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  • richard evans

Waiting for US elections and US inflation

Good morning

It was a reasonably quiet day in the currency markets yesterday, the US dollar failed to reverse recent losses which meant GBPUSD managed to claw its way above my comfort level of 1.1500 and EURUSD ticked above parity. Both are slightly off their highs, now 1.1480 and 1.0000 respectively, w3hich makes GBPEUR 1.1480. Markets seem happy to wait for the US inflation numbers later in the week and of course the US midterm elections which take place today. Results not expected until around midnight UK time, certainly by tomorrow morning I’m thinking we should know whether the Democrats have lost their already thin control of the House and the Senate.

A study by the San Francisco Fed says financial conditions are already tighter than current Fed rates suggest. They believe conditions are more akin to rates being nearer 5.25% than the 3.25% they were in September. There are two implications of this. One is that rates may not need to move as high as feared because real-world financial conditions are already at higher levels. The other is that if real-world rates run at 5.25% and we still have very high inflation, rates may need to go far higher than evens Powell has recently indicated. The market seems to be looking at the former rather than the latter.

Japans Ministry of Finance confirmed it intervened once in September, spending $19bn defending the yen. We knew this. What we were not sure of was whether they also intervened through October. There were a few days where it looked as though they did but we got no official confirmation. Data released shows they did indeed spend a further $44bn through October defending the yen without announcing it at the time. FinMin Suzuki said they would intervene again if required.

I’m out of the office now for a couple of days so there will be no report until Friday. By then we’ll have had the US e3lection results and the US inflation numbers. We’ve had some serious volatility in the markets recently, is it too much to ask that the next few days can come and go without too much mayhem.

Speaking of mayhem, the Argentina Champions Trophy cup final between Boca Juniors and Racing provided more than its fair share of mayhem, as 10 players were sent off after an over-exuberant extra time goal celebration that led to a number of dismissals from both sides. Boca were left with only six on-field players, as such the match had to finish early as rules say a team needs to have seven players on the pitch to make a team. Tello, the referee, will be officiating at this years World cup.

- 08.15 SNBs Jordan speaks

- 09.00 BoEs Pill speaks

- 10.00 EU retail sales

- 23.50 Japan current account

- 01.30 China CPI

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