Keep an eye on German elections this weekend

Good morning

Running a tad late this morning.  My youngest has started boxing and needed a medical before he can fight.  So we went to see the doctor at a boxing evening and ended up staying to watch.  Pretty brutal.  My son is seventeen, very late to be starting any new sport, let alone one where people are hitting you.  Ages last night ranged from ten years old up to over twenty years, across various weight classes. 

Fights are pretty short, three rounds of two minutes each, but its full on stuff and you have to be very fit to last the distance.  Anyway, it was gone midnight when we got home, he hadn’t been put off in any way whatsoever, so at some point in the near future he’ll be climbing into the ring for a proper bout.  Worried?  Yes, but hey he’s been training hard so only fair he goes the next step.  Who knows, maybe we have the next Joe Calzaghe in our midst. 

Anyway, that’s my excuse for being a bit late.  So I’ll keep it brief(ish).  USD had another spell of weakness overnight, GBPUSD pushed to a high of almost 1.2680 overnight and then tried again to hit those highs after this mornings UK retail sales headline numbers came in well above expectations.  However, downward revisions to the previous months data took the shine off the numbers, GBPUSD slipped to 1.2650, now 1.2665. 

UK government finance numbers have also been released, a major UK bank highlighting the £15.4bn surplus in January might look great but it is actually £5bn less than OBR had projected back in October.  Revisions to previous numbers don’t look great either, taking the cumulative number to £118.2bn, some £12.8bn more than OBR had forecast.

EURUSD followed a similar path, trading up just above 1.0500 overnight before dropping sharply this morning to 1.0470, now ten pips off those lows.  This leaves GBPEUR higher at 1.2080, this mornings EU PMI numbers came in a touch below expectations but has had little market impact.  As I mentioned yesterday, elections are taking place in Germany this weekend, we should know the results by the market open Sunday night.

The USD weakness comes despite the ongoing message from Fed officials that the 2% inflation target is still some way off and that Fed are in no rush at all to cut rates.  I’d really think such comments would at least slow the USD decline, however with UK and EU also seemingly slowing rate cuts perhaps the impact of stable US rates is less than i’d have expected.  Indeed, i’ve seen an upside trade recommendation for GBPUSD, very much technical based but its more interesting as it’s the first I have seen for a long time.  Upside GBPCHF was also mentioned.   

Overnight Japan inflation numbers sent USDJPY down to 149.30, helped in no small part by the already weakening USD. Since those lows it has staged a pretty decent recovery, now 150.40, a further break lower could well be possible with half an eye on the Sept 24 lows of just below 140.00, however I won’t be chasing this one lower.   

Ukraine peace talks taking a lot of the headlines as you’d expect.  Difficult to work out what the US are really thinking, they have said they don’t want to see phrases such as ‘Russian aggression’ in a G7 communique on Ukraine, which is pretty incredible given Russian was the country that invaded and thereby started the war.  US still seem set on ensuring they have access to Ukraine minerals as well, again an odd way to come at peace talks.

To sport over the weekend, Preimer league action sees Spurs take on Ipswich, another must-win match for Spurs, while other key matches sees Aston Villa host Chelsea, the main event surely Man City v Liverpool on Sunday afternoon.  Six nations rugby returns, England take on Scotland at Twickenham on Saturday, always guaranteed to be a lively affair.  My eldest is going to that, not quite sure where my ticket is!

Any finally, a lot of talk today over dangerous sports such as boxing, but who would have known that kayaking presents huge risks that we perhaps wouldn’t expect.  However earlier this week videos emerged of a kayaker in the sea being swallowed whole by a whale, only to then be spat out some thirty seconds or so later.  That’s a story not many people get to tell.

Have a great weekend as and when it comes…

-  09.00 EU manufacturing, services PMIs

-  09.30 UK S&P manufacturing, services PMIs

-  13.30 CAD retail sales

-  14.30 ECBs Lane speaks

-  14.45 S&P manufacturing, services PMIs

-  15.00 US Michigan sentiment survey, existing home sales

-  16.30 Feds Daly, Jefferson speak

-  18.00 BoCs Macklem speaks

Markets like Trump's China trade deal comments, focus turning to German elections this weekend

Good morning

A brief bout of USD buying took GBPUSD and EURUSD lower into yesterdays London close, reaching 1.2560 and 1.0400 respectively but overnight both pairs have crept higher again, now 1.2605 and 1.0435.  GBPEUR has been pretty unmoved, trading pretty much a 1.2065-1.2080 range for the past day or so and remains within that range at 1.2075.

We’ve seen some decent Yen buying which took USDJPY just below 150.00 around the London open, now 150.25 which outs GBPJPY below 190 at 189.40. The move is put down to some hawkish BoJ talk plus headlines overnight suggesting a US/China trade deal could be possible, which sent the Chinese Yuan a touch higher and USD generally lower. 

Attention is growing on the German elections which take place this weekend after the collapse of the coalition government late last year.  The right wing parties are expected to make gains this time, focus is very much on immigration, although other parties are saying they would refuse to make a coalition with AfD should the opportunity arise.   For now, Merz’s CDU party is leading in the polls but will most likely need to create a coalition with another party and has ruled out AfD as a possible partner.

Plenty of Fed officials speaking again today, they will likely echo comments made recently that while inflation is falling it is still too high and the Fed is in no rush whatsoever to cut rates.  Indeed, the Fed minutes from the last meeting showed a cautious approach and we’ll likely need to see further progress on US inflation numbers before rates are cut again.  Remember last weeks US CPI data was higher than expected which makes Fed rates cuts less and less likely.

Trump has continued his backlash against Ukraine and more specifically Zelensky, who he has called a dictator and has accused of corruption after seeking to keep the ‘gravy-train’ of foreign aid running.  A very noticeable change, perhaps brought on by Zelensky’s rejection of Trumps idea that US will have unending access to Ukraine’s mineral supplies.

We have a pretty long calendar today but its mostly made up of central bank officials speaking.  Japan CPI overnight will be interesting given the Yen move, while early tomorrow morning we’ll have the latest UK retail sales figures.  I tend to be pessimistic when it comes to retail sales numbers and have little reason to change that view this time around.  We’ll see this time tomorrow whether I am right.

Have a great day

-  13.30 US Philly Fed survey, initial jobless claims

-  14.35 Feds Goolsbee speaks

-  15.00 EU consumer confidence

-  16.00 ECBs Nagel speaks

-  17.05 Feds Musalem speaks

-  19.30 Feds Barr speaks

-  21.45 NZ trade balance

-  22.00 Feds Kugler speaks

-  23.30 RBAs Bullock speaks

-  23.50 Japan CPI

-  00.01 UK GfK consumer confidence

-  07.00 UK retail sales

Higher UK inflation makes further BoE cuts less likely

Good morning

A reasonably calm day in the currency markets yesterday, GBPUSD spent most of the time between 1.2595 and 1.2620 although GBP did push higher again against EUR, GBPEUR hitting a high just a couple of pips short of 1.2100 overnight, before settling back at 1.2075, where we sit now.  EUR suffering from that lower growth talk as well as the Ukraine peace talks which seem to split US and EU far more than anyone would have liked.

Overnight RBNZ cut rates 50bps as expected, NZD weakened initially but pared losses as RBNZ Gov Orr suggested the next couple of rate cuts would likely be 25bps each rather than the 50bps we’ve become used to in recent months.  GBPNZD currently 2.2035 having hit a high just over 2.2200 on the announcement

UK inflation this morning had been expected to rise from 2.56% last month to 2.8% this time, but it actually pushed even higher, coming in at a whopping 3%.  GBP did push higher on the release but fell back soon after, perhaps the market noting that the Core CPI reading was 3.7%, as had been expected. 

Aussie employment due tonight, I wonder whether they could come in lower than expected and whether RBA had a heads up on the data before their rate cut earlier this week.  I never know how much advance notice central banks get of data, but if I were in charge I know I’d be wanting to be a bit ahead of the curve.

Ukraine peace talks took place with US and Russia, but no Ukraine, which is a bit odd.  Trump seems intent on getting a peace deal even if it means Ukraine giving up land lost to the Russian invasion.  He also seems keen to have new elections which may see Zelensky ousted, the concern of course is that a pro-Russian could be elected.  Trump seems to be blaming Ukraine for the invasion and worryingly seems more on the Russian side.  Russia has said there can be no peace deal that involves EU forces on the ground in Ukraine.  I wonder why!

US equities are pushing higher with S&P500 hitting record highs yesterday.  Trump has intimated he may introduce a 25% tariff on imported cars.  Gold prices are on the move higher again, now $2,935 having failed just short of last week’s record high of $2,942.

In other news, NASA are tracking an asteroid called 2024 YR4 which was first detected in late December.  At the time they predicted an impact with earth was 1.2%.  They have now increased that to 3.1%, quite a hefty increase.  It may sound low but is only 1 in 33 and I wouldn’t be surprised if those odds increase again.  22 Dec 2032 is the key date.  Perhaps we should drag Bruce Willis out of retirement while downloading Aerosmith’s ‘I don’t want to miss a thing’….

Man City in action this evening against Real Madrid.  Madrid have a 3-2 advantage from the first leg and with them at home they are favourites to go through to the next round.  City will have to pull off something very special.  They are beginning to return to form but this will be a tough one.

That’s about all for now, I’m up in London today for a couple of meetings and will be on the tube before 9am.  That’s a bit early for me.  I might not even get a seat.  Mind you, I’m getting to that age where someone may offer their seat to me.  What on earth would I do if they did?  Stand all the way?  Or politely accept and sit comfortably.  Decisions, decisions……

Have a great day

-  13.30 US housing starts, building permits

-  19.00 FOMC minutes

-  22.00 Feds Jefferson speaks

-  00.30 AUS employment

-  01.15 PBoC rate announcement