BoE to cut rates 25bps; Will Trump announce trade deal with UK?

Good morning

VE Day today, the 80th anniversary of Victory in Europe, marking the formal acceptance of all Germany’s unconditional surrender in 1945.  At 6.30pm churches and cathedrals will ring their bells so if you are near one, or perhaps more churches and hear some bells, you know why.

Fed did keep rates on hold as expected.  Powell did mention that uncertainty on the economic outlook had increased but otherwise there wasn’t really anything new and the Fed were clear they would not look to male pre-emptive moves, preferring to assess incoming data.  The US dollar did push a bit higher through the press conference, perhaps the markets were hoping for something slightly more on the dovish side.  Trump won’t be pleased but as yet I’ve not heard anything from him criticising Powell and his colleagues.

Trump is also unlikely to be pleased with China trade data that is due out overnight and is expected to show a surplus in the region of $94bn for April.  We’re waiting to see if anything positive comes from the US-China trade meeting today but I think this is going to take a while.

Trump did comment overnight that a major trade deal with a ‘big and highly respected country’ will be announced later today.  Initial thoughts were that this could be India or Japan, but rumour has it that it could actually be the UK. 

In currencies, GBPUSD has had a bit of a topsy-turvy time, trading down to 1.3280 after FOMC, then up to 1.3355 overnight on this possible US trade deal, but has slipped back to 1.3275 this morning.  GBPEUR is holding up around 1.1770, just a few points off the overnight highs.   

RON continued to weaken yesterday with EURRON trading up to 5.1250 which amounts to a 3% move since last week as the impact of an incoming anti-EU government starts to hit home.   

Arsenal failed in their attempts to reach the Champions League final, PSG coming out on top as they had in the first leg.  Have to say though that PSG once again had their keeper to thank, he made several astounding saves including one very early in the match which, had Arsenal scored, would have turned the tie on its head. 

The big stuff comes this evening, as Spurs look to maintain their 3-1 advantage over Bodo/Glimt although it will be tough given Bodo have an incredible record at home this season.  They do have an artificial pitch which, for anyone who has ever played football, is very different from playing on a grass pitch and will undoubtedly give the home side an advantage.  Earlier this season Spurs played lowly Tamworth in the FA cup and really struggled on their artificial pitch, only winning the tie in extra time.  Fingers crossed! 

Man Utd will hope their 3-0 advantage from their first leg against Bilbao will be enough to see them through to the final, and while nothing is certain in football, Chelsea will be confident of their chances for getting through to the Europa Conference final.

BoE rate meeting today and a 25bps cut is expected and mostly priced in.  We’re looking at the vote split and I’m expecting to see the dovish Dhingra vote for a 50bps cut, the real question is whether Mann goes dovish again and joins her and makes it a 7-2 vote (7 for 25bps, 2 for 50bps).  

Remember, Morgan Stanley recently told its clients they are looking for five 25bps cuts this year which would take rates down to 3.25%, UBS on the other hand see a cut today and then just two more 25bps cuts to leave rates at 3.75% by year end.  Either way, more cuts are expected.  The UK government could face problems meeting its own fiscal rules according to the NIESR, who say that weak tax receipts on possible lower growth will impact the deficit.

So, BoE is the main event but watch out for some volatility this afternoon on Trump’s trade deal announcement.

Have a great day…

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  13.30 US initial jobless claims

-  15.00 Trump trade deal announcement

-  04.00 China trade balance

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