Stronger UK retail sales push GBP higher

Good morning

ECB did indeed cut rates 25bps yesterday to take rates to 3.25% in a unanimous move that had been widely expected.  The cut is notable as it is the first back-to-back rate cut by ECB since 2011 and follows similar sized cuts in June and September.  Lagarde said that recent weaker inflation together with lower than expected economic data helped justify the decision.  Future decisions remain data-dependent, ECB still determined to bring down inflation although Lagrarde did seem to acknowledge the risks now for inflation were more to the downside. 

Euro did weaken through the day, with EURUSD trading down to 1.0810 at one stage, by the London close it was a few pips higher at 1.0835, while GBPEUR finished at 1.2000. 

Yesterday’s US data, including retail sales, Philly fed survey and initial jobless claims all came in stronger than expected which helped push USD higher, explain some of the decline in EURUSD.  GBPUSD traded down to 1.2980 after the US data but closed just around the 1.3000 area.

This morning, much stronger than expected UK retail sales data sent GBP higher, with GBPUSD reaching 1.3070 and GBPEUR to its highest level since April 2022, hitting 1.2055.  Both pairs are a few pips lower as I type.  Other GBP crosses all higher after the numbers, GBPJPY up at almost 196.00, while we are currently 1.9450, 2.1520 and 1.8020 agaisnt AUD, NZD and CAD respectively.

Overnight we had Japan inflation which was marginally in line with expectations.  The numbers had little in the way of market impact, with UDSJPY around the 150.00 area.  We haven’t heard from Japan officials on Yen for a while, obviously since USDJPY pushed below 150.00 but it is little surprise that now we are back up around that area we are hearing the old ‘we are watching yen levels with sense of urgency’, this time from Japan MoF’s Mimura.

China GDP was also on offer in the early hours of this morning, together with retail sales and industrial production.  All were better than expected which has brought a bit of calm to China watchers who are worried about their slowing economy.  AUD, strongly connected to the fortunes of the Chinese economy, found a bit of support from the healthier numbers.

Gold prices have hit new highs, trading up to US$2,714 this morning.  The ongoing unrest in the Middle East is clearly having an impact, Israel have confirmed the death of Hamas leader Sinwar, while Hezbollah has talked talking about an escalation phase of hostilities.  I also wonder whether China have resumed their much publicised gold purchases. Of course we still await Israel’s potential attack on Iran, which is likely to see gold push higher still.

Americas Cup today, GB will be hoping for a repeat of Wednesday with a couple of wins to level the series, while New Zealand could get within one point of overall victory should they win both races. 

In cricket, England had the opportunity to win the latest test match against Pakistan after bowling the hosts out for 221 in their second innings.  I was expecting to see a healthy score from England this morning in their run chase, instead I see a pretty horrific collapse which saw them bowled out for just 144.

To the weekend, and we’re back to domestic football.  I’ll have to mention that Mark’s Leeds play this evening against Sheffield Utd, something of a top of the table clash with Sheffield Utd currently in second place, Leeds just below them in fifth but with the chance to pull level should they win.  Spurs, looking to put the embarrassing loss to Brighton behind them, take on West Ham on Saturday.  The pick of the bunch could well be Liverpool v Chelsea on Sunday. 

Formula One returns after a break of several weeks, with the US Grand Prix.  Will McLaren continue their winning streak or will Red Bull, Ferrari and the others come back from the break with a spring in their step?

And finally in sport, a cheating scandal has erupted at one of the world’s premier sporting events, the World Conker Championship.  The winner, 82 year old David Jakins, who has competed in the event since 1977, has been accused of cheating after a metal conker was found in his pocket.  He insists it was just for a bit of fun, but after he demolished his opponents conker in one hit in the final, an investigation has started as to whether he used it in competition.

I’m out and about today seeing a client and a potential client, fingers crossed for that!  I’m hoping the weather stays dry, makes the drive far more pleasurable.  Its pretty foggy outside, I’m rather hoping that clears before I set off.  We’ve had some surprisingly warm days recently which means the grass has been growing so back on the mower on Saturday, although the forecasts suggests it’ll be quite wet so whether I actually get to cut the grass is dependent on the weather.

Have a great weekend

-  13.30 US housing starts

-  14.30 Feds Bostic speaks

-  15.00 Feds Kashkari speaks

-  17.10 Feds Waller speaks

-  17.30 Feds Bostic speaks

GBP remains under pressure, ECB to cut rates today

Good morning

GBP remains under pressure after yesterdays UK inflation numbers that surprised to the downside.  GBPUSD did get back up to 1.3035 yesterday afternoon but soon lost those gains and slipped back below 1.3000, this morning it has made new lows of 1.2975, although it has held up better against EUR with GBPEUR now 1.1965.

With inflation very much in focus right now, some attention will be placed on this mornings release of EU HICP, however the key will of course be the ECB rate announcement this afternoon, at which they are expected to cut rates 25bps to 3.25%.  This would follow cuts of 25bps in June and September this year, which took rates off their 4% peak.  EURUSD is currently 1.0850, the lowest levels since early August  

We could see some EUR weakness on the back of the rate announcement although the move is widely priced in.  Attention could instead be focussed on Lagarde’s wording at the press conference that follows.  There is thinking that some of the hawkish members will push for a more cautiously worded statement, so Lagarde may continue with the ‘rates are data dependent’ theme rather than hint at further cuts.  If so, EUR losses could be contained. 

Overnight, Aussie employment numbers came in on the strong side with full time employment rising by 64,000, far more than forecast.  The unemployment rate was lower than expected at 4.1%, the previous month rate was also revised lower.  The release was enough to send AUD higher, AUDUSD moved up from 0.6665 to a peak of 0.6710, AUDNZD climbed from 1.1000 to 1.1045 and GBPAUD dropped from 1.9490 to 1.9375. 

AUD has since lost much of those gains following a disappointing China press conference regarding property market stimulus.  However the numbers were probably enough to convince RBA that rates will be kept on hold into year-end and perhaps even into Q2 2025.

It’s a reasonable day for US data today, the key perhaps being retail sales which are expected to show a small uptick from last months pretty dismal number.  Philly fed survey and initial jobless claims are out at the same time.

Overnight we’ll get the latest China GDP readings, then early tomorrow morning we will have UK retail sales.  The y/y numbers are expected to show gains, we’re looking for a headline of 3.2%.  Whether that is enough to offer any support to GBP remains to be seen.

GB won both yesterdays races in the Americas cup to bring them back into contention and ensure racing continues into the weekend, although we are still 4-2 down.  No racing scheduled for today.

Its another exciting test match between England Pakistan.  England saw something of a collapse from 211-3 to 291 all out, following Pakistans first innings total of 366.  They are currently 47-3 in their second innings, a lead of just 122 as I type.  Its going to be an interesting third day.

Have a great day

-  10.00 EU HICP

-  12.00 Turkey rate announcement

-  13.15 ECB rate announcement

-  13.30 US retail sales, philly fed survey, initial jobless claims

-  13.45 ECB press conference

-  14.00 Feds Goolsbee speaks

-  14.15 US industrial production

-  00.30 Japan CPI

-  03.00 China GDP, industrial production, retail sales

-  07.00 UK retail sales

GBP lower following UK inflation numbers

Good morning

I’ll start with the big news.  GBP has crumbled after the UK inflation release this morning as pretty much all CPI, PPI and RPI headlines came in lower than expected.  The market had been looking for headline CPI of 1.9% and core CPI of 3.4%, these both came in 0.2% lower at 1.7% and 3.2% respectively. 

GBPUSD, which had been trading happily around the 1.3070 area since the London close, gapped lower 50 pips immediately and has since fallen back further, now 1.2985.  Similarly GBPEUR had comfortably regained the 1.2000 area only to slip back to the 1.1940, GBPJPY dropped from 195.20 to 193.75 and other GBP crosses are also marked lower.

The headlines made great reading and on the face of it should open the door for BoE rate cuts, as Bailey had recently mentioned.  It may not be quite that simple, a lot of the decline in CPI is down to lower fuel prices and lower air fares, which aren’t really BoE’s main areas of interest and they have, in the past, overlooked such volatile items.  However the market for now is taking it as a sign that Bailey’s recent ‘more aggressive’ rate cut comments could prove to be more than just words.  Market now pricing in around 75bps of cuts over the next three meetings.  BoE still have Reeves budget to deal with before any decisions can be made.

Yesterday CAD weakened, also driven by lower inflation numbers, which many see as the green light for a 50bps cut next week. USDCAD traded up to 1.3835 but has since returned to 1.3780, GBPCAD was up at 1.8100 but this morning’s UK data has sent that plummeting to 1.7895.

Overnight, NZ CPI was 2.2% as expected, down from 3.3% last month.  A 50bps cut by RBNZ at their November meeting looks more than possible.  Indeed, there has been some talk that the rate cut could be as big as 75bps.  Still, as with other currencies, NZD has lost ground against GBP, trading down from an overnight high of 2.1620 to 2.1420. 

I have seen reports that Israeli PM Netanyahu has arrived at a ‘secure facility’ from which he is expected to launch an attack on Iran.  He has assured the US that they will not hit oil or nuclear facilities.  This does suggest an attack is imminent but the reports could be misleading, Israel have hit targets in Beirut again this morning for the first time in several days, so perhaps his movements were related to that.

In sport, therre are more races coming up in the Americas Cup as GB look to reduce their four point deficit.  NZ are currently only three points away from victory.

Elsewhere in sport, Thomas Tuchel has been named as the next England manager.   A good choice?  We really won’t know for a while yet.

-  20.40 ECBs Lagarde speaks

-  00.50 Japan trade

-  01.30 AUS unemployment