US nonfarm payrolls data this afternoon could be the key for USD

Good morning

Another day, another equities fall, and a weaker USD.  The DJIA dropped 1% yesterday, pretty good when compared with the 1.8% fall in S&P500 and the 2.6% drop in Nasdaq. The UKs FTSE was nearly 1% lower although other European indices fared better, the Dax was up nearly 1.5% on the day.  Overnight most Asian markets were lower, led by the Nikkei that was over 2% down.  The lower USD comes as the US faces the costs of its trade policy with little in the way of growth. 

Concerns mount over the White House pledge to cut the deficit from 6% to 3%, now it looks like that deficit could in fact rise.  US treasuries, once regarded as one of the safest assets, are losing their shine.  Plenty of uncertainty around the US economy right now, todays nonfarm payrolls may well offer a glimpse of whether the doom and gloom that has cast a shadow over the economic outlook is valid.

The Euro is performing well for the time being, trading up around 1.0840 against the US dollar as I type, just through that technical area I mentioned yesterday, and it is also up against GBP, now 1.1910 , a fall of over 200 pips from this week’s highs.  EUR strength comes despite the ECB rate decision yesterday where they cut rates 25bps to 2.65%, a move that had been widely expected. 

Lagarde expressed concern over the trade and geopolitical issues that are very much in play right now, and made it clear ECB are still very much on a meeting by meeting decision process, able to cut rates if data warrants.  She did mention the risk of inflation from increased defence and infrastructure spending but also said that spending would give a boost to the European economy.  German government bond yields remain supported, now around 2.8%. 

BoEs Mann gave a damning outlook for the UK, saying BoE should discard the ‘gradual approach’ and cut rates sharply in order to prop up a struggling UK economy and help it ride the turbulence created by tariff talk and Ukraine.  Mann, usually a hawk, was the only BoE policy maker to vote for a 50bps cut at the last BoE meeting. 

USDJPY is lower once again, still driven by the generally weaker USD and ongoing talk of more BoJ rate rises, plus the general feeling that Japan is under pressure from US to prevent Yen depreciation.  The pair slipped as low as 147.30 yesterday and currently trades only 15 pips or so above that level.  GBPJPY is 190.50.  Still, Japan officials have expressed concern abuot the pace of the Yen move higher and say they will take action to prevent excessive moves, particularly if they are deemed to be driven by speculators.

Trump has once again deferred tariffs on Mexico and Canada, now out to 2nd April, on any goods that came under the USMCA trade agreement.  Trump does seem to have been surprised by the strength of anger and opposition from his tariffs both abroad and in the US.  Trump and Zelensky are expected to meet next week as Trump pushes for a minerals deal, Zelensky certainly sounds more receptive to a peace deal and is looking for a ceasefire as a prologue to peace talks which he says will prove whether Russia accepts the need to end the war, coming as Ukraine announce a huge Russian drone and missile attack earlier today that targeted Ukrainian energy infrastructure. 

Plenty of Fed officials were speaking yesterday and more again today ahead of the Feds blackout period that begins tomorrow.  Feds Waller says he still sees two or three rate cuts this year, Bostic sees rates steady for now, waiting to see the impact of Trump’s trade policies.  He says the economy is very much up in the air right now.  I think we can all agree that the outlook for the global economy is hugely uncertain right now.

I was fortunate enough to not watch Spurs yesterday, by all accounts their performance was at best described as lacklustre as they lost 1-0.  Premier League action this weekend sees Spurs host Bournemouth but the highlights could well Man Utd v Arsenal  be Notts Forest v Man City on Saturday and then Man Utd v Arsenal on Sunday.  Liverpool v Southampton could bring a lot of goals.

Over the weekend we also have the final of the cricket Chapmions Trophy, as India take on New Zealand.  The six nations kicks off again this weekend, Ireland x France should be a storming match, while England will be looking for a strong performance against an Italian side that is probably better than it’ results suggest.  .

US nonfarms today will be the ley, so much attention is on the US labour market.  Consensus is for a headline of artound +160k, with average hourly earnings and the unemployment rate expected to stay at 4.1% and 4% respectively.  Anything weaker is likely to add to the weak dollar story, I have seen some talk of a headline of just +80k and a rise in the unemployemt rate, either of those would be enough to send shocks through the markets.   Comments from Lagarde and EU GDP is likely to be overshadowed by the US data today, it could be interesting to hear what the various Fed officials say after the US data. 

Have a great day, and a fantastic weekend as and when it comes.

-  09.30 ECBs Lagarde, Nagel speak

-  10.00 EU GDP, employment change

-  13.30 US nonfarm payrolls

-  13.30 CAD employment

-  15.15 Feds Bowman speaks

-  15.45 Feds Williams speaks

-  17.20 Feds Kugler speaks

-  17.30 Feds Powell speaks

-  18.00 Feds Kugler speaks

Tariffs, trade wars, mineral deals, now German bond yields..

Good morning

Global equities had a better day yesterday but the US dollar continues to slide lower, EURUSD is now 1.0800 having seen a high so far of 1.0820, we’ve failed a couple of times around that area which comes just ahead of a fairly big technical level for me, 1.0835, which comes from a series of lows since late Nov 2022.  GBPUSD has seen a high so far of 1.2920, while GBPEUR is a touch lower again around the 1.1935 area.  USDJPY has traded to a low of 148.05

The relative EUR strength has been put down to comments from Germany’s Merz who said Germany will do whatever it takes to defend itself, looks to increase defence spending and look for a EUR500bn infrastructure fund, as he seeks to ease fiscal restraints.  German 10 year bond yields rose significantly, indeed some are pointing out it is the largest rally since 1990.  I can only take their word for that as I’m  not inclined to trawl back through years of data, but what I do see is last Friday yields were down around the 2.37% and have since hit a high of 2.93%.  UK yields climbed as well, 10 year were around 4.45% on Friday and have seen a high of nearly 4.8% so far this morning, a decent rise but still well below the German bonds.   

Goldmans Sachs have said that they see faster German growth on this potential fiscal push, while the UK is in for a long and challenging year of low growth according to the British Chamber of Commerce, who have downgraded UK’s 2025 economic growth forecast to 0.9% from 1.3%, also seeing higher inflation and unemployment.  BoEs Bailey has expressed concern  about the substantial risks arising from US trade tariffs.  

While we know there are other factors at play, Trump has been one of the leading cause of volatility in the markets recently and there are no signs of this abating for the time being.  Tariff talk has the potential to drive inflation higher and you will recall yesterday I mentioned the threat of stagflation, where we see lower growth and higher inflation, a pretty horrendous coupling.  I have even seen the term ‘recession’ used in a couple of morning reports, the first mention of the dreaded word for a long time.  Yesterday’s US ADP employment numbers were much weaker than expected, although in contrast the ISM PMi was a little better.  Still, with attention on the US jobs numbers, todays Challenger and initial jobless claims data will be very closely watched, ahead of tomorrows nonfarm payrolls.

There is so much going on at the moment it is difficult to know which way to turn.  I saw comments from China’s Xi who said China is ready for a tough time, his words ‘If the US want war, be it a trade war, tariff war or any other type of war, we’re ready to fight till the end’.  Strong words, very strong in fact, coming as China also announce a boost in military spending.  US/China relations don’t seem to be great.  Nor do US/EU relations.  US have said they will no longer share intelligence with Ukraine and have stopped Ukrainian use of US missiles in an effort to force Zelensky to negotiate over the mineral reserves.  I still wonder what the US would do if Zelensky said he’d have to give up and allow Russia to take Ukraine, including those reserves Trump has his eye on. 

Trump has now turned his attention to Hamas, he has given them an ultimatum to release the remaining hostages held in Gaza.  He has made similar comments, but they were before he was President.  Quite what will happen if Hamas do not do as they are told remains to be seen.  The main issue is that the days of the world doing whatever the US demands are well and truly over.  There was a time when a threat from the US was enough to bring other countries into line, but just take a look at the BRICS+ nations who will certainly not bow down to US demands, and as we know the likes of Hamas or other such organisations may be attacked, even dismantled, but they always come back in another form.

Talk of recessions and lower global demand continues to push oil prices down, WTI saw a low near $65 yesterday, Brent traded to low $68’s which was, I believe, the lowest since Nov 2021.  Both are off those lows now, around $1-2 higher.

So, a lot of waffling this morning, indicative of the number of major issues floating around at the moment.  But to turn attention to today, we’ll have retail sales from EU this morning and then the ECB rate meeting where a 25bps cut to 2.65% is widely expected and already priced in, attention likely to focus on any forward guidance from Lagarde.  At some stage I’m expecting her to say ‘no more rate cuts fot the foreseeable future’, whether we see that today remains to be seen.  Meanwhile, Turkey are expected to announce a 2.5% cut in interest rates to 42.5% later this morning.  

US challenger and initial jobless claims are released this afternoon, although tomorrow’s nonfarm payroll remains the most important data of the week.  Plenty of central bank officials speaking today, at least four from the Fed, while BoEs Mann speaks later in the day although I think the text of her speech is released this afternoon.  The day before nonfarms is usually a pretty quiet one, but something tells me today could be different. 

Oh and if that’s not enough, Spurs are playing is the last 16 of the Europa League this evening, as are Man Utd, both teams looking to emulate the success of English clubs in the Champions League over the past couple of days. 

Have a great day….

-  10.00 EU retail sales

-  11.00 CBRT rate announcement

-  12.30 US challenger job cuts

-  13.15 ECB rate announcement

-  13.30 US initial jobless claims

-  13.45 ECB press conference

-  13.45 Feds Harker speaks

-  15.00 CAD Ivey PMI

-  15.35 ECBs Lagarde speaks

-  18.00 Feds Barkin speaks

-  20.15 BoEs Mann speaks

-  20.30 Feds Waller speaks

-  00.00 Feds Bostic speaks

-  03.00 China trade balance

USD lower, markets wait to see if Trump will rollback recent tariffs

Good morning

USD weakness has been an going theme for a while now and the move shows no signs of abating, with GBPUSD now at 1.2820 and EURUSD at a whopping 1.0670.  The push higher in EUR has taken GBPEUR down from its recent highs around 1.2130 to 1.2010.  US equities closed lower again, DJIA and S&P500 were down around 1.5 and 1.2% by the close and although futures pricing is currently suggesting some of those losses may be recovered, there is certainly something of a rout taking place.  And it isn’t just the US equities that are lower.  European stocks have followed suit, German DAX was down some 3.5% yesterday, while the FTSE 100 shed around 1.25%. 

Weaker incoming economic data is of course to blame, the threat of stagflation, ie low growth and high inflation, is being talked about, as it is expected tariffs will only drive inflation higher.  There is already talk that Trump could scale back tariffs on Canada and Mexico as early as today although I’m not so sure, he has imposed and withdrawn them once already and even he must know this is not something to be announced on a whim.  Still, the talk of a possible rollback has, along with the weaker USD, seen USDCAD trade down from yesterdays highs of 1.4535 to 1.4400 where it currently trades.

There has been some tough backlash from Canada over the tariffs, with Ontario’s Premier Ford threatening to cut off electricity supplies to some US states if tariffs persist, and suggesting US companies should be banned from any involvement in Canadian government procurement.  Trudeau too has been vocal in his opposition of tariffs, saying they will be met with harsh retaliation, although Trump has countered this by making it clear he can raise US trade tariffs if Canada do retaliate.  Trump and Trudeau are due to speak later today.

Trump has said Zelensky has sent him a letter saying their recent argument was regrettable, Ukraine really does appreciate US support and that he’s willing to talk peace and mineral deals again.  Trump of course has intimated he is now holding out for a better deal.

RBNZs Gov Orr has resigned unexpectedly, with no reason given as yet.  Orr will officially leave on 31st March, DepGov Hawkesby will replace Orr until a replacement is officially announced.  GBPNZD is 2.2635, just 50 pips off the highs late yesterday that we in turn the highest levels we’ve seen since Nov 2015.  GBPAUD briefly broke above 2.0500 late yesterday, marking a high since March 2020, now 2.0465.

Congratulations to Aston Villa and Arsenal who both won in their Champions League matches yesterday, Arsneal scoring an incredible seven goals on the way to victory.  Liverpool are in action this evening, taking on PSG.  In cricket, India secured their place in the Champions Trophy final with a good win over Australia, the legendary Kohli leading the way with 84 runs.  South Africa will be taking on New Zealand shortly to decide who will face India in the final. 

US data today includes ADP employment numbers and the all-important ISM services PMI, anything weaker than expected should add to the pressure on the US dollar, although perhaps more attention will be on any tariff talk from Trump today. 

-  09.00 EU composite PMI

-  10.00 EU PPI

-  13.14 US ADP employment change

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI

-  19.00 Fed Beige book

-  00.30 AUS trade balance