Markets brush off latest Israel/Iran attacks

Good morning

GBPUSD traded to 1.3305 and EURUSD to 1.1500 yesterday morning as the US dollar continued its move higher, led by both geopolitical risks and the suggestion of a US rate rise later this month.  However through the afternoon we did see a slightly weaker US dollar which took GBPUSD back to the mid-1.33’s and EURUSD to mid-1.15’s.  Oil prices are lower again, back to levels close to the close last week, equities have recovered well and bond yields are generally off their recent highs although do remain elevated. 

The market seems to have forgotten the latest skirmish between Iran and Israel and instead is focussing on Trump’s comments that we’ll have peace within a couple of weeks, as well as his suggestion that he told Israel to hold off on further attacks on Lebanon in order to help the peace process.  Reports are though that Israel has ordered the evacuation of the Lebanese city of Tyre as they continue to seek out Hezbollah fighters.

Even if we do get peace soon, the global impact of the war will be felt for a long time to come.  Markets are pricing in almost a full one percent of rate rises from the Fed this year.  Not sure Warsh will be Trump’s favourite person if that happens, even though it’s not of his making.  Still, Trump isn’t exactly everyone’s favourite person himself, having been booed at an NBA match by fans who had to wait in a queue for several hours due to extensive security checks.

But all in all, everything is pretty much as we were.  Not a great deal of other news to offer, GBPUSD a touch higher at 1.3365, EURUSD 1.1540 which puts GBPEUR at 1.1580, a level just 30-40 pips off the highs since last July.  USDJPY holds above 160, now 160.20 with GBPJPY around 214.00.  GBPAUD and GBPNZD are 1.8950 and 2.2930, the former at it’s highest level for a couple of months. 

Not much on the calendar today, markets will be looking forward to US CPI inflation data tomorrow which could really cement the idea that the Fed will raise rates next week. 

Have a great day…

-  13.15 US ADP 4 week average

-  15.00 US new home sales

-  17.30 ECBs Lagarde speaks

-  02.30 China CPI

US employment data pushed USD higher, Middle East action shakes markets

Good morning

I hope you had a tremendous weekend.  Sports fans will be pleased to see England beating New Zealand in both football and cricket.  Football was a warm-up game ahead of the World Cup, acclimatising players to the heat.  The intensity of the football wasn’t what we’d hope to see, that could be either the temperature or the reluctance to be too energetic and avoid injury before the tournament begins.  Still, it was a win I suppose.  England play again on Wednesday, their opponents this time are Costa Rica. 

In the cricket, well it wasn’t exactly the most memorable test match but again, it’s a win.  With England managing just 140 and 226 in their innings you’d think New Zealand would have half a chance but their totals of 113 and 138 fell far short of the figure required for victory.  The Lords wicket has faced some criticism for its part in a test match that, weather depending, could have been all over in two days. 

The US nonfarm payrolls headline on Friday came out much stronger than expected at +172k, with an unchanged unemployment rate of 4.3%.  The data seems to underline the resilience of the US labour market and potentially opens the door for a Fed rate rise to counter Iran war-led inflation, something I am sure incoming Fed chair Warsh had not expected when his nomination was announced.  

US bond yields rallied, the US dollar surged higher, GBPUSD and EURUSD traded from 1.3480 and 1.1640 to 1.3330 and 1.1520 respectively, and USDJPY traded up to 160.40, just 30 pips or so off the highs we saw at the end of April which triggered large-scale intervention by the Japanese authorities.  US equities fell sharply, the Nasdaq closed over 4% lower, wiping out June gains made so far in June although at 29,218 the index remains well above April lows of 22,800.

News over the weekend that Iran had fired missiles at Israel in retaliation for Israeli airstrikes on Beirut on Sunday sent markets into a bit of panic.  Asian markets fell overnight, oil prices rallied on the open, WTI and Brent now some $4-5 higher than Fridays close.  The US dollar made small gains initially but that move was short-lived, with GBPUSD and EURUSD now back to 1.3330 and 1.1520.  European equities have opened lower although futures pricing suggests US equities could regain some of Fridays losses.  The US-Iran ceasefire is fragile but there is some hope that both Israel and Iran will refrain from further attacks, with Trump expressing some anger at Israel’s actions and urging Iran to not let those attacks derail US/Iran peace talks, which are still at a stalemate.

In Ukraine, Putin has firmly rejected Zelensky’s suggestion of peace talks, saying the tone of the request was rude which would make negotiations impossible.  Putin is in no mood for peace and NATO are looking at a new EUR70bn military aid package for Ukraine as it seeks to defend itself from further Russian attacks.

Today’s economic calendar is pretty much empty.  The highlights this week are likely to be US CPI inflation numbers and then ECB and BoC rate announcements.  BoC are expected to remain unchanged but ECB should raise rates 25bps to 2.25%.  The world cup finals begin on Thursday, I’m looking forward to the tournament but with many matches kicking off late due to the time difference I’m not sure I’m going to be watching as many of the 103 matches as I’d like. 

Have a great day…

-  00.01 UK BRC retail sales

-  01.30 AUS Westpac consumer confidence

-  04.00 China trade balance

All quiet ahead of US nonfarm payrolls

Good morning

The Tube strikers got a bit of rain yesterday although they would have enjoyed some sunshine as well which is disappointing.  I don’t think any more strikes are scheduled but that doesn’t mean there won’t be any in the coming weeks or months.

To the markets and it was another day of very little news and very little movement.  GBPUSD ended the London session around 1.3435, EURUSD around 1.1625, while USDJPY remained just a few pips below 160.00.  That put GBPJPY at 215.00.  This morning we are at pretty much the same levels after a quiet overnight session.  Asian equities were generally lower and European markets are opening lower as well despite US markets putting on yet another spectacular performance.  In terms of news, there really is very little to get our teeth into. 

Trump still insists an Iranian deal is not far away, but Iran don’t seem to say the same.  This looks like it could go on a long time and as we know many central banks are looking at possible rate rises to curb inflation.  So far BoE have steered away from that line of thinking, with Bailey observing the lack of rate cuts that had been expected is sort of like tightening, but BoEs Greene has said that the case for a rate rise is strengthening despite soft UK data.

Some hopeful news out of Ukraine where Zelensky has reportedly said they are open to face to face talks with Russia in order to find peace.  Russia have said they have received the proposal but Putin has said he is ready to make a deal with Ukraine, although I presume this hinges on Russia controlling the Donbas region.  Zelensky did add that US attention had been drawn away to Iran and that peace should not wait until US attention is back on Europe.

England cricketers are facing New Zealand in the first Test of a three match series.  England didn’t start well, ending their first innings 140 all out.  However, the conditions suited the bowlers, and England took three New Zealand wickets in the second over and by the close NZ were reduced to 61/6.  If the weather holds out this test match could be over today!

England’s footballers will also face New Zealand this weekend, the first of two friendlies before the World Cup finals.  New Zealand will face Belgium, Egypt and Iran in their group matches.  I had thought Iran were pulling out but it sounds as though they will make the trip to North America, their base will be in Mexico.  I assume the US will approve the team visas.  

Meanwhile the F1 season continues this weekend at Monaco.  Mercedes have been the team to beat so far this season but there are some thinking that Ferrari has a decent chance of winning over a track that is more about cornering than outright top speed. 

Main events next week include US CPI and ECB and BoC rate announcements.  ECB are expected to raise rates 25 bps to 2.25%, while it is likely BoC will keep rates unchanged. 

Before then we have to get through the US nonfarms.  We’ve had a very quiet week in the currency markets so far, although I’m not sure the data this afternoon will have a dramatic impact.  Headline expected around +85k, with the unemployment rate holding around 4.3%.  The stronger the data, the more chance there should be of the Fed considering a rate rise sooner rather than later.  However with Warsh coming in as Fed chair there are doubts as to whether he’d want to see a rate rise at his first meeting. 

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

-  10.00 EU GDP, employment

-  13.30 US nonfarms payrolls

-  13.30 CAD employment

-  14.40 BoEs Dhingra speaks

-  15.00 CAD Ivey PMI

-  16.30 RBNZs Breman speaks

-  19.00 BoEs Bailey speaks