last week.

In other football news, it’s no surprise that Spurs have got rid of yet another manager, this time the interim manager they brought in to see us through to the end of the season but that hasn’t go so well and as such once again a Spurs manager leaves his post.  Once the new manager is appointed I think we’ll have had ten in the last five years.  Roberto de Zerbi, once manager of Brighton and until recently Marseille, looks like the prime target, it is thought he had been waiting to see if Spurs stay up but is now willing to take immediate charge.  Hero, or zero?

EU inflation is out this morning which could well be at the upper end of expectations after Germany’s robust reading yesterday.   We have US jobs data and several Fed officials this afternoon, but the big data comes later in the week.

Have a great day…

-  10.00 EU HICP

-  13.30 CAD GDP

-  14.00 US house prices

-  14.10 ECBs Sleijpen speaks

-  14.45 US Chicago PMI

-  15.00 US consumer confidence, JOLTS

-  17.00 Feds Goolsbee speaks

-  20.00 Feds Barr speaks

-  22.10 Feds Bowman speaks

-  00.50 Japan Tankan

-  01.30 AUS building permits