Why am i feeling pessimistic when I'm going on holiday tomorrow?

Good morning

It’s raining and pretty gloomy here this morning, which makes a change because historically when I go on holiday the weather at home is pretty decent.  Actually a glance at the forecast suggests it could just be today that’s wet and miserable so hopefully for the rest of you things will brighten up again. 

Miserable is a word that could be used to describe the general feeling at the moment.  We are nearer any peace deal between US and Iran, oil prices are higher again with Brent up at $98.75 and WTI at three months highs around $94.20.  There seems to be little chance of resolution between Ukraine and Russia, indeed if pushed I’d say an escalation is far more likely, both in Ukraine and in Europe where it seems clear that Russia have been behind several incidents already that the West seem powerless to control, while Argentina are, in my opinion, weighing up their chances of invading the Falklands once again. 

The cost of borrowing remains at or near multi-year highs which is never great but made worse by the fact our borrowing is increasing at an alarming rate.  Inflation is high, central banks are doing their best to hold off on rate rises that threaten to derail already-soft economies but at some point they may have to pull the trigger.  There is growing public discontent over immigration and welfare, the cost of living rises we’ve seen in recent years is putting pressure on households and regardless of what Burnham promises it is nigh on impossible to think we are going to have anything other than a torrid few years.  Ah, and taxes are likely to go up. 

Crikey, I’m one day from going on holiday and I sound like a real miserable old grump of a man.  Sorry about that.  Maybe things are really not all that bad, perhaps it just the rain clouding my thinking.

To the markets and although yesterday was pretty quiet we have seen another shift lower in USDJPY which actually traded below 153 briefly overnight, now back up to 154 but still over 600 points below the high around 160.40 less than one week ago.  This moves still doesn’t look like intervention, we’d almost certainly have seen a weaker US dollar if there had been official USD selling against Yen.  Rather this seems down to Yen strength on BoJ rate rise thinking and potential for large-scale repatriation.  GBPJPY currently 208.25 having seen a low overnight in the low-207’s.

GBP and EUR are currently 1.3535 and 1.1615 against USD which puts GBPEUR at 1.1650, a level the pair has struggled to push above for a week or so now.  Against AUD, NZD and CAD, GBP trades at 1.8765, 2.3140 and 1.8670.  Both AUD and CAD have made gains recently but NZD is lagging behind, as is clear when we look at AUDNZD which is now 1.2330, the highest it’s been since April 2013, spurred by more hawkish talk from RBA officials who make it clear they will raise rates again to curb inflation if necessary.

USDCAD meanwhile was at 1.3810 at option expiry time yesterday which worked well for the option trade I’d talked about Friday, resulting in a small but pleasant net profit of 35 cad pips, not huge but not bad given the original outlay was just 25 cad pips.  See, life isn’t all bad!

There will be no more reports until week commencing 21^st September but we’re certainly open for business as usual with Mark kindly manning the helm while I’m off.  I’ve added this week’s calendar, the highlights could be ECB rate announcement which is likely to see a 25bps rise, Aussie inflation expectations which are in the spotlight after those hawkish RBA comments and then US inflation which, depending on how they come out could add fuel to Fed rate-rise thinking ahead of their rate meeting next week.

Looking ahead to next week’s calendar I may have chosen a bad time to be away.  We have UK employment, inflation and retail sales, as well as the BoE rate meeting.  From the US we have retail sales and the FOMC rate meeting, EU data comes in the form of HICP inflation, while NZ GDP and trade numbers plus BoJ rate meeting means there could be volatility overnight as well.  Sorry Mark!

Plenty of football to enjoy while I’m away including some European fixtures which Spurs aren’t involved in.  Spurs will play two league matches while I’m away, against Everton and Aston Villa.  I’m hoping for four points from those games but I can’t say I’m overly confident.  I could probably find a bar that will show those games but I’m not sure it’s a good idea.  Maybe I’ll be pleasantly surprised.

Have a great couple of weeks, I’ll be on email if needed but won’t be glued to it so replies may be slower than usual.   

-  13.15 US ADP 4 week average

-  14.15 BoE monetary policy hearings

-  16.00 ECBs Elderson speaks

Wednesday

-  02.30 China CPI

-  18.00 ECBs Lagarde speaks

Thursday

-  02.00 AUS consumer inflation expectations

-  07.00 German HICP

-  12.00 CBRT rate announcement

-  13.15 ECB rate announcement

-  13.30 US PPI, initial jobless claims

-  13.45 ECB press conference

-  15.00 US existing home sales

-  23.30 NZ business PMI

Friday

-  07.00 UK GDP, industrial production

-  09.30 UK consumer inflation expectations

-  13.30 US CPI

-  15.00 US Michigan sentiment survey

-  15.00 ECBs Lagarde speaks

-  18.00 ECBs Lane speaks

German politics in some turmoil as AfD win state election

Good morning

Welcome back, hope you had a terrific weekend.  Plenty of sport on offer, South Africa eventually overpowered the All Blacks to win the third test match, and Kimi Antonelli came from 19^th on the grid to win the Italian F1 grand prix, the first Italian driver to win on home soil since 1966.  And in football, Arsenal came from behind to beat Chelsea, in doing so keeping their 100% win record along with Man City.  Hull remain in the top four following their draw with Aston Villa.  Spurs, well what can I say.  Got the first point of the season with a 0-0 draw at Notts Forest, one of only three teams to have failed to score so far this season.

The weather over the weekend was fantastic, the car told me it was 28°c yesterday, pretty spectacular for this time of year.  It will be cooler for the foreseeable future but looks like holding above 20°c which I think is pretty reasonable.  Mind you, I’m off on holiday on Wednesday, where I’m heading is hovering around 30°c which I am certainly looking forward to.

Highlight of the weekend for me was going to watch Passenger, famous for his song ‘Let Her Go’, perform in a small record shop in London.  With just 200 or so people watching it felt like something of a private performance. 

A healthy US nonfarm headline on Friday of +162k, plus revisions to the previous headline which took it from -23k to +21k gave a boost to the US dollar which sent GBPUSD down from 1.3535 to 1.3485 and EURUSD from 1.1625 to 1.1585.  The bout of USD strength was short-lived though, it wasn’t long before GBP and EUR were back above 1.35 and 1.16.   USDJPY had an initial spike to 156.70 but soon dipped back to almost match the recent lows around 155.35. 

Canadian employment numbers were released at the same time, I’d mentioned USDCAD on Friday and a possible option trade to look for volatility over the US and Canadian employment numbers.  It is working with some success, USDAD traded up to 1.3870 on the release which gave us the opportunity to sell spot against the upside option, locking in a small profit and now hoping spot drops from current levels around 1.3835 which would serve to increase that profit.

US and Iran again renewed hostilities over the weekend with Iran firing on US warships and US attacking Iranian oil tankers.  No surprise that WTI and Brent are trading up around recent highs, $92 and $97 respectively.  Meanwhile Russia are increasing the number of attacks both day and night on Kyiv.  This comes as there was some optimism over high-level US visits with Moscow, it isn’t clear what has been discussed but the hope was that they were trying to find some sort of peace deal. 

Headlines in the papers this morning highlight the fact that Russia’s hybrid war in Europe is in full swing and that Europe and particularly the UK are seemingly unable to prevent or deter such attacks.  Moscow have said the accusations of them being behind the drone attacks in Leipzig could signal the start of a real war.  There are reports Chin have been supplying Russia with components for drones which won’t help US trade talks with China.  I do fear that Argentina will see the UK as vulnerable and seek once again to take the Falkland Islands, particularly with Trump recently saying he wouldn’t support the UK given the lack of support he got from the UK in Iran. I hope I’m wrong but there just seems to be mounting pressure and rarely is there smoke without fire.

Over the weekend the German right-wing party, AfD, won the Saxony-Anhalt elections although just failed to achieve the outright majority they needed in order to be the sole governing party.  They won around 44% of the vote with the conservatives managing just 17%.  No far-right party has controlled a German state since the second world war but the result is seen as a clear message to Germany that the mainstream parties are struggling to keep up with the wishes of the people.  This election victory means AfD may have to find another party willing to enter into a coalition although most parties refuse to join forces with the.  The left-wing BSW, who got 5% of the vote, could be the answer, otherwise another election may be possible. 

It’s a US holiday today so could be a quiet afternoon.  This morning sees UK’s Chancellor Healey speaking, he is likely to paint a rather upbeat view of the economy, in contrast to his predecessor Reeves who preferred to talk down the economy.  Mind you, with Jaguar Land Rover looking to shed thousands of jobs and with the cost of borrowing near 28-year highs Healey’s comments may be met with some derision.  Still, he is likely to add that the UK budget on 28^th October may see some painful decisions.  Something to look forward to!

Have a great day…

-  09.30 UK Chancellor Healey speaks

-  10.00 EU GDP, employment

-  00.01 UK BRC retail sales

-  00.50 Japan GDP

-  04.00 China trade balance

Big moves in Yen, now waiting for US nonfarm payrolls

Good morning

Welcome to 4^th September, a day that is special to me only because on this day back in 1989 I started my first job in the world financial hub, the City of London.  OK, it was a pretty dreary admin role but who’d have thought I’d be here, some thirty seven years later, co-owning a fully regulated financial firm of my own.  Well, when I set out, I probably imagined I’d have my feet up on a desert island somewhere by now, but it’s fair to say that both Mark and I still greatly enjoy helping our customers be as efficient and effective in managing their currency exposures, so why would we want to give it all up?  As long as our customers want us, we’ll be here.

US ISM and S&P PMI’s yesterday beat expectations while the lesser-watched Challenger job cut number came in at 53k, well above last month’s very low reading of 33k, but still well above May’s terrible 97k which was the highest May reading since Covid in 2020.  However the US dollar found little in the way of support, mildly dovish comments from Feds Williams didn’t help but perhaps it was also continued pressure through the day from USDJPY selling that finally saw the US dollar lose a bit of ground against other majors. 

USDJPY hit a low around 155.30, within a few pips of the low after the July intervention and pretty much 500 pips from the Wednesday high.  That is quite a move but one that, although quick, has been more orderly and steady that July’s sharp decline.  This move seems to be more down to Yen strength as a result of increasing BoJ rate rise thinking and possible repatriation rather than simple intervention.  Indeed, the limited knock-on effect on other majors suggests this is more of a Yen move than outright USD selling.

EURUSD hit 1.1640 in afternoon trading while GBPUSD pushed up to a high of 1.3545, up from a Wednesday low around 1.3475.  GBP had dropped to 1.1615 but managed a slight recovery to 1.1645 into the London close.  In the crosses, no surprise at all that GBPJPY traded to within a few pips of 210 given the Yen move.  Against AUD, NZD and CAD, GBP is currently at 1.8800, 2.3000 and 1.8690.

US nonfarms are without doubt the main event today, looking for a headline around +56k after July’s miserable -23k reading, while the unemployment rate is expected to hold around 4.1%.  Usual rules apply, a stronger reading is likely to cement thoughts of a rate rise and send USD higher, while another negative headline could dent those rate rise ideas. 

Canada’s employment numbers are out at the same time but will be overshadowed by the US numbers for everyone other than the most ardent CAD watchers.  For the record UDSCAD is 1.3795, much lower than Wednesday’s high near 1.3940, CAD taking good advantage of the softer US dollar.  Given both US and Canadian employment data is out today, perhaps its worth looking at a Monday expiry 1.3775-1.3825 strangle which costs around 25 cad pips. 

In sport, it’s another South Africa v New Zealand rugby match, the third in a series of four tests, which should be another bruising encounter.  With scores level at 1-1, both teams will be hoping for a victory which they could carry into the fourth match knowing they could not lose the series.  A new trophy has been designed for the series, it’s pretty decent in that it splits in half in the event of a drawn series.  We also have the Italian F1 grand prix on Sunday.

In terms of football, Spurs will visit Notts Forest where they’ll hope to finally get some points but I’m not holding my breath.  Some interesting matches over the weekend including Newcastle v Bournemouth and Hull, unbeaten so far, against Aston Villa.  The highlight is likely to be Arsenal v Chelsea on Sunday, both teams unbeaten so far.  In other football news, I saw an incredible statistics this morning…there is currently not a single Italian player in Seria A that has played a world cup match.  Pretty amazing.  

Next week brings EU and Japan GDP, China trade balance, and US inflation with PPI on Thursday and CPI Friday.  We’ll also have the ECB rate announcement where a 25bps rise is widely expected.   Before then we have the weekend which looks like it could be reasonably warm and sunny despite things looking a bit dreary this morning.  I’ll have to get out in the garden for a general tidy up although I do have a couple of family functions which might make my thoughts of garden work tricky.  Oh well, never mind! 

-  09.50 BoEs Bailey speaks

-  10.00 EU retail sales

-  10.00 ECBs Lane speaks

-  13.30 US nonfarm payrolls

-  13.30 CAD employment

-  15.00 CAD Ivey PMI