Markets quiet ahead of nonfarms tomorrow

Good morning

I walked the dog yesterday after the showers ended, it was beautifully warm and sunny and so far this morning it looks like it could be very much the same.  Mind you, not wishing ill on anyone but I’m sort of hoping today rains as it’s another tube strike in London and I want those on strike to enjoy as little of their time off as they possibly can.

I went to see Jimmy Carr yesterday at our local(ish) theatre.  Not the first time I’ve seen him, I think the last time was Feb 2020.  He is good, more chuckles than outright side splitting laughter, and probably less utterly shocking punchlines than I’d expect, overall a good evening. 

Decent US ISM services PMI and ADP employment numbers yesterday supports the idea that the US economy is rolling along satisfactorily, pushing the door slightly further open for a Fed rate rise although I’d imagine Warsh won’t want that to be the result of his first meeting as Fed chair, and it certainly wouldn’t be what Trump expects from his nomination.  It will be very interesting to see what Warsh does, there are suggestions he’ll remove forward guidance on rates so maybe no more dot plots, and he could move to a more average calculation of inflation.

The US dollar pushed a little higher through the day and we’ve held those gains this morning, helped as well by a comment from Trump in an interview yesterday suggesting the Strait of Hormuz could be open by Labor Day.  That is September, far later than hoped, although Trump did say he still expects it to be resolved far quicker.  There are reports that Israel are agreeing a ceasefire with Lebanon although this is dependent on Hezbollah stopping all attacks on Israel and it’s forces.  Whether such a ceasefire can work really remains to be seen but for now it does offer a minor sense of relief, particularly as Iran has previously said peace in Lebanon should form part of a US/Iran agreement.

GBPUSD and EURUSD are currently 1.3415 and 1.1600, GBPEUR hovering around 1.1570 or so.  USDJPY crept briefly above 160 but soon came back below as fears of intervention and a slightly hawkish Ueda put doubts in the minds of Yen sellers.  The chances of a 25bps rise at BoJs June meeting is now over 90%.  We’ve seen a couple of spikes lower in UDJPY over the past couple of days, only 40-60 pips, this doesn’t suggest intervention but does show how nervous markets are. 

Aussie trade numbers overnight showed a return to a surplus, while last month’s deficit was revised by almost half.  AUD did gain a little initially but is now not far off pre-release levels, with GBPAUD 1.8820 and AUDNZD 1.2155.

Markets have been quiet this week and look set to remain so today ahead of tomorrow’s key US nonfarm release. 

One week until world cup starts, that’s the soccer world cup for our North American readers.  Spain and France are currently favourites with England third.  Germany looks decent value at 16/1 but I’ve not studied the groups enough yet to make a clear choice.  I’d quite like an outsider, Mexico for example, to surprise.  They are 85/1 at the moment.

Have a great day…

-  09.00 ECBs Lagarde speaks

-  10.00 EU retail sales

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  16.40 BoEs Bailey speaks

-  18.10 Feds Daly speaks

US and Iran exchange fire as peace talks stall

Good morning

We had a ridiculously rangebound day in the majors yesterday, GBPUSD, EURUSD and even USDJPY traded something close to a 20 pip range for most of the day.  There seemed to be a mild sense of positive sentiment, equities were up, oil was a bit more volatile but heading into the London close was pretty much where it had been yesterday morning. 

GBPUSD was up to recent highs around 1.3480, spurred in no small part by comments from BoEs Greene that tightening in the coming weeks may well be necessary, certainly if the Iran conflict continues, and that acting sooner can have a huge benefit in containing second round inflation and could prove ultimately less severe than failing to act.   Bailey also made the latter point but did point out that the market had previously priced in BoE cuts for this year, the fact these are now off the table is, in his mind, somewhat akin to tightening.  He is wary of the already low growth levels in the UK.  Elsewhere, The Times have reported that UK government borrowing in £60bn higher than predicted by OBR, who also acknowledged they have been too optimistic in UK growth forecasts.

EURUSD got to 1.1655, while GBPEUR continued to creep higher to 1.1580.  EU HICP and Core CPI yesterday were both higher than previous data which surely opens the door for an ECB rate rise next week.  The slightly softer US dollar failed to impact USDJPY which ticked a few pips higher to 159.90, helping GBPJPY to 215.50, the highest since the 30 April intervention.  BoJs Ueda speaks later this morning.

Aussie GDP overnight came in softer than expected which prompted a limited AUD sell-off which saw AUDUSD trade from 0.7180 to 0.7150 and GBPAUD from 1.8750 to 1.8795, although AUD is a little off those lows as I type.  AUDNZD did drop from 1.2110 to 1.2095 but has since recovered to 1.2130.

The news overnight is of US attacks on Iran reportedly in response to Iranian missile and drone launches aimed at Kuwait and Bahrain.  This comes after peace talks seem to have reached a stalemate.  Oil prices are unsurprisingly higher but still remain below $100, while the US dollar has pushed just a little higher with GBPUSD and EURUSD now 1.3450 and 1.1620, and USDJPY 159.95. 

BoJs Ueda speaks this morning, his last scheduled communication ahead of the BoJ rate meeting on 16^th June.  We’ll be watching closely for any clues as to the direction of rates, the markets are pricing in a decent chance of a rate rise but if Ueda comes across more dovish we could see USDJPY try to trade higher, bringing further intervention risk.  

Main events on the economic calendar today include US ADP employment and the ISM services PMI.  Overnight we’ll get the latest Aussie trade figures and then we’ll hear from RBAs Bullock an hour before the London open Thursday.

Have a great day…

-  09.00 EU composite PMI

-  09.50 BoJs Ueda speaks

-  10.00 EU PPI

-  10.50 ECBs Elderson speaks

-  13.15 US ADP employment

-  14.00 Feds Barr speaks

-  14.30 ECBs Cipollone speaks

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI

-  19.00 Fed beige book

-  02.30 AUS trade balance

-  06.00 RBAs Bullock speaks

Trump still insists Iran deal is close

Good morning

What a difference a day makes.  We’ve gone from warm weather and beautiful sunshine to heavy rain and cooler temperatures.  Fortunately the weather held out long enough for my golf weekend, so I guess I can’t complain too much.  There are reasons to welcome the rain.  The farmers and our gardens will be happy, but above all it means the London Underground workers who are on strike yet again today will not be able to enjoy barbeques or rounds of golf that I’m sure they all had lined up instead of being at work. 

Another day, another raft of comments from Trump about a possible Iran ceasefire extension.  He has said that a deal with Iran to reopen the Strait of Hormuz could come over the next week.  Still, there were also reports that Iran had cut off all dialogue with the US due to Israeli action in Lebanon but Trump has said he’s spoken to Israel who have agreed to hold off any attacks on Beirut, and has also spoken with Hezbollah to ask them not to attack Israel.  As always, until we have a proper deal, it is impossible to guess what the outcome will actually be.

In terms of markets, US equities ended positively but European and Asian markets were mostly lower.  Oil prices are higher than yesterdays open but off the highs that came with the Iranian cutting off dialogue news.  GBPUSD is 1.3475, EURUSD 1.1650 which leaves GBPEUR a touch higher at 1.1570.  UK’s Lord Livermore, financial secretary to the treasury, has said it is inevitable that UK will rejoin the EU at some point as it is in the economic interest of the country to do so.  I am sure he won’t the last minister to publicly make such a statement. 

GBP is holding up pretty well despite BoEs Bailey last week saying UK is running with high inflation and low growth, which makes rate decisions a real balancing act, one that BoE are more likely to be patient on.  BoE are different from other central bank in this regard, with RBNZ, RBA and ECB all talking about potential rate rises, with Fed not so certain under Warsh’s new Chairmanship.

USDJPY remains in the high 159’s despite renewed verbal intervention from Japan FinMin Katayama who used the old ‘we are ready to act as appropriate’ phrase to remind the market they are watching FX levels closely. 

Most other news seems to be about AI firms seeking to raise money with Google talking about raising $80bn for AI infrastructure and Anthropic, valued at almost US$1trn, filing for an IPO.  I’d imagine any share offerings such as these will be snapped up.  It is difficult to know whether AI firms are over or undervalued at the moment, some of the numbers are incredible but we’re certainly at the very start of what could be a revolutionary industry and who knows where that could lead.  Of course there will be AI firms that fail to live up to their valuations but others must

The calendar today includes EU inflation numbers and US JOLTS job openings, the first of the US jobs data this week.  We will hear from several central bankers including BoEs Bailey this afternoon.  Overnight we’ll have the latest Aussie GDP and services PMI numbers. 

Have a great day…

-  10.00 EU HICP

-  14.35 ECBs Vujcic speaks

-  15.00 US JOLTS

-  15.00 BoEs Bailey speaks

-  16.10 ECBs Sleijpen speaks

-  18.00 BoEs Greene speaks

-  23.45 NZ building permits

-  00.00 AUS S&P services PMI

-  02.30 AUS GDP