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  • richard evans

US Independence Day tomorrow adds to holiday feel in markets, will Japan use illiquid markets to intervene?

Good morning

 

There is something of a weird holiday feel to the markets even though the schools haven’t broken up yet.  I guess it has felt like this for a while, we sit and wait for what looks like it should be key event risk, we may get a bit of a move in the markets, but then the status quo returns and we look to the next set of data or rate announcements.  Not that there is anything wrong with this of course, most customers are happy when currency markets are stable, so other than a few wild moments H1 2024 was pretty comfortable.  Long may it continue.  Tomorrow of course we have the US 4th July independence day, this afternoon sees some US markets close slightly early, and I’m sure many will take the opportunity to make it a long weekend even though we do have US nonfarms Friday.

 

Powell spoke yesterday and his comments probably went some way to explaining why the markets have been so reluctant to move.  He could hardly have been any more on the fence if he’d tried, not because he is indecisive but because he still sees clear risks on both sides.  He is pleased with progress made on inflation to date and believes we will see lower inflation trends resume.  But he needs to be more confident on inflation to start talking rates cuts.  The Fed are having to balance the risks of moving too quickly with those of moving too slowly, a difficult task for sure.  The Fed still run a dual mandate, to keep inflation stable and employment high.  The employment data this week, particularly the nonfarms, will be as important as always as the Fed looks for reasons to start moving rates.  JOLTS yesterday beat expectations, Challenger and ADP out today.  Despite the lack of US rate cuts, the S&P 500 closed above 5,500 for the first time yesterday, while the Nasdaq 100 hit 20,000.  Impressive stuff.

 

Lagarde spoke with Powell yesterday, the ECB has a slightly easier inflation battle although they do look closely at the components making up the headline numbers and Lagarde pointed out the rather sticky service inflation that is still above 4%.  Lagarde also mentioned the action taken by other central banks when deciding on rate moves, I do wonder whether the lack of rate cut by Fed and, so far, BoE will deter ECB from making too many cuts.  Perhaps we’ll see just one more ECB rate cut this year.  She did also mention the political risks facing Europe although avoided discussion on the French political situation, which will come to a head this weekend as Le Pen strives to win a majority.

 

I’m not sure US relations with China will improve any time soon.  There is evidence apparently that China is developing attack drones that could be used by Russia in Ukraine, which would dent China’s image of being neutral in the invasion.  Meanwhile China have confiscated a Taiwanese fishing vessel as the issues there continue, although I have read that China and Philippines have held taks to defuse their ongoing tensions in the South China Sea.

 

In terms of currencies, GBPUSD is now 1.2690, EURUSD 1.0755 leaving GBPEUR right on the 1.1800 level.  USDJPY has ticked higher again, now 161.85 which take GBPJPY up to 205.40, surely Japan will step in at some point.  In fact, we have to look at the US holidays coming up and think with limited liquidity, a bout of intervention tonight and tomorrow could have a more exaggerated impact.  40 yen pips buys the Monday expiry 161 USJPY put, just in case.

 

Elsewhere, numbers released this morning show Turkish inflation has dropped to a mere 71.6%, down from 75.45% last time.  USDTRY dropped from the 32.60’s to 32.50, now 32.56, similarly EURTRY dropped from 35.05 to 34.96, but has ticked back up to 35.03 as I type.

 

So, UK elections tomorrow, I see the Tories wheeled out Boris Johnson to add some support, like him or loathe him, he certainly commands and audience is a way neither Sunak nor Starmer can do.  Farage is similar as well, not everyone likes what he has to say, I understand that, but he does sound confident in his beliefs and doesn’t mind voicing his opinion.  Still, too little too late for the Tories who have really done everything they can over the past couple of years to lose this election.  Labour look set to win a handsome majority.   

 

In football, Turkey surprised with a win over the very organised Austrians, while Netherlands looked comfortable beating Romania by three goals.  We have a couple of days off before the quarter finals, starting with Spain v Germany on Friday, that could well be a tremendous match.  England remain favourites but more because they are on the easier side of the draw.  I’d imagine the winner of Spain/Germany will become favourites on Friday.  Netherlands at 7-1 look like value although they were not so convincing in the group stages.

 

Have a great day

 

-  09.00 EU composite PMI

-  10.00 EU PPI

-  10.00 ECBs Cipollone speaks

-  11.30 ECBs Lane speaks

-  11.30 Des Williams speaks

-  12.30 US challenger job cuts

-  13.15 US ADP employment

-  13.30 US initial jobless claims

-  14.45 US S&P composite PMI

-  15.00 US services ISM, factory orders

-  15.00 Feds Bostic speaks

-  15.15 ECBs Lagarde speaks

-  19.00 FOMC minutes

-  02.30 AUS trade balance

 

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