Once again it's Trump comments that push markets

Good morning

The ECB did raise interest rates 25bps to 2.25% yesterday, a move that was widely expected and priced in.  Lagarde warned of a possible slowdown, citing the Iran war as the primary reason.  She failed to give much of an idea of rate moves going forward but as with most central banks they will have to balance the risk of fighting higher inflation while protecting economic growth. 

As has been the case for a while now, the market is getting pulled around by comments from Trump over the Iran war.  The US dollar was stronger yesterday afternoon on concerns we were no closer to any peace deal, with Trump warning they will again hit Iran hard.  However after the London close we saw the likes of GBPUSD and EURUSD trade from 1.3330 and 1.1505 to highs of 1.3435 and 1.1590. 

The USD sell-off came as Trump said he was calling off strikes because Iran had agreed some of the finer details of the peace plan, which led to equities bouncing and oil prices dropping to levels not seen since the ceasefire was announced in mid-April.  No deal has been signed as yet, Iranian officials haven’t confirmed a deal is pending, but Trump has intimated something could be signed over the coming weekend.

This morning we had some softer than expected UK data, both GDP and Industrial Production disappointed which has seen GBP sold off, GBPUSD now 1.3390 and GBPEUR off a few points to 1.1580, failing once again around the 1.1600 area as it has several times over the past year or so.  Meanwhile, PM Starmer was dealt another blow yesterday as his Defence Secretary John Healey and Armed Forces Minister Al Carns both resigned over a dispute about military spending, saying investment in the military falls well short of what is required.  This brings the total number of ministers to resign in the last month to seven. 

Elon Musks SpaceX has raised $75bn in its IPO, with shares priced at $135, valuing the company at $1.77trn.  Trading will begin today with some forecasters suggesting the price will push up close to $200.

The football world cup has begun with Mexico winning the opening match against South Africa, a game marred by three red cards.  South Korea came from behind to beat Czech Republic.  Several matches over the weekend, the highlight perhaps being Brazil against Morocco although that doesn’t start until 11pm tomorrow evening.  F1 action comes from Barcelona this weekend the race at 2pm Sunday afternoon.

Looking ahead to the weekend, we are in for some drier weather but I see the forecast is showing lower expected temperatures than it did earlier in the week.  It looked like we may be in for another spell of decent weather, up in the mid to high-20’s which is pretty perfect, but now it seems we’ll be lucky to get much over 20°c this weekend, although it still looks hopeful for later in the week.   

We’ve had a pretty quiet week data-wise but next week will be considerably busier in terms of the economic calendar.  We have UK inflation, employment and retail sales, US retail sales and NZ GDP.  We’ll also enjoy interest rate announcements from BoJ, RBA, FOMC, SNB and BoE so plenty to keep us on our toes, even though the majority are likely to keep rates unchanged.

Have a great day, and a great weekend as and when it comes…

-  09.30 UK consumer inflation expectations

-  11.30 ECBs Sleijpen speaks

-  15.00 US Michigan sentiemt survey

-  15.30 ECBs Nagel speaks

US and Iran exchange fire for a second day

Good morning

US headline CPI inflation came was bang in line with expectations yesterday at 4.2%, its highest level for three years.  It is now over five years since CPI was at or below target, some see that as a fault of the Fed although to be honest we’re including shocks such as Covid in that time which saw global inflation rates push higher, something the Fed could hardly control.  Even now, inflation is largely driven by energy prices, the core reading that excludes energy ticked up just 0.1% to 2.9%, indeed the month on month figure was actually lower than expected at 0.2%, down from 0.4% last time, something Warsh may point to at his first meeting as Fed Chair next week. 

Bank of Canada left rates unchanged as widely expected.  They see two way risks.  Inflation of course is a worry, but low growth and the threat of further US trade restrictions could well lead to a rate cut even with higher inflation.  Trump has suggested he may not renew the USMCA trade deal with Canada and Mexico.  For now, BoC seem happy to look beyond energy-led inflation.

A second day of military strikes by the US against Iran, plus repots of retaliatory strikes by Iran, makes a mockery of the idea of a ceasefire.  Trump says the strikes are aimed at bringing Iran back to the negotiating table and it has been reported that Iran did call during the US bombardment to ask them to stop.  Not sure what truth there is behind that, it certainly feels more like we are returning to full-scale hostilities putting the reopening of the Strait of Hormuz in doubt. 

One piece of interesting news though was Trump explaining that the US helicopter shot down recently has been on duty escorting oil cargo ships through the Strait, something that has allegedly been going on for a while, until recently unknown to Iran.  Trump said such action had been responsible for helping keep oil prices down.  The latest hostilities have pushed oil prices off their lows but prices this morning are $3-4 lower than overnight highs, perhaps there really is a feeling Iran will sign a deal.

England beat Costa Rica 3-0 yesterday evening, a convincing enough win but one that I think only the most ardent English fans would have bothered to stay up to see the end of.  It kicked off an hour late due to thunderstorms and torrential rain which meant it wouldn’t have finished much before midnight.   Tuchel now has to make his mind up about his starting eleven players ahead of the first group match against Croatia.  The tournament itself begins today with the opening ceremony followed by Mexico v South Africa. 

ECB rate announcement is the main event on the economic calendar today.  A 25bps rise is widely expected and priced in so I wouldn’t expect any fireworks unless Lagarde says anything completely away from the usual.  She is likely to leave the door open for a further rate rise later in the year.  Meanwhile Turkey are expected to keep rates unchanged at a heady 37% at their meeting today.  US PPI comes this afternoon, UK’s GDP will be released early tomorrow morning but this is April data, not the key GDP release, as such could come and go with little attention.

Looks like we’re in for some more heavy rain today but from Friday the forecast is for drier weather, at least for a week or so. 

Have a great day…

-  12.00 CBRT rate announcement

-  13.15 ECB rate announcement

-  13.30 US PPI, initial jobless claims

-  13.45 ECB press conference

-  23.30 NZ business PMI

-  07.00 UK GDP, industrial production

-  07.00 German HICP

Is a ceasefire a ceasefire if both sides are shooting at each other?

Good morning

USD weakened just a little yesterday which saw GBPUSD trade a smidge over 1.3400, we are now 20 pips or so below there so hardly anything to get excited about.  Similarly EURUSD saw a high around 1.1575 yesterday, now sits 1.1550, which keeps GBPEUR just a few points off 1.1600.   USDJPY is creeping higher, now 160.35, which leaves GBPJPY up at 214.75.  AUD and NZD are a touch weaker against GBP, with GBPAUD at its highest level for almost two months at 1.9070, GBPNZD is 2.3020.

Risk sentiment doesn’t seem too affected news that US has launched new attacks against Iran in retaliation for the shooting down of a US helicopter by an Iranian drone.  Trump says the strikes were proportional and in self-defence, Iran then launched drones and missiles at US bases in the region but there are no reports of damage or harm to personnel  I’m not sure if this means the ceasefire is holding or not but Trump’s ongoing assertion that a peace deal is not far away continues to look a little optimistic.  Oil prices are actually a little lower, helped by reports that more ships had successfully and safely passed through the Strait of Hormuz.

Main events today on an otherwise sparse economic calendar will be US inflation and Canada’s rate announcement.  For the US CPI, the headline is expected to rise from 3.8% to 4.2%, with core also likely to tick higher from 2.8% to 2.9%.  Anything around this or higher will be another reason for Fed to raise rates next week.   For BoC, they will be holding rates at 2.25%, the tone of Macklem’s comments will be of more interest for future rate moves. 

Aussie inflation expectations are due out tonight, this comes a couple of weeks after Aussie CPI surprised to the downside, which in turn came a week after softer than expected Aussie employment numbers.  We’ve seen AUD weaken since those releases, GBPAUD is up nearly 550 pips from mid-May levels, AUDNZD is down 200 pips and AUDUSD down 250 pips or so.  A weak number overnight could see further AUD losses although short term direction is probably more linked to geopolitical news. 

Elon Musk’s SpaceX IPO closes today.  They are looking to raise $75bn and the suggestion is the offer is hugely oversubscribed, with reports of some $250bn in applications from investors.  Quite what this means for allocations remains to be seen.  The share price offering values the company at around $1.8trn which is pretty wild given last year’s revenue of $18.7bn and an operating loss of $4.2bn.

England’s footballers will play their final friendly this evening against Costa Rica, just one day before the world cup tournament begins.  I’m not expecting much excitement from the game, it’s likely to be more of a training and acclimatising affair.  Mexico will take on South Africa in the opening match of the finals tomorrow evening, we’ll have to wait a week for England’s first match which is against Croatia next Wednesday.

Have a great day…

-  13.30 US CPI

-  14.45 BoC rate announcement

-  15.30 BoC press conference

-  02.00 AUS consumer inflation expectations