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  • richard evans

US stocks still suggest Fed could slow pace of rate rises

Good morning

USD weakened further yesterday and despite a slight attempt overnight to push higher, it actually remains near recent lows against most majors. GBPUSD traded up to almost 1.1500 this morning but has dipped back to 1.1440, EURUSD is just testing support at 0.9960, a level which held overnight. USDJPY still up in mid-144s. A surge in US equity prices was also seen yesterday with major indices up around 3% after US JOLTS job data fell to a one year low, again suggesting that the market is thinking central banks may be close to the end of their rate rise cycle.

GBP is still performing well in the crosses, with GBPAUD up at 1.7600 and GBPJPY just above 165.00. Truss making a closing speech at the Tory conference later today where I presume she’ll defend recent policy changes and confirm the focus is on economic growth.

Unlike RBA, RBNZ raised their rates 50bps to 3.5% overnight. They had even considered a 75bps raise at the meeting, making it clear inflation was too high. They also noted the weak level of NZD and said if sustained, these levels would contribute to further upside inflation risks. NZDUSD did push higher from 0.5720 to 0.5805 but soon dropped back the the 0.5735 area where we currently trade. Similarly, AUDNZD dropped from 1.1360 to 1.1240 but has recovered to trade now 1.1320. RBNZ may have sounded hawkish but the market moves since the announcement do support the idea that rate rises may slow.

Reports from Ukraine suggests their forces are advancing on Russian positions, which of course sounds great although the more Russia are backed into a corner the greater the chance there is of a backlash from Putin. Russia have also said that Western shipments of arms to Ukraine is seen as an immediate threat to Russian interests and raises the possibility of military clashes between Russia and the West. Meanwhile EU representatives have agreed an oil price cap as part of a new sanctions plan on Russia, however with Russia and OPEC looking to cut production, the US are having to appeal to OPEC to change their minds in order to avert what they see as a major risk to the global economy.

Elon Musk has made a u-turn and reignited his deal to buy Twitter. I’m not quite sure what the reason is, but it led to Twitter shares leaping from $43 to $52, with the purchase price being $54.20.

US PMIs today are expected to remain strong, which could reinforce the idea that the Fed does indeed still have a lot to do. There is potential for USD to push higher on the back of better data but as we saw with JOLTS yesterday, weaker data could lead to a softer USD. For now I still think it is risky to bet against the Fed and the dollar.

- 09.00 EU S&P composite PMI

- 09.30 UK S&P composite PMI

- 13.15 US ADP employment

- 13.30 CAD merchandise trade

- 14.45 US S&P services, composite PMI

- 15.00 US services ISM

- 21.00 Feds Bostic speaks

- 01.30 AUS trade balance

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