Middle East conflict continues to dominate headlines

Good morning

There wasn’t a great deal to get my teeth into on my first day back yesterday.  News in the UK continued to be dominated by Burnham and his band of merry men and ladies in his new cabinet, while overseas it is still mostly about the US / Iran war and how it is escalating, with Yemen Houthi rebels now attacking two Saudi vessels in the Red Sea, which saw oil prices rise once again.  Iran commented that if they cannot sell oil, no one in the region will sell oil.  US equities ended lower after a reasonable close for European markets although futures pricing is pointing towards losses on the European open this morning.

We have seen little in the way of movement in the major currencies, GBPUSD and EURUSD are currently 1.3370 and 1.1420 with GBPEUR 1.1705.  We are slowly being fed policy changes by Burnham aimed at reducing the cost of living.  So far we’ve had a cut in VAT on domestic energy bills, a return to the £2 bus fare cap and now we have a cut in business rates for pubs and clubs.  The overall cost of the cuts so far is not massive but it is not yet clear how these will be funded.  Watch this space.

USDJPY remains above 163 at 163.15, with GBPJPY 218.15.  There is some interest around a change in personnel at Japan’s Ministry of Finance, where Mr Yahara replaces Mr Tokuoka as head of the operational side of intervention.  This does not mean a change of policy on intervention but a couple of major banks see any immediate action as more unlikely.  Next week brings both FOMC and BoJ rate announcements which could impact USDJPY levels although I expect even if BoJ raise rates again it would have minimal impact on Yen unless it was combined with coordinated intervention and a huge repatriation package.  For now, verbal intervention from Japan FinMin Katayama had little effect on Yen.

Aussie employment overnight was on the stronger side of expectations, beating not only this month’s estimates but also seeing revisions higher for last month’s numbers.  Headline employment saw its largest monthly gain since April 2025 at +76,000.  AUD pushed higher as a result, GBPAUD traded from 1.9125 to 1.9065, AUDNZD climbed 40 pips or so to 1.2065 and AUDUSD ticked up towards recent highs before settling back to 0.7000.

There is a lot of excitement but also concern over the good and bad that AI promises to bring.  The AI sceptics may well have seen the news from OpenAI that it had lost control of one of it’s advanced systems during what should have been a test in a controlled environment.  The AI system escaped the restrictions that had been placed on it and then hacked into the network of another company.  I guess stories like this may well make a regular appearance in the months and years to come but for now I admit to feeling a mild sense of alarm at the idea of a piece of software going rogue and doing its own thing.

After a quiet day yesterday we have a busier calendar today with rate announcements from ECB and CBRT, both expected to remain unchanged.  For the ECB it will be interesting to see what Lagarde has to say and whether she has a more hawkish tone to her speech particularly given the renewed military activity in the Middle East and the ongoing threat of second round inflation effects.  More Aussie data comes overnight, this time in the form of PMIs, Japan inflation is also out overnight. 

In the early hours of tomorrow morning we’ll have the latest retail sales numbers from here in the UK.  Expectations are for some disappointing numbers but I wonder if the decent weather and world cup has helped a bit of spending in recent weeks so perhaps we’ll have a welcome surprise to the upside.

Have a great day…

-  12.00 CBRT rate announcement

-  13.15 ECB rate announcement

-  13.30 US initial jobless claims

-  13.30 CAD retail sales

-  13.45 ECB press conference

-  15.00 EU consumer confidence

-  00.00 AUS S&P manufacturing, services PMI

-  00.01 UK GfK consumer confidence

-  00.30 Japan CPI

-  07.00 UK retail sales

Softer UK inflation offers little support for GBP

Good morning

I’m back from a little jaunt around Porto, Lisbon and a few places in between.  Believe it or not, this was my first time in Portugal and I have to say I was impressed, perhaps more so with Porto than Lisbon.  Definitely on my list to return to, if only there weren’t so many other places in the world still to explore!

So, what have I missed?  Well, US and Iran continue to trade shots and the concern now is of a greater escalation of hostilities once again.  Oil prices are higher, WTI is now $86.50, Brent up to $93.40, the highest since early/mid-June and over $20 from its July lows.  And in the UK, we have new Prime Minister in Andy Burnham.  Time will tell whether he is any better than Starmer, my best guess is he’ll do some relatively little things to appease the masses to buy himself some more time.

In terms of currencies, we are not so far off the levels we had before I went away.  GBPUSD is now 1.3375, GBPEUR 1.1730, so pretty close to levels seen on my last report before I went away.  However this doesn’t tell the full story as those pairs had hit highs of and 1.3555 and 1.1825 respectively the day I left helped in part by some slightly better GDP data last week.  GBP had slipped back gradually since hitting those highs and this morning’s UK inflation releases offered little in the way of support, coming in slightly below expectations.

In the crosses, GBP is now 1.9120 and 2.3000 against AUD and NZD, while GBPJPY sits around the 218 area having traded to mid-219’s last week.  USDJPY has traded to highs around 163.25, highest for pretty much 40 years, we did see quick 50 pip dip to 162.70 this morning but we’ve since reversed a good chunk of those losses.  It really looks as though Japan will have to settle for a weak Yen for the foreseeable future.

Of course, we had the final world cup matches taking place while I was away.  I watched the England Argentina match in a square in Porto with a massive screen and thousands of Argentinians who on the whole were well-natured save for a few with their Falkland Island protest banners.  A disappointing match that certainly didn’t show England’s full potential but certainly showed what the Argentinian game was all about.  Still, it did mean we enjoyed a bizarre third/fourth play-off which was far more entertaining than any other match I saw.  As for the final, I didn’t see much of it, deciding that exploring new things was more important.  Not sure I missed much.

I’ll leave things there for now as I struggle to get back into the swing of things here.  Fortunately there is little on the calendar today now the UK inflation data is out of the way, only Aussie employment numbers overnight, so hopefully it’ll give me a bit of time to settle in.    

Have a great day…

-  02.30 AUS employment

Oil up, sentiment down as US/Iran continue to exchange gunfire

Good morning

Another day, more of the same.  USD a bit higher but still within recent ranges, GBPUSD 1.3355, EURUSD 1.1385, the latter just 60 pips or so off the lows seen back in June which in turn were the lowest levels the pair has been since May 2025.  GBPEUR 1.1730, pretty much where it was this time yesterday morning.  USDJPY is 162.35, hardly moved on talk of possible GPIF asset allocation changes which could see a move to domestic assets, with GBPJPY just around the 217 area.  The general USD strength could be put down to Feds Waller who said if inflation continues to come in hot the Fed will have to consider raising rates, a safer move now US employment is looking strong.  A timely comment given the US CPI inflation is out this afternoon.

The situation in Iran is looking worrying as both sides continue to trade shots and Trump reinstates the blockade of Iranian ports. The optimists are beginning to wonder whether they really should be thinking that peace is just around the corner.  Oil prices are back into the $80’s, still a long way from the highs when the war broke out but nevertheless some 20% off the lows seen at the start of July when peace looked far more certain. 

Elsewhere, China trade data showed a hefty surplus of some $125bn, the second highest ever, helped by a 27% jump in exports.  What a great position to be in for the Chinese!  USDCNY is 6.7800, probably not reflecting the true level of CNY but still at levels not seen since 2023 which will maybe go some way to appease Trump who hates the idea of China earning so much while CNY remains weak. 

RBNZs Conway warned of sticky inflation which has helped NZD continue the general push higher we’ve seen through July so far as expectations of higher interest rates through 2026 continue.  Whether those forecasts of two further 25bps rises play out remain to be seen, several banks are suggesting they see perhaps just one more raise this year, a lot perhaps depends on Iran and the impact on global economies, and whether inflation remains energy-price driven.  AUDNZD is down to 1.1965, the lowest we’ve seen since March, while GBPNZD is down at 2.3050 from a high just one week ago of around 2.3535.   

I received an email from Affinity Water saying there will be a hosepipe ban coming in this Friday.  No major surprise given the high temperatures and lack of rain we’ve had for a while now.  Temperatures are forecast to stay in the high 20’s until the end of this month with hardly any rain and I suspect if we do get rain it will be heavy and quick.  The grass is already brown so I can’t worry about that but the sunflowers that my wife has carefully tended will suffer unless we resort to water-saving methods.  I’m not so worried about the grass, if it doesn’t grow there is less to cut, although I’ve been surprised how much has come off when I’ve mowed it each week recently.

Today brings US CPI inflation, a key release in light of Waller’s comments and anything around 4% for headline of 3% for core could be enough for the market to see Fed rates higher.  Several Fed officials are speaking today ahead of the blackout period that comes this weekend, Warsh is one of those speaking.  BoEs Bailey is also on the calendar.

I’m now of the office for a few days after today so I’ve added in the main calendar events below.  I’ll be back early next week by which time we’ll know not only if England have beaten Argentina in the world cup semi-finals but also whether we’ve ended 60 years of hurt and brought the trophy home.  My fingers are well and truly crossed.  France take on Spain this evening, hoping really for a surprise Spain win as I would not fancy our chances of beating a strong France team.

Finally, for the space watchers among you, cast your eyes to the night skies on 17^th July and you may be lucky enough to see six planets all in a line with Mercury, the brightest, at the bottom.   

Have a great few days, back early next week. 

-  09.45 BoEs Bailey speaks

-  13.30 US CPI

-  15.00 Feds Warsh speaks

-  17.40 Feds Barr speaks

-  18.00 Feds Goolsbee speaks

-  18.30 Feds Cook speaks

-  19.55 Feds Bowman speaks

-  21.00 BoEs Bailey speaks

-  03.00 China GDP, retail sales, industrial production

Wednesday

-  13.30 US PPI

-  14.45 BoC rate announcement

-  15.00 Feds Warsh speaks

Thursday

-  02.00 AUS consumer inflation expectations

-  07.00 UK GDP, industrial production

-  13.30 US retail sales, initial jobless claims

Friday

-  10.00 EU HICP

-  15.00 US Michigan sentiment survey