US elections dominate Tuesday but uncertain when results will be known

Good morning

Remember, remember the 5th November, when they voted for Harris or Trump

With no decent selection in this election, do we think the dollar will slump?

Sorry, not my finest work but certainly not my worst.  So today’s the day of the US election.  Results won’t be known until the early hours of Wednesday morning at the earliest but that won’t stop the market listening to the polls.  There is a big chance that the outcome is delayed for recounts and legal issues given how close the result is expected to be.  The new President, whoever it may be, will not take office until 20th Jan 2025 so there is plenty of time to get the result correct.  Expect a bit of volatility.

Yesterday was reasonably quiet, USD was a fraction higher with GBPUSD down around 1.2935, down from a high around 1.2990, EURUSD went into the London close around 1.0880 after seeing very tight ranges.  GBPEUR was towards the lower end of the days range at 1.1890 having been up at 1.1915 or so through the day.

This morning though GBP has made a very slight recovery, with GBPUSD back up to 1.2975 and GBPEUR 1.1920, EURUSD barely changed at 1.0885.  I think we’re likely to see GBP uncertainty as we head into the BoE meeting.  A 25bps cut is expected but is certainly not a done deal and even if we do see a rate cut there is a chance that BoE gives a somewhat hawkish outlook for 2025 compared to current expectations. 

Overnight the RBA left rates unchanged at 4.35%, making it clear they are determined to get inflation back to target levels and that they will do whatever necessary to ensure that happens and still see their rates as less restrictive than other countries.  Cuts seems to be a long way off.  All pretty much as expected and as a result AUD hasn’t really been impacted, with GBPAUD 1.9630 as I type. 

Meanwhile the RBNZ financial stability report suggested weakness in the NZ domestic economy is more pronounced with both discretionary consumer spending and business investment both lower.  Meanwhile RBNZ GOv Orr is concerned that the NZ economy is lagging the reduction in rate cuts.  I’m not sure why that’s a surprise to be honest, economies usually lag the impact of rate moves. NZ unemployment out tonight is expected to show a jump in the unemployment rate to 5%.  GBPNZD is 2.1635.  AUDNZD is 1.1025, there must still be some upside potential here.

UK university tuition fees rise for the first time in eight years by around 3% to £9,535.  The press are all over historic press reports showing Labour members such as Starmer and Rayner vowing to abolish tuition fees  I honestly don’t think people mind paying a bit for tuition, but as with all things in life, they expect a decent service to come as a result.  But I know Uni students who get just a handful of hours of face to face teaching every week, and then there could be at least a couple of hundred people in those lecture so its not exactly one to one tuition. 

The rest of their learning is remote, through online seminars, and I even know of universities who ask the second and third year students to teach those in the first year.  Now, teaching others is actually a good way of cementing one’s own understanding, so perhaps not a bad thing, but large fees should surely offer more for students.  

Important as university is, some 20% of people would ultimately have been better off financially had they not gone to university, and perhaps higher fees will make potential students think whether their chosen degree is actually any more worthwhile than a career with some on-the-job training.  It is possible that higher fees may deter some people who would undoubtedly benefit from a university education through their lives, although I would hope the £287 extra each year announced today doesn’t become a decisive factor. 

Workers have ended a seven week strike at Boeing as a whopping 38% pay rise deal is agreed.  The rise is spread over four years and also comes with a one-off payment of US$12,000 plus tweaks to retirement plans.  Whether the deal protects jobs remains to be seen, Boeing recently said they’d be looking to cut some 17,000 jobs after several high-profiles failures with planes and space craft. 

Everything is about the US election today and USD will get pushed higher polls point to Trump or lower if polls point to Harris.  Let’s not ignore the US ISM services PMI this afternoon which does have market impact.  We also have the minutes from the most recent BoC rate meeting.  They were dovish at the time, and as a result the market is looking for 50bps cut in both Dec and Jan, I’d expect these minutes to support that notion.  Still, with Canada jobs data Friday we could see little reaction unless the minutes really say something very different, which would be a surprise.    

-  13.45 US S&P composite PMI

-  14.30 ECBs Lagarde speaks

-  15.00 US ISM services PMI

-  18.30 BoC minutes

-  18.30 ECBs Schnabel speaks

-  21.45 NZ employment

-  23.50 BoJ minutes

Weak nonfarms send USD lower but US election promises to stir things up

Good morning

Fridays nonfarm payrolls were pretty shocking, the headline coming in at a mere +12k, some 100k less than expected, while the previous reading was also revised lower.  The unemployment rate remained the same at 4.1%, but that wasn’t enough to stop an initial USD sell-off which took GBPUSD up to 1.2980 and EURUSD to 1.0900.  We then had a bit of surprising USD strength going into the weekend, GBPUSD closed down around 1.2910 and EURUSD at 1.0830.  GBPEUR currently around 1.1900, pretty much half way between the post-budget lows and post nonfarm highs.  USDJPY has also been pushed around, closing around 153.00 before slipping to 151.60 overnight, now 152.00.

The open on Sunday night saw a return of the USD weakness, overnight GBPUSD touched almost 1.3000, EURUSD back up to the 1.0900.  At this stage I’m not sure if this is down to the US election tomorrow or the potential for another Fed rate cut on Thursday, or a simple case of position squaring ahead of the election. 

The US election is difficult to read, Trump remains the bookies favourite even though Harris seems to have a close lead in US polls.  Still plenty of talk of election fraud and misinformation, and I think we may all have seen the photos last week of a ballot box in the US that had been set on fire.  The fire was sabotage, sure, but the more amazing thing was that the box was just left in the middle of the street for anyone to put anything in.  The largest democracy in the world has an odd way of sorting out their voting. 

Ironic really that their election takes place on 5th November, the very day Mr Fawkes decided he’d had enough with the powers that be.  I’m certainly not advocating blowing up parliament, but I do know that many people I speak to are just horribly fed up with career politicians doing whatever they can to keep themselves in a job regardless of what that means to the country.  Will the new Conservative leader, Kemi Badenoch, prove to be more of the same?  Or will her no-nonsense and dare I say anti-woke approach stir things up?

Iran is threatening what they call a ‘crushing response’ to the recent attack by Israel, and there has been a suggestion this would not be limited to drones and missiles.  Usually when we get such a message we’d expect USD to push higher but we’ve seen none of that as yet, but certainly something to keep an eye on. 

Weekend sport saw the England rugby team just fail to beat the all-blacks despite leading until late in the game.  Unfortunately the change in fortunes seemed to coincide with me turning the TV on to catch the last twenty minutes or so.   In cricket, England had a pretty astounding win against West Indies in the second ODI, chasing down a target of 329 to win with five wickets and a couple of overs top spare.

In football, well I’m obviously a happy man after Spurs came from a goal down to beat Aston Villa, earning Spurs a very important three points without which they’d be languishing below mid-table.  Liverpool extend their lead as Arsenal lose and Man Utd and Chelsea draw, while Notts Forest go third after three consecutive victories.  Impressive stuff for a team that finished one place outside the relegation zone last season.

So it’ll be a busy week in the northern hemisphere, with the US election and then both BoE and Fed rate announcements Thursday.  Both are expected to cut rates 25bps from 5% to 4.75%.  Our friends down under have a busty week as well, with RBA rate announcement in the early hours of tomorrow morning and then NZ employment numbers Tuesday night.  RBA, one of the more hawkish central banks, is expected to keep rates unchanged, the key is whether they change their hawkish tone into something more neutral. 

Have a great day

-  10.00 ECBs Nagel speaks

-  13.30 ECBs Elderson speaks

-  15.00 US factory orders

-  00.01 UK BRC retail sales

-  01.45 China caixin services PMIS

-  03.30 RBA rate announcement

-  04.30 RBA press conference

GBP recovers some of yesterdays losses, market awaits US nonfarm payrolls

Good morning, welcome to November

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the clock changes.

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

US change their clocks this weekend so we’ll be back to normal next week

GBP took quite a sharp tumble yesterday afternoon, which saw GBPUSD fall from around 1.3000 to 1.2845, GBPEUR made a similar move from around 1.1940 to 1.1840, other GBP crosses were also sharply lower.  This was a GBP move, led by a pretty hefty sell-off in UK gilts which suggests the market is looking for less rate cuts from BoE after the budget and higher costs for government borrowing.  Now, you’d be right in thinking that higher rates would lead to a higher GBP but the market doesn’t like the uncertainty the budget has created, particularly from the vastly higher borrowing, up to some £140billion over the next few years, and the potential upside impact on inflation the budget brings.  We’re still looking at a 25bps rate cut next week, but fewer cuts through next year. 

OBR’s report shows GDP is expected to rise from its pre-budget forecasts in 2024 and 2025 due to the short term measures, but for 2026 onwards GDP is forecast to be lower.  Great work!  At least it wasn’t a Truss/Kwarteng style GBP collapse but it is hardly a glowing endorsement.  This morning some of the GBP losses have been reversed, GBPUSD is now just above 1.2900 and GBPEUR is around 1.1885, while the GBP crosses are all well off yesterdays lows.

In other news, Israel have warned of a possible attack from Iran out of Iraq, while Iran do seem to have confirmed plans for retaliation  Oil prices have shifted higher.   Meanwhile, Ukraine have warned that their troops could well be facing North Korean forces fighting alongside Russian soldiers within days.  Despite hopes, both wars do seem to be escalating and more countries are being brought into the conflicts.  Worrying.

Also worrying is the news that Spain could face more heavy rain as the death toll from the recent storms continues to rise, with an unknown number of people still missing. 

Today brings US nonfarm payrolls.  The market is looking for a low headline, something around the +115k area with numbers likely to have been affected by both hurricanes and strikes.  So a soft number may see less market reaction than we’d otherwise expect.  However a stronger headline could give the market reason to believe the Fed will slow the pace of rate cuts and USD could end the week higher.  

As always, its not just the headline we need to watch.  The unemployment rate, currently 4.1% is expected to remain unchanged although I have seen a couple of decent banks looking for that to print a touch higher.  Average hourly earnings should remain unchanged at 4%.  A 25bps cut by the Fed next week is pretty much priced in but what happens beyond there is highly uncertain.

To the weekend, England rugby team will take on the mighty all-blacks tomorrow afternoon, and Englands cricket team will face West Indies again having been well and truly demolished in the first ODI.  Plenty of premier league matches including Spurs v Villa on Sunday, followed by Man Utd v Chelsea, a tough test for interim manager Van Nistelrooy. 

But we’re not quite at the weekend yet.  Enjoy the day ahead, I’m hopeful we’ve seen the end of the sharp moves in GBP, and that we won’t see too much volatility over the nonfarms, but you just never know.  Of course, still plenty of event risk next week including the US election and the BoE and Fed rate announcements, so make sure you get some rest over the weekend.  For me, it looks like it’ll be collecting the ever growing carpet of leaves once again.

-  12.30 US nonfarm payrolls

-  12.30 CAD S&P manufacturing PMI

-  14.00 US manufacturing ISM