Good morning
A bit of an odd day yesterday, we had the US inflation numbers which were stronger than last month but in line with expectations and had little overall impact initially, but once again the late afternoon was occupied with USD buying which took GBPUSD to 1.2685 and EURUSD to 1.0555. This time it was EUR that was worse off, with GBPEUR moving up from its lows around 1.1985 to 1.2030.
Overnight the currency markets have been generally quiet, as I type GBPEUR is still 1.2685, EURUSD 1.0550 and as such GBPEUR is 1.2025. USDJPY did hit a high of 165.10 overnight, now 155.80, once again verbal intervention is limited.
Trump now has a governing ‘trifecta’, that is when the Presidents party also controls both chambers of Congress, the House of Representatives and the Senate which will give him a smoother path for him to pass new policies. It doesn’t mean he can have it all his own way, but life will certainly be easier for him. Plenty of talk of new tariffs, not just on China but on all imports to the US, including those from UK and EU. Trump is in the process of making key appointments which, on the face of it, suggest this really will be a Presidency designed to shake things up
The is ongoing talk in the UK that the recent budget will lead to price inflation for consumers. Both the head of JD Sports and the head of hospitality firm Fullers yesterday warned of higher pricing unless the government changes its plans and phases in the NI increases over two or three years to allow firms to gradually absorb the tax rise rather than hit firms in one go. I don’t think the government will change its mind, it will be a pretty bad show if they have to u-turn so quickly. Still, the increases don’t come in until next April so there is still time, I’m sure they could put a good spin on the change as well.
Meanwhile, UK Chancellor Reeves is expected to announce plans for pension reforms, seeking to free up some £80bn for investment by consolidating UK council pensions into just a few mega-funds. We await her speech later to see what details we get of the plan.
Fed officials were speaking yesterday, Musalem said that rates could continue to fall gradually if inflation continues to head lower but both he and Schmid sounded more cautious on rate cuts, highlighting upside risks to inflation and a labour market that appears to be deteriorating less than had been feared.
Overnight Aussie employment and inflation expectations were released, both marginally on the weaker side. AUDUSD had traded below 0.6500 yesterday for the first time since August, and has held below that level since then, reaching a low of 0.6460. Of course, this is in the background or a stronger US dollar, but AUD remains weak against GBP with GBPAUD currently around 1.9600, although AUD is of its recent lows against NZD, now 1.1035. The weaker data hasn’t brought any change to rate expectations from RBA, there is still no rate cut expected until at least Feb next year at the earliest.
England’s footballers take on Greece this evening in the next UEFA Nations League match. It will be difficult, Greece beat England just over a month ago for the first time ever and will be boosted by the news that many of the England team have pulled out of the squad citing injuries. In cricket, England will be looking to build on their recent T20 win as they take on West Indies in their next match this evening. It has so far been a disappointing tour, with a few very bright spells combined with plenty of failings.
The weather here is getting noticeably colder and next week we’re forecast to see minus numbers overnight. However do spare a thought for Spain, who are facing yet more dangerous storms. The Malaga area, including Marbella, is facing storms and heavy rainfall with some areas being evacuated. Valencia, which was hit hardest by the recent storms that claimed the lives of more than 200 people is also expected to be hit once again.
A pretty busty-looking calendar today, kicking off with EU GDP this morning. US PPI this afternoon is expected to print higher than last month and as such may offer USD further support. However, later in the evening we have the trio of Powell, Lagarde and Bailey speaking and I have a feeling the market may put more emphasis on their comments this time, particularly Powell given the moves in US interest rate expectations and the change in the political spectrum since Trumps victory. I’d also expect Bailey to far less dovish on rates as he was back in early October when he talked of ‘aggressive’ rate cuts.
UK GDP will be out early tomorrow morning, important as we know but given the uncertainty of the impact of the recent budget on the UK economy the data could well be largely overlooked.
Have a great day
- 09.30 ECBs de Guindos speaks
- 10.00 EU GDP, industrial production
- 12.00 Feds Kugler speaks
- 12.30 ECB minutes
- 13.00 BoEs Mann speaks
- 13.30 US PPI, initial jobless claims
- 18.30 ECBs Schnabel speaks
- 19.00 ECBs Lagarde speaks
- 20.00 Feds Powell speaks
- 21.00 BoEs Bailey speaks
- 21.00 UK Chancellor Reeves speaks
- 21.15 Feds Williams speaks
- 21.30 NZ business PMI
- 23.50 Japan GDP
- 02.00 China retail sales, industrial production
- 07.00 UK GDP, industrial production
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