GBP holds up reasonably well as the markets try to make sense of the budget

Good morning

US GDP yesterday came in softer than expected with an annualised rate of 2.8% vs 3% that had beeen expected.  However the market seemed to place more emphasis on the stronger than forecast ADP employment numbers and USD showed signs of strength with GBPUSD trading as low as 1.2935 and EURUSD 1.0810.

As Chancellor Reeves spoke, GBPUSD pushed higher to 1.3040 and it would easy to think this was down to the market liking the budget, but over the same period EURUSD also pushed higher to 1.0850 so it is reasonable to put a lot of this down to a gernally softening USD. However GBP seemed to be the main beneificiary, with GBPEUR trading from a budget low of 1.1965 up to 1.2020.  Since then the market has had time to digest the budget, GBP has lost ground, GBPUSD is now 1.2980 and with EURUSD holding up in the mid-1.08s, GBPEUR is back down at 1.1960. 

So, the the UK budget  Now I’m not an economist so I’m not going to try to second guess how good/bad/indifferent it may be and I’m not going to offer a comment as to whether this idea of changing the accounting model should mean its ok to borrow more and more money.  From what I gather so far though is companies will foot the bulk of the tax rises with huge employer national insurance contributions.  But regardless of Labour promises it is impossible to raise money through higher taxes without the man on the street feeling it. 

The additional funding for the NHS and education is much needed I know, but I see these as vitally important but hugely inefficient opretations, and just throwing more money at them isn’t going to make any lasting reforms and that’s regardless of which party is in power.  I don’t regard that as investment in public services, it is just money that will be spent and disappear as quickly as it comes in.

One part that Reeves seemed to add in which went midly unnoticed was the idea of bringing pensions into inheritance tax calculations.  I’ve not looked too deeply into this so I’m not sure of the overall impact but sounds a bit sneaky to me.  Anyway I try to remain reasonably apolitical for the purposes of this daily write-up so i’ll leave it there for the time being.  However I will say that this must surely make decent rate cuts less likely, but that isn’t likely to support GBP.

Elsewhere, BoJ left rates unchanged overngiht as expected, but some suggestions of further rate rises to come has sent USDJPY lower from 153.40 or so to 152.10, GBPJPY in turn is well off recent highs at 197.45.

In other news, I have seen some pretty horrific pictures coming from Spain after a whole years worth of rain fell in just eight hours, causing flash flooding that has claimed the lives of around 100 people, with the death toll still likely to rise.  Scenes of cars and debris piled up in narrow streets look like something out of a film rather than real life.  ‘Devastating’ only just begins to describe it.

In football, Spurs managed to beat an under-strength Man City side to get through to the quarter finals where they will face Man Utd, who won their first match under Van Nistelrooy by beating Leicester 5-2.  The quarter finalists are all premier league teams, the first time this has happened in 14 years.

So, to today.  We have EU inflation this morning and then more US employment numbers, this time challenger job cuts and intiial jobless claims. These are not the biggest set of employment data but we know the Fed are watching the labour market closely,  Tomorrow’s nonfarms are of course the bigger news.  Also today from the US we have core PCE deflator and chicago PMI, both potential market-movers.

Have a great day, can’t quite believe it’ll be November tomorrow. 

-  10.00 EU HICP, unemployment rate

-  11.30 US challenger job cuts

-  12.30 US Core PCE, initial jobless claims, personal income/spending

-  12.30 CAD GDP

-  13.45 US chicago PMI

-  22.45 NZ building permits

-  01.30 AUS PPI

-  02.45 China caixin manufacturing PMI

A packed calendar today including the UK budget

Good morning

For this week, 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.

Another reasonably quiet day yesterday although a little more lively than Monday.  US JOLTS jobs data was slightly on the softer side which led to a little selling but really nothing significant.  GBPUSD hit a high of 1.3010 in the afternoon but had backed off to 1.3000 by the London close.  GBP gained against other majors with GBPAUD and GBPNZD up at 1.9830 and 2.1800 by the London close.

Euro struggled through the day, EURUSD failed to capitalise on the mild USD weakness, closing the day around 1.0800, while GBPEUR ended at 1.2035 having been as high as 1.2050 at one point in the afternoon, just short of the 18th Oct highs which in turn was the high since April 2022. 

Aussie inflation overnight was a slightly mixed bag, with headline rates coming in lower than expected, while the trimmed rate was in line with expectations, but with an upward revision to the previous month.   The markets didn’t know what to make of it, AUD was pushed higher, then lower, but right now is back to pre-release levels, with GBPAUD 1.9820 and AUDUSD 0.6565.  No cuts likely from RBA until Q1 26.  For now AUD is more likely to be pushed by Chinese economy numbers and stimulus plans.

The limited but relative GBP strength across the board yesterday came as a bit of a surprise given the uncertainty ahead of the UK budget tomorrow.  We’ll find out just after midday what Reeves has in store but I’m thinking CGT tax raises, increased tax on dividends and higher corporation tax, as well as higher employer NI contributions.  Not ideal for SMEs, that’s for sure, but perhaps it won’t be quite as bad as I fear.

Today also brings German and EU GDP in the morning, and US GDP in the afternoon, along with US ADP employment numbers.  We have some ECB officials speaking, then overnight we’ll have Aussie retail sales followed by the BoJ rate announcement, where no changes are expected  

As I type, GBPUSD is 1.3010, EURUSD 1.0820, GBPEUR 1.2020 and GBPJPY 199.50.  Gold has hit new record highs of almost $2,790, presumably led by Chinese buying but there is a suggestion other BRICS members may be following suit as well.  It was as low as $2,710 over the recent BRICS summit less than one week ago, leading some to think there is more to this move than just general Chinese flow.

Spurs face Man City in the last sixteen of the League Cup this evening.  I know we’re something of a bogey team for City in the past but really the way both teams have been playing I have very little confidence and fear we could see something of a rout.  Just as with the budget, I have to hope it won’t be quite as bad as I fear.  Several other big clubs in action as well this evening including Man Utd in their first match under interim coach Van Nistelrooy.

Have a great day and good luck, I think we’ll need plenty of it

-  08.55 German unemployment

-  09.00 German GDP

-  10.00 EU GDP, consumer confidence

-  12.15 US ADP employment change

-  12.30 US GDP, PCE

-  12.45 UK budget

-  13.00 German HICP

-  14.00 US pending home sales

-  15.00 ECBs Schnabel speaks

-  18.00 ECBs Nagel speaks

-  20.15 BoCs Macklem speaks

-  23.50 Japan retail trade

-  00.30 AUS retail sales, building permits

-  01.30 China NBS manufacturing PMI

-  03.00 BoJ rate announcement

-  06.30 BoJ press conference

-  07.00 German retail sales

We've had the calm, will we get the storm?

Good morning

For this week, 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.

It was indeed a pretty dead day in the currency markets yesterday.  We saw tight ranges across most pairs, although AUD was a notable mover on the day, with GBPAUD trading up to 1.9710 through the afternoon, AUD driven lower by concerns of a slowing Chinese economy and perhaps ahead of Aussie inflation that comes out in the very early hours of tomorrow morning.

GBPUSD was mostly stuck in a 1.2965-1.2995 range, EURUSD 1.0810-1.0825.  GBPEUR was never far away from 1.2000 USDJPY traded down to 152.50 but pushed back up to 153.25 in to the London close, which meant GBPJPY was 100 pips off the lows, reaching 198.85.  Overnight we’ve seen little change, with similar ranges and levels are pretty much now where we left them yesterday, GBPUSD 1.2975, EURUSD 1.0815, GBPEUR 1.2000, GBPYJPY 198.85.

Not much on the calendar today although we get the first set of US job data for the week, in the form of JOLTS job openings.  We’ll have US consumer confidence at the same time but I’m thinking employment numbers are currently of more interest given the Fed’s focus on the labour market. 

Aussie inflation overnight will be of interest, we know RBA have been one of the more hawkish central banks for a while, this set of data is expected to show softer inflation but whether that will be enough for RBA to change their tune remains to be seen.  I have seen a downside AUDNZD trade idea, partly based on technical but partly on the risk of potentially weaker incoming Aussie data. 

Still, I wouldn’t be at all surprised if we see little movement in the markets once again ahead of such a potentially lively second half of the week, with EU GDP and german inflation, plus US GDP ADP as well as the UK budget tomorrow, BoJ rate announcement, EU inflation and US core PCE Thursday, then US nonfarms Friday.  But it isn’t just this week that is important.  Next week brings the US election as well as BoE, FOMC and RBA rate announcements.  We’ve certainly got a lot to look forward to. 

In sport, Ten Hag was sacked from his role as Man Utd manager after a poor start to the season which sees them down in 14th place, with just eleven points from nine matches so far.  Ten Hag has been under fire for most of the two years or so he has been in charge, despite a couple of decent cup wins but more is expected from a Man Utd manager who has spent some £564 million on players, although whether he was actually responsible for all those signings is up for debate. 

Man Utd haven’t been firing on all cylinders since Ferguson retired in 2013.  They are a long way from being title contenders and any new manager will have their work cut out, that’s for sure.  Ruud van Nistelrooy is the interim head coach, Ruben Amorim is being touted as the prime target for the permanent job. If he doesn’t want it, I’ll give it a go.

Have a great day, enjoy what could be the last of the calm before the storm!

-  13.00 US house price index

-  14.00 US consumer confidence, JOLTS job openings

-  19.30 BoCs Macklem speaks

-  00.30 AUS CPI, retail sales