RBA cut for first time since Nov 2020. RBNZ to cut another 50bps tonight. UK inflation tomorrow.

Good morning

I’ve been out of the office for a couple of days, spent much of the weekend up in Norfolk which is always a terrific place if only it were just a bit easier to get to.  I guess the difficulty in getting there, and by difficult I really mean slow, is part of what has kept it broadly unchanged for so long and therefore what gives it much of its charm.  Mind you I wasn’t saying that on Saturday night when we were nearly caught in a blizzard on some pretty rural road.

As we do in the UK, when I mention snow and blizzard, what I mean is it was quite heavy and started to settle, not quite the snow that other parts of the world get, but when you are in the middle of nowhere in the evening, pitch black, with the most snow I’ve seen for a long time not only falling, but actually settling on the roads, it can be quite alarming.  Of course we made steady progress to where we were staying and arrived with the minimum of fuss, but it was exciting for a while.  Fortunately the next couple of days were clearer and we actually got a decent amount of sunshine yesterday before we made our way home. 

So here I am, back at my desk and wondering what has changed.  Well, USD is still soft despite last weeks higher than expected CPI and PPI, the market focussing more on the softer US retail sales data that came out on Friday.  GBPUSD has seen a high around 1.2630, we are now just 15 pips or so off that level, while EURUSD did reach up to 1.0510 after the US sales numbers last week but failed to hold those gains and is now 1.0460, which puts GBPEUR back up to 1.2060, matching the high from early Feb, EUR held back on warnings that Eurozone growth will be lower than had been forecast back in November.

Elsewhere, RBA< one of the more hawkish central banks, cut rates overnight 25bps from 4.35% to 4.10%, the first cut since the Covid era which saw rates cut from 0.25% to 0.1% back in November 2020.  Rates had been 4.35% since November 2023.  The move had been widely expected and as a result AUD is broadly unchanged.  RBA did warn that upside inflation risks are still very much alive and as a results played down the chances of further rate cuts.

Plenty of talk over peace in Ukraine, with Trump seeking to find a solution, seemingly regardless of Ukraine’s acceptance.  In the end Ukraine will probably have little choice but to accept whatever peace deal comes along but they are determined to be included in the talks, which is fair enough.  They will no doubt need to agree to give up swathes of land already captured by Russia since the invasion began.  There is growing talk of peacekeepers on the ground in Ukraine after a peace deal, which would likely put UK and EU forces, perhaps also US forces, within an arms reach of the Russian army.  The Telegraph has an article that suggests Trump is demanding a US$500bn payback from Ukraine in reparations which would pretty much US owns the country and its resources and infrastructure for pretty much always.  Another US state?

UK employment numbers this morning looked decent enough, the overall unemployment rate held at 4.4% rather than increasing to 4.5% as had been expected but this alone isn’t enough to offer any major optimism.  Even the better employment change at +107k was partly offset by a higher claimant count. 

In sport, Spurs actually managed a second premier league win in a row over the weekend, an important one at that as it moved them up to 12th in the table, but there is a worrying points gap now between 12th place and the European places.  The result pushed Man Utd down to 15th, Everton moved above them as their revival continues.  Liverpool are seven points clear at the top, Arsenal now clear in second with Forest and Man City talking the next two spots.  Bournemouth are flying high in fifth having taken a decent 13 points our of the last 18 available. 

Also in football, I see Leeds got a couple of late goals to turn what would have been a disappointing (for Mark) loss against Sunderland into a win that put them back to the top of the table.  Meanwhile I see Burnley, currently third in the Championship, have conceded only nine goals in 33 league matches so far, a pretty impressive feat.  They have now gone 1,000 minutes without conceding a league goal.  Incredible. 

Back to the markets and today has a slightly limited calendar, Canadian inflation numbers likely to be the highlight, while overnight the expectation is that RBNZ will cut rates by 50bps again to bring rates to 3.75%.

Early tomorrow morning we’ll have the latest inflation numbers from the UK, we’re thinking both CPI and core CPI will show gains which may well keep GBP reasonably supported.

In the meantime, have a great day.  I see more sunshine peeking in through the window, a welcome sign after what feels like weeks of grey, low cloud.

-  09.30 BoEs Bailey speaks

-  10.00 German ZEW

-  13.30 US NY empire state manufacturing survey

-  13.30 CAD CPI

-  14.00 ECBs Cipollone speaks

-  15.20 Feds Daly speaks

-  18.00 Feds Barr speaks

-  21.45 NZ PPI

-  23.50 Japan trade

-  01.00 RBNZ rate announcement

-  07.00 UK CPI, PPI, RPI

USD retreats despite US CPI coming in higher than expected

Good morning

The spell of USD weakness came to an abrupt end as the latest US CPI inflation data was released yesterday afternoon.  Both headline and core were higher than expected, coming in at 3% and 3.3% respectively.  The USD initially pushed higher, GBPUSD traded from 1.2455 to 1.2375, EURUSD from 1.0380 to 1.0315.  What followed was a bit of indecision, with the market pushed one way and then the other.  Comments from Feds Powell were the same as the previous day, with no mention at all of the inflation data that had been released an hour or so earlier.  In the end it was the USD sellers who were happiest, with GBPUSD and EURUSD trading steadily higher through the night. 

This morning the UK’s latest GDP numbers were released and made quite pleasant reading, the monthly, quarterly and yearly readings coming in at 0.4%, 0.1% and 1.4%, all well above expectations, with an upward revision to the previous year on year number to round off the good news.  Perhaps NIESR were right after all with their bullish growth forecasts.  GBP pushed higher, with GBPUSD moving up from 1.2485 to 1.2515, although it has been unable to hold those gains and as I type is back around the 1.2480 area. 

GBP had lost ground the EUR yesterday, dropping to the 1.1970 area after the London close.  The GDP data did give the pair a bit of a boost, it briefly regained 1.2000 but as with GBPUSD was unable to hold its gains and now trades back at 1.1980.  EUR is finding support after suggestions from ECBs Nagel that the ECB’s latest rate cut cycle may have run its course, although I see ECBs Vujcic has said three more cuts this year is not reasonable.  Quite a difference of opinion there. 

Also supporting EUR are the headlines about possible Ukraine/Russia peace talks, Trump has said he’s spoken to Putin and may well meet him in Saudi Arabia, while China also seem to want to get involved in the peace talks.  Whether those talks would involve Ukraine remains to be seen, I’m not so sure they would be happy having the US carve up their land in talks with Putin.  However I see US Treasury Secretary went to visit Zelensky to discuss a minerals deal, which would likely serve to protect Ukraine after the invasion is over.  Perhaps a peace deal is closer than we think.  I still think Ukraine will want to recover land it has lost since the Russian invasion but this seems an unlikely outcome.

Aussie and NZ inflation expectations were out overnight, Aussie numbers were above forecast at 4.6% while NZ data was lower at 2.06%.  I’d have expected this to push AUDNZD higher but it actually a smidge lower now at 1.1115, having seen a high yesterday of 1.1140.  However it remains above 1.1100 having broken up at the start of this week, levels not seen since Nov 2024, back then the rally lasted only a few days before slipping back to the 1.10 region. 

In sport, England lost to India in yesterday ODI to leave the series at an unpleasant 3-0.   Liverpool drew with Everton in a rousing Merseyside derby, the last to be played at Goodison Park with Everton moving to their new ground next season.  And Leeds lead at the top of the Championship is reduced back to two points as both Sheffield Utd and Burnley won last night.  Plenty of Premier League action at the weekend, if you want to see goals you may wish to tune in to Spurs v Man Utd on Sunday, with both teams separated by just two points down in 14th and 13th respectively.  The loser could see themselves as low as 16th in the table if other results go against them.  Yikes!

US PPI today will be in focus particularly given the higher than expected CPI yesterday.  I’m out and about for the next couple of days and am away Monday as well, so I’ve added to the calendar in case I’m not around to send out a report.  I’ll be hoping for some quieter markets while I’m out of the office.

That’s about all for now, have a great day and I’ll take the opportunity to bid you a wonderful weekend as well.

-  09.00 ECB economic bulletin

-  10.00 EU industrial production

-  13.30 US PPI, initial jobless claims

-  17.00 ECBs Nagel speaks

-  21.30 NZ business PMI

Friday

-  10.00 EU GDP

-  13.30 US retail sales

-  14.15 US industrial production

-  21.00 Feds Logan speaks

Monday

-  11.00 Bundesbank monthly report

-  14.30 Feds Harker speaks

-  03.30 RBA rate announcement

-  04.30 RBA press conference

-  07.00 UK unemployment

USD retreats despite Powell saying Fed in no rush to cut rates further. US CPI out this afternoon.

Good morning

Feds Powell yesterday made it clear that the US central bank will take a very gradual approach to further rate cuts.  He said the economy was in a good place and the concerns over the labour market late last year have dissipated.  Feds Williams added that inflation could take a time to get to Feds 2% target and still sees rates as mildly restrictive, slightly more dovish comments than some of his colleagues in the Fed.  Despite Powell’s rather bullish comments, USD has weakened, with GBPUSD now 1.2460 and EURUSD 1.0370. 

UK Chancellor Reeves has been warned she may need to raise taxes and/or cut public spending amid a generally weak economic outlook.  Weirdly however, a rather bullish NIESR said Reeves is on track to remain within her fiscal rules, they see growth at 1.5% this year and inflation down to around 2.4% for 2025 before hitting target of 2% next year.  These numbers are quite different to those forecast by BoE who look for 0.75% growth and inflation back up to 3.74%.  NIESR did say that only one more 25bps cut by BoE was likely this year.  The Times has focussed on an EY poll which suggests 82% of UK chief executives are optimistic about business for the next 12 months, up from 67% in September.  That’s an interesting number given the unhappiness over recent raises in NIC for firms.

We have seen a move away from safe haven yen buying, helped by talk of a possible ceasefire in Ukraine.  Trump says he is working on a peace deal and I have read that Ukraine may be willing to give up lost ground in order to achieve peace.  USDJPY is up at 153.55, almost 200 points higher than yesterday’s lows.  GBPJPY is 191.25, quite a change from yesterday’s lows which came in around 187.25.

While talk of a possible ceasefire in Ukraine is welcome, the news from Gaza doesn’t make optimistic reading, with Israel warning Hamas that failure to return hostages by the weekend will lead to a renewal of hostilities.

In sport last night, Real Madrid upset Man City with a last minute goal to give them a one goal advantage in the Champions League knockout stage.  City were ahead twice in the match but made a couple of mistakes to hand the win to Real.  Mark will be in a good mood this morning after Leeds beat Watford 4-0, extending their lead in the Championship table to five points. Plenty of other Championship action this evening, we also have the Merseyside derby with Everton hosting Liverpool in the premier league.

In cricket, India are currently 63-1 in the third ODI match of the series against England. They were 6-1 at one stage but little surprise that the partnership of Gill and Kohli has steadied the ship. England are yet to win a match in the series having been beaten by four wickets in each of the first two ODI matches.

Todays brings the long-awaited US CPI inflation release, expectations for headlines of 2.9% for CPI and 3.1% for the core reading, although the risks seem to pointing a little to the upside. Still, if it’s there or thereabouts we may see little in the way of market reaction.  Feds Powell speaks again, a similar speech to yesterday so really its only the Q&A that may bring anything new.  The overall message though will remain the Fed is in no rush to move rates.  We’ll hear from a couple of other Fed officials through the day.

BOEs Greene speaks this afternoon, she is usually on the more hawkish side but did vote for the 25bps cut last week.  We’ll see if she mentions anything about the voting for a 50bps cut, or whether she offers any further thinking on UK rates.

Overnight we’ll have inflation expectations from both Australia and New Zealand.  Both are important but unless they are well away from forecasts I think the ongoing Trump tariff talk will be a bigger factor for currencies for the time being.

Have a great day

-  10.00 ECBs Elderson speaks

-  13.30 US CPI

-  15.00 Feds Powell speaks

-  15.00 BoEs Greene speaks

-  17.00 Feds Bostic speaks

-  17.30 ECBs Nagel speaks

-  19.00 US monthly budget statement

-  22.05 Feds Waller speaks

-  00.00 AUS consumer inflation expectations

-  02.00 NZ RBNZ inflation expectations

-  07.00 UK GDP, industrial production

-  07.00 German HICP