GBP up on India trade news, RON lower as anti-EU Simion wins election

Good morning

GBP outperformed yesterday helped in no small part by the announcement of a trade deal with India following.  The government said that the annual £41bn trade between the two countries could eventually be boosted by as much as £25bn.  This deal has taken three years to come to fruition and will take another year to really come into effect, which highlights the difficulties in getting such deals over the line.  Trump, take note!

GBPUSD traded up to 1.3400 and GBPEUR lifted to 1.1815 through the afternoon although did back off those highs as we neared the London close and after a quiet Asian session those pairs are now 1.1365 and 1.1750.  EURUSD is 1.1375.   

Of course India have been in the news for other reasons this morning, having launched air strikes on targets in Pakistan and the Kashmir region in retaliation for the attack on Indian tourists last month that claimed the lives of 26 people, that India blamed Pakistan for.  We hope there is no escalation of hostilities in the region, not least because both India and Pakistan have nuclear weapons.

RON weakened around 2.5% yesterday which was a complete surprise given the currency has been stable against the Euro for a long time.  EURRON is currently around 5.0965 having spent the last twenty months or so around the 4.9750 region.  The move was triggered by the presidential election that saw George Simion, a hard-right euro-sceptic, lead the voting over the pro-Western government and he is expected to win the election outright in the next round of voting on 18th May.  Simion only joined the race earlier this year after the pro-Russian Georgescu was barred from running.  There is a suggestion that other central European currencies such as HUF and PLN could also see losses this year, perhaps brought on by rate cuts to counter Trump tariffs.

US and China are set to have trade talks this coming weekend which has gone some way to helping risk sentiment despite the India/Pakistan conflict.  Calming and reconciliatory talk from US TrsSec Bessent ahead of the talks leads some to think both sides are keen to look for a resolution.  China have cut various interest rates overnight including a 50bps cut to RRR in an effort to free up funds to support the economy.  Meanwhile EU continue to plan retaliation for US tariffs if trade talks between them and US don’t work out as hoped.  Some EUR100bn of US goods could be in the firing line if necessary.

Trump met Carney yesterday and we have seen CAD strengthen since.  USDCAD is now at 1.3790 having traded down to 1.3750 yesterday, pretty much the lowest it’s been for several months and well below the post-Trump tariff highs that came in March, around 1.4540.

Quite possible we’ll see a reasonably quiet day ahead of the US FOMC rate announcement.  No rate changes are expected but a lot of focus will be on Powell’s comments at the press conference, particularly in light of Trump’s recent attack on him and other Fed officials for not cutting rates.  It will also be interesting to hear what the Fed make of tariffs, recent trade talks and the potential for some sort of deal with China.

Football fans were treated to another humdinger of a match last night as Inter Milan hosted Barcelona in the second leg of their Champions League semi-final.  As with the first leg, Inter took a two goal lead before Barcelona pulled back level, and then took the lead which looked enough to take them through, but a very late Inter goal took the match to extra time.  Inter got the winner although Barca had a chance in the dying seconds to take the match to penalties. The Inter keeper made several terrific saves to keep Inter in the running. 

Who Inter face in the final will be decided this evening as Arsenal look to overturn a one goal deficit to PSG.  It was PSG who knocked Liverpool out of the tournament, Arsenal know it is a tough test but they will be boosted by their second half performance last week where they forced the PSG keeper to make a couple of important stops, on any other day those would have gone in and the result could have been different.  Still, with Arsenal needing to score, PSG will be hoping their fast front men will hit Arsenal on the break.  Could be a great match, if not quite up to the standards set by Inter and Barcelona.

On the subject of football, I do need to apologise, mostly to Mark, for failing yesterday to mention Leeds Utd winning this season’s Championship title with a hefty 100 points.  I don’t think they will look out of place in the Premiership, I certainly wouldn’t back Spurs chances of beating them the way they are currently playing!

Have a great day…

-  10.00 EU retail sales

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  00.50 BoJ minutes

Back to work after the long weekend, looking ahead to Fed and BoE rate announcements

Good morning

I hope you all enjoyed the long weekend.  It did get surprisingly chilly but remained dry other than a couple of small showers.  Got plenty of work done in the garden and the dog enjoyed a couple of pleasant decent walks, I even played a bit of golf for the first time in about ten months which wasn’t quite as disastrous as I feared it could be.  And of course the VE day celebrations made for quite an impressive viewing, along with a flypast that included an old Lancaster bomber together with Typhoons and F35 jet fighters.  A good opportunity to celebrate Europe’s victory over Nazi Germany back in May 1945.  All in all a pretty decent bank holiday.

To round things off, Spurs didn’t lose, although to be fair they were playing the only team below them who isn’t being relegated.  Arsenal lost, which means there is a very outside chance that Spurs make the Champions League by winning the Europa League, and Arsenal miss out if they don’t finish in the top five.  OK, it would be exceptionally unlikely and if I’m honest not really something Arsenal would deserve having spent most of the season in the top two.  Would be a bit funny though!

Turning to the markets, it was a pretty quiet day yesterday, we did get a better than expected US ISM services PMI reading that helped the US dollar higher, GBOUSD fell from its afternoon high of 1.3335 to a low around 1.3270, EURUSD saw a similar drop from 1.1360 to just below 1.1300, both pairs now off those lows at 1.3310 and 1.1330 respectively.

AUD has benefitted since the Aussie elections saw Albanese re-elected as PM in something of a landslide victory.  His left of centre Labour party defeated the Liberals-National coalition as many see Albanese as a safer pair of hands to guide the country through the difficult Trump-tariff era.   GBPAUD traded down to 2.0485, its lowest level for nearly one month and well below the highs above 2.1600 seen after Trump’s ‘Liberation Day’ tariff talk.   

Quite a bit if trade talk over the weekend, China has called on Japan and South Korea to work together against US tariffs.  Trump suggested he may lower tariffs on China as they are looking for a deal, although China haven’t said anything that supports this claim.  Some suggestion Trump will meet with Canada’s Mark Carney today.  Meanwhile Ford has said Trump’s action are likely to cut their earnings by around $1.5bn this year, quite a damning outlook given Trump has argued that his tariffs can only help the US.  Even if he is right, it will take quite some time for any benefits to be felt.

Not a particularly busy calendar today but this week does bring both the Fed and BoE rate meetings on Wednesday and Thursday.  Fed are expected to remain on hold, while we are likely to see a cut of 25bps from BoE to take rates to 4.25%.

Inter Milan play Barcelona this evening in the second leg of their Champions League semi-final, after a thrilling first leg that ended 3-3.  Looking forward to that, hoping it’ll live up to expectations.  It’ll be Arsenal’s turn tomorrow evening as they try to overturn a one goal deficit to PSG, and then Spurs, Man Utd and Chelsea look to retain their leads in their own European semi-finals.

Have a great day…

-  09.00 EU Composite PMI

-  10.00 EU PPI

-  14.00 BoEs Breeden speaks

-  15.00 CAD Ivey PMI

-  22.00 RBNZ financial stability report

-  23.45 NZ employment

Will we start seeing a slowdown in the US labour market?

Good morning

US and EU equities made small gains yesterday, while the US dollar gained into the London close, with GBPUSD trading down to 1.3260 and EURUSD to 1.1265.  The decent performance was in part down to a better than expected US ISM PMI reading.  Since then we’ve seen a bit of a reversal, with both pairs now 1.3315 and 1.1330 respectively, while futures pricing points to a firmer open for EU stocks.

EU are still lining up their trade proposal for the US, which is reported to increase EU purchases of US goods by some EUR50bn.  China meanwhile are said to be mulling over the idea of trade talks but are looking for US to reverse the unilateral tariffs they put in place.  I’m not sure this is quite as positive as some believe but for now the markets like the idea of China and US talking.  AUD has gained , GBPAUD now down at 2.0740, just 30 pips or so off the lows we’ve seen for the past month. 

Morgan Stanley has told its clients they expect BoE to cut rates by 25bps at each of the next five meetings which would leave rates at 3.25% by November.  They would prefer to see BoE act quicker and are even thinking a 50bps cut could be on the cards.  That’s a pretty dovish outlook, although GBP isnt paying a great deal of attention to the report.

Local elections have been held in many areas across the UK and results so far show Reform has made gains mostly at the expense of the Conservatives although Labour have also lost 13 councillors.  The public is sending a message, let’s see how the Labour government react.

This morning we have the latest EU inflation numbers, but the key for the day will be US nonfarm payrolls this afternoon.  Markets are still looking for signs of a slowdown in the US labour market, expectations are for a headline around the +130k area compared to +228k last month, although I have seen some forecasts as low as +50k this time. 

Spurs, Man Utd and Chelsea all won their European semi-finals last night with comfortable enough margins to be reasonably confident for the second legs.  Premier league action this weekend, with only four matches left this season it’s going to be a race for the teams near the top to see who gets the coveted Champions League places next season.   

The Championship title will be decided this weekend, Leeds will be confident of beating Plymouth Argyle and if they do so the title is theirs.  Second place Burnley will be hoping Leeds slip up, but do face a tougher test themselves against Millwall who are battling for a place in the promotion play offs along with four other teams. 

F1 action returns this weekend as the teams head to Miami.  The McLarens will be hoping to extend their leads in both the drivers and constructors tables, while  Lewis Hamilton will be looking for something better from his Ferrari.

It was an absolute scorcher of a day yesterday, it’ll be slightly cooler today and we’ll be back to the mid-teens on Sunday and next week which is a bit of a disappointment but rather typical given it’s a UK bank holiday.  I hope you managed to enjoy some of the sunshine while it was here. 

So it’s a long weekend for us in the UK.  Next week brings US ISM services PMI on Monday, we’ll keep half an eye on that and we’re available should you need anything, but the key events will be the Fed rate meeting on Wednesday and the BoE rate meeting on Thursday. 

Have a great weekend as and when it comes,

-  09.00 ECB economic bulletin

-  10.00 EU HICP, unemployment

-  13.30 US nonfarm payrolls

-  15.00 US factory orders