Decent UK employment data keeps GBP supported

Good morning

It wasn’t exactly the busiest day in the currency markets yesterday, a bit of GBP upside was the main theme of the day which saw GBPUSD reach almost 1.2700 and GBPEUR move up off the morning lows towards the high 1.20’s.  A slightly better UK services PMI number seems to be responsible, the improvement in GBP starting just around the time of its release, while the lower than expected manufacturing PMI was pretty well shrugged off.

GBP had moved off those highs overnight but UK unemployment this morning offered further support for GBP with lower claimants, higher average earnings and a decent positive net change in employment numbers.  GBP up around 1.2700 and 1.2100 vs USD and EUR, while other crosses are also performing well, with GBP at 2.00, 2.20 and 1.8125 vs AUD, NZD and CAD.  The latter has been weakened by a surprise resignation by Canadian FinMIn Freeland, which is placing greater pressure on Trudeau’s own positon.

In the EU, German Chancellor Scholz has lost the confidence vote by 394 to 207 which leads to an election in Feb 2025.  EURUSD is currently 1.0490 from a 1.0530 overnight high and as mentioned above has lost ground again against GBP.  Even mildly hawkish comments from ECBs Schnabel, saying they must be careful not to overreact, and warns of upside inflation risks such as higher energy prices and possible US tariffs, have been unable to help EUR.

Social media has, for a few days, been full of reports of drones operating over cities, airports and military bases, mostly in the US but we are not without our own sightings.  While some reports may be false, perhaps manned aircraft mistakenly identified, others seem to have more credibility and yet no one has so far been able, or willing, to explain them.  Obviously there is a host of conspiracy theories going around but it will be interesting to see whether or not we ever get a decent explanation.

US retail sales data this afternoon is today’s main event although Canadian inflation figures released at the same time will also be closely watched given the BoC rate cuts this year which have taken rates from a peak of 5% to 3.25% currently.  UK inflation numbers are out early tomorrow morning, coming one day ahead of the BoE rate meeting.  The stronger UK employment numbers means BoE are unlikely to make any surprise Dec rate cuts, we’d need to see considerably lower UK inflation readings for cuts to be back on the table.

England have been heavily defeated in the third test and final test of the series against New Zealand, quite a turnaround from the emphatic England win in the second test. NZ won by 423 runs after England scored just 234 in their second innings.  England do win the series 2-1 but the manner of this defeat is surprising and more than a tad disappointing.

That’s about all.  I am starting to get a number of out of office email bouncebacks when I send this each morning, some lucky folk already starting to see the holiday season as starting.  For the rest of us, it isn’t quite time to relax, give it a few more days.

Have a great day

-  09.00 German IFO

-  10.00 German ZEW

-  10.00 ECBs Elderson speaks

-  13.30 US retail sales

-  13.30 BoC CPI

-  14.15 US industrial production

-  23.50 Japan trade balance

-  07.00 UK CPI, RPI, PPI

No winding down just yet, a busy week of data releases ahead

Good morning

After the disappointing UK data Friday morning sent GBP lower, the rest of the day was actually pretty quiet.  GBPUSD traded to 1.2610 into Fridays close, since reopening we’ve seen a smidge of USD weakness which as seen GBPUSD mostly around the 1.2630 region and EURUSD up from 1.0485 to 1.0515 or so. 

GBP continues to lose ground against EUR, actually reaching a low overnight around 1.2010, now 1.2025.  The GBP drop against EUR from its highs just last week of around 1.2160 comes despite Moodys downgrading French credit rating as it sees limited potential for the incoming government to deal with fiscal deficits.  Some mildly hawkish talk from ECBs Kazaks, who warned about cutting rates too much, has perhaps given EUR a slight boost.  More EU official speaking today.

Overnight China retail sales numbers came in lower than expected which put pressure not just on Chinese stocks but also across the entire region. Friday brings the latest PBoC rate decision although despite plenty of talk of renewed stimulus, they are expected to keep rates on hold.  Meanwhile the USD weakness since the open has seen Bitcoin trade up to $105,000

Today is all about PMIs, with data from EU, UK and US all set to hit the screens.   Aussie PM out overnight missed to the downside and with some recent global doom and gloom, weaker data and softer outlooks there is a decent chance numbers out today will have a soft feel to them. 

I always think this is the week where we should be happily winding down for Christmas but there is little chance of that.  While the FOMC rate meeting is likely to be the highlight, we have plenty of other releases and announcements to keep us busy, including:

Tuesday – UK unemployment, CAD CPI, US retail sales

Wednesday – UK inflation, EU inflation, FOMC rate announcement, NZ GDP

Thursday – BoJ rate announcement, BoE rate announcement, US GDP

Friday – UK retail sales, US core PCE, CAD retail sales,

As for the weekend just gone, well it was a pretty decent one at this end, we even had some sun and blue sky for a time which was most welcome.  In football, the Manchester derby wasn’t the greatest spectacle but did have an exciting finish as Utd scored two goals in the last couple of minutes to beat a not so impressive City side.  Spurs scored five first half goals to beat Southampton who have since relieved their manager of his duties, while Forest jumped into the top four with a brilliant win over Villa. 

I never understand how cricket can turn results on its head.  England, who blew away New Zealand in the second test, are now on the receiving end of a drubbing, still needing a frankly ridiculous 640 runs in their second innings after being all out for 143 in their first innings. 

And the other highlight of the week I guess was the Strictly Come Dancing final which saw Chris McCausland crowned as the series winner.  I’d not watched any of the previous weeks but have to say the final was something of an emotional affair and certainly a spectacle of what can be achieved with the right focus, teaching and partnerships.  For those who have been living in another universe, McCausland is blind.  While his dancing wasn’t quite up to the standard of other competitors, the way he overcame his blindness to put on some incredible shows was exactly the sort of feel-good stuff we need and should be a reminder to all of how weaknesses can be overcome. 

On that uplifting note, have a great day

-  09.00 EU manufacturing, services PMI

-  09.30 UK S&P manufacturing, services PMI

-  12.00 ECBs Wunsch speaks

-  13.00 ECBs Excriva speaks

-  13.30 US NY empire state manufacturing index

-  14.45 US S&P manufacturing, services PMI

-  16.30 ECBs Schnabel speaks

-  20.45 BoCs Macklem speaks

-  23.30 AUS westpac consumer confidence

-  07.00 UK unemployment

GBP loses ground after weak GDP, industrial production numbers

Good morning

Higher US PPI yesterday was offset in part by a worse than expected initial claims reading which led to a bit of confusion as to which direction USD would take. In the end it seems the USD bulls have won, USD strength overnight took EURUSD to 1.0460, GBPUSD to 1.2660 and USDJPY up around 153.00. 

Earlier this morning we had disappointing UK data, both GDP and industrial production were below estimates, GDP contracted by 0.1% last month against a hopeful +0.1% expectation.  GBP lost further ground, GBPUSD currently 1.2630 and GBPEUR which just overnight had been 1.2150 is now 1.2065.  UK inflation expectations are out later this morning, BoE’s Bailey has said that inflation has fallen more quickly than previously expected so it will be interesting to see whether this reading reflects that.  

What impact this has on next weeks BoE rate announcement remains to be seen.  We do have a host of UK data next week before the rate meeting including PMIs, unemployment and inflation.  We’re expecting BoE to keep rates unchanged next week but a set of weak numbers will give them more reason to consider another cut.   

Yesterday SNB surprised with a 50bps rate cut when a 25bps was widely expected.  CHF weakened as a result, GBPCHF traded up from 1.1265 to 1.1350 although the GBP weakness since sees the pair back to 1.1285.  USDCHF has held and indeed built on its gains having traded up from 0.8820 to a high so far of 0.8935.  Incoming SNB Chairman Schlegel talked of the potential for further cuts which could see rates at zero although he did mention that SNB don’t like negative rates.  They are still concerned about CHF strength and may turn to currency intervention to halt or slow further appreciation. 

ECB didn’t cause any similar upset, reducing rates by the expected 25bps for the third successive meeting to take rates to 3.15%.  Also as expected, Lagarde mentioned the data-dependent, meeting by meeting approach to rates.  However her mention that a 50bps rate cut had been discussed, plus her acknowledgement that inflation risks are now two-way, ie no longer just to the upside, did add a dovish tone to her statement.

Overnight the Central Economic Work Conference in China ended without any clear stimulus plans other than calling for a more proactive fiscal policy.  Those hoping to see additional stimulus measures announced were left disappointed, Chinese stocks moved lower by some 2-2.5%, as did Hong Kong’s Hang Seng index.  We are expecting to see rate cuts in China next year, and in March there is talk that the National Peoples Congress will bring a more comprehensive stimulus package, by which time Trump’s new tariffs may be in place.

Spurs were in action yesterday evening, when I say ‘action’ I mean sluggishly scraping a 1-1 draw against Rangers.  Chelsea braved the long journey and -11°c temperatures to win their Europa Conference league match, they are favourites to win the tournament and with their current form it would be difficult to bet against them.  This weekend Spurs will be looking to stop their winless streak against bottom placed Southampton, failure to get three points could well put pressure on Ange’s managerial role.  The Manchester derby will be the highlight of the weekend.

England’s cricket team start the third test match against New Zealand this evening, we’re hoping for another win in the series, New Zealand will be desperate to get revenge for their heavy defeat in the last match. 

We’re quickly heading towards Christmas, I always feel we should be winding down by now but there is far too much in the way of economic data and announcements next weeks for us to do that.  I’ve mentioned the string of UK data and the BoE rate meeting, we’ll also have US PMIs, retail sales and GDP, CAD inflation, NZ GDP and trade numbers, BoJ rate meeting and of course the main event, the FOMC rate meeting.   

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

-  09.30 UK BoE inflation expectations

-  11.00 EU industrial production