GBP supported by UK employment data, EUR under pressure

Good morning

The lack of economic data and a partial US holiday served to keep currency markets in a tight range yesterday.  At one stage it looked as though the US dollar would push higher, GBPUSD traded down to 1.3030 in the afternoon but by the London close it was back up around 1.3050.  The Euro struggled however, trading down to 1.0900 against USD and to 1.1970 vs GBP.   Overnight we have seen further Euro weakness which has taken EURUSD to 1.0885 and, with GBPUSD holding around 1.3050, GBPEUR is higher at around 1.1985. 

GBP has seen a bit of support from some stronger than expected UK employment numbers this morning.  Employment increased by a decent 373,000 while the unemployment rate dipped to 4%, which could well see the Q3 number lower than even the BoEs forecasts.  The average earnings number was down to 4.9% as had been expected.  I’ve seen some upside trade ideas, more based on technical than fundamentals, but this set of employment numbers will not encourage the BOE to cut rates drastically, that’s for sure. 

USDJPY pushed up to within a whisker of 150.00 for the first time since the beginning of August, GBPJPY in turn pushed up to the high 195s, an area that has capped the upside several times from late Sept.  USDJPY is now down at 149.30 with GBPJPY 194.85, the slightly stronger yen coming despite comments that we may not see a BoJ rate rise until March 2025.

Another 50bps rate cut from the Fed is looking less and less likely as Feds Waller says they should proceed with more caution and move to a gradual rate cut policy, even pausing rate cuts if required.  He added that the October employment data may be affected by the recent hurricanes and that Fed can overlook the impact of those.  Kashkari said modest rate reductions will be appropriate in the coming months. 

Oil prices have dropped as Israel says targets it is looking at in Iran will be military rather than oil or nuclear facilities.  UK brent is now US$74.50, down some US$3 from yesterday, while WTI has fallen buy a similar amount to US$70.90.  Some talk as well that Saudi Arabia may increase production amid ‘deteriorating cohesion’ between OPEC+ members.

RBNZ DepGov Hawkesby said rates are heading towards neutral but that the pace of cuts depends on incoming data.  NZ FinMin Willis said she welcomed the recent 50bps rate cut, saying inflation is trending back to target.  NZD remains under pressure amid the talk of another potential 50bps rate cut.

China trade overnight showed a surplus of nearly $82bn , lower than expected but still a whopping surplus.  Exports were well down, imports increased slightly.  Most talk on China continues to revolve around stimulus plans.  

Trump is in the lead in the US presidential race, as far as the bookies are concerned at least.  There has been a fair bit of talk as to whether Trump, if elected, would weaken the US dollar.  Historically I think Trump has preferred a weaker USD but the feeling is now he’d like to keep a stronger USD.  Regardless, it will be difficult for him to weaken the Dollar unless he were to install a particularly dovish Fed chairman.

The next day or so is predominantly about inflation, kicking off with Canada this afternoon, NZ overnight and then UK in the early hours of tomorrow morning.  Both Canada and New Zealand are not only seeing rate cuts but also additional cuts forecast, with a move lower of 50bps possible for each at their next meeting.  For them it would take quite a strong surprise for the market to dismiss all rate cut talk, but could perhaps make the prospect of a large cut less likely.  Any weak numbers should see the case for a 50bps cut reinforced.

For UK inflation, the case remains less clear and as I mentioned yesterday, regardless of the reading there is a chance it gets overlooked by BoE who will instead prefer to look at the implications of Reeves budget in late October.  Quite what lies ahead for us is not known but she’ll be raising some taxes and National Insurance contributions, even at the risk of going against the Labour party manifesto. 

Have a great day

-  09.00 ECB lending survey

-  10.00 German ZEW

-  10.00 EU industrial production

-  13.30 CAD CPI

-  13.30 US NY empire state manufacturing index

-  18.00 Feds Kugler speaks

-  19.00 US monthly budget statement

-  22.45 NZ CPI

-  07.00 UK CPI, PPI, RPI

Another US inflation release above expectations while market looks for ECB rate cut this week

Good morning

US PPI on Friday came in above expectations, following Thursdays higher CPI inflation.  A 50bps at the next Fed meeting now looks more unlikely, although not impossible.  USD has remained supported, as I type GBPUSD is 1.3060, EURUS 1.0925 and USDJPY 149.30.  A slightly lower Michigan sentiment number prevented USD pushing back towards recent highs.  GBPEUR now 1.1955, GBPJPY 195.00. 

Euro is under a bit of pressure after Fitch revised French outlook to negative, although for now its rating remains unchanged.  The French government are looking at spending cuts and tax rises but may fear this will not be enough to improve the outlook for France.  Meanwhile Belgium’s outlook has been downgraded to negative by Moodys.

There was a China Ministry of Finance press conference over the weekend where it was hoped we may learn more about stimulus plans.  However while some promises were made, no plans were really detailed.  China equities held up well despite the lack of clarity.  China trade balance due tonight, I’d incorrectly thought it was out early this morning.  Meanwhile plenty of talk of tariffs on China EV imports, US and Canada has tariffs at 100%, EU up to 35% so far.  China are not happy, but the tariffs are not stopping the supply and sales of China electric vehicles.  

Taiwan is on alert as China embarks on another military drill, flexing its muscles after Taiwan President Lai refused to acknowledge Taiwan is part of China.  Only a matter of time I fear before China lose patience and take back what they regard as theirs. 

New Zealand services PMI came out at a disappointing 45.7 overnight, supporting the case for further RBNZ easing.  A 50bps cut in November to take rates to 4.25% looks likely, with rates forecast to head below 3%

Several notable moments over the weekend.  Musks SpaceX launched their latest Starship on its 5th flight, the vehicle was the most powerful to ever take off and at 122 metres tall was, I believe, the tallest.  But what made this so special was the fact they ‘caught’ the 71 metre tall booster as it returned to earth, with it falling fast, igniting rockets to slow its descent and eventually hovering around the launch tower before being caught but pincer-like arm.  It really didn’t look real, more like some sci-fi show.  Well worth a watch even if it’s not normally your thing. 

In football, England managed to look like a football team once again, with a 3-1 win over Finland.  No more than we’d expect really, but certainly a welcome improvement on the recent match against Greece. 

In other sports, GB has fallen behind 3-0 to the Kiwis in the first races of the Americas cup, race four was abandoned due to lack of wind, Not an ideal start.  All is not lost but NZ will be pleased to have won three races already in the best of seven event. 

Columbus Day in the US today, a holiday for some but not all.  Eyes ion Feds Waller speaking later this evening as he discussed the economic outlook, we’ll look for any mention of the higher inflation readings last week. Waller is generally one of the more hawkish Fed members, although he did vote for the 50bps cut at the last meeting and has recently mentioned the speed with which inflation has moderated. 

It is a bust week for UK economic data, starting with unemployment tomorrow morning, inflation figures Wednesday and retail sales numbers Friday.  However with the UK budget now not far off there is some thinking that BoE will look past these sets of data, instead preferring to see what changes Reeves will make before considering monetary policy. 

This week also brings Canada and NZ inflation, Aussie inflation, US retail sales and China GDP among other, while of course eyes are on ECB to see if they will indeed cut rates as expected at their meeting on Thursday.  Lagarde actually speaks on Wednesday evening which I think is unusual, so close to a rate meeting.   

Its wet here today, very wet, and looks like staying that way for much of the week. Better get some work done then…..

-  10.45 ECBs Nagel speaks

-  14.00 Feds Kashkari speaks

-  20.00 Feds Waller speaks

-  22.00 Feds Kashkari speaks

-  03.00 China trade balance

-  07.00 UK unemployment

US inflation keeps USD supported

Good morning

Yesterday’s US CPI numbers came in a touch higher than expected, the headline at 2.4% and core up at 3.3%.  This was enough to push USD a touch higher yet again, GBPUSD hit a low around 1.3010, EURUSD slipped to a low of 1.0900 and USDJPY traded back up to the recent high of 149.50.  Obviously the main questions and comments since have been about the next US rate move, some Fed officials seem happy to skip a cut in November, others see 25bps still appropriate.  I haven’t seen any of them talk of another 50bps cut. 

Since the initial moves, USD has backed off a touch, GBPUSD now 1.3050, EURUSD 1.0935 and USDJPY 148.75.  GBPEUR is 1.1935, GBPJPY 194.15.

CAD is a touch weaker again today ahead of the latest Canadian employment data.  GBPCAD now 1.7960, USDCAD 1.3765.  I still see potential for further CAD weakness, if todays release comes in weak we could see more calls for a BoC cut of 50bps at their next meeting. 

Hurricane Milton has left Florida and moved to the Atlantic where it is losing power.  It caused plenty of damage, and therre has been loss of life, but while I don’t want to underplay the seriousness of the situation, I think the end result could have been considerably worse. 

Another storm brewing is that around possible Israeli attacks on Iran.  They do seem to have something planned, reports suggest they are looking for a greater response than Biden had expected, but obviously details are still unclear. 

I mentioned the cricket yesterday and Englands incredible innings.  Well, it carried on, they reached an amazing 823-7 declared.  They have since bowled out Pakistan for 220 to earn what at one stage seemed a highly unlikely victory.  If only Englands football team had followed suit.  A dismal 2-1 loss to Greece yesterday evening has derailed the post-Southgate excitement.  Indeed, Southgates rather dull, defensive, and slow, but ultimately reasonably successful tactics started to look favourable as the multi-million pound team looked more like a Sunday morning side.  Carlsye, the interim manager who was being touted for the main job, looks far less likely to make it a permanent move.

There is no doubt we have some decent players, but I do fear they are only made it look better by the quality of the overseas players around them when they play for their respective clubs.  On their own, they are still good, but some lack that little extra needed at the top level.  Combined with a general lack of direction, it didn’t work well.  We are used to better.  Can they do better against Finland on Sunday? I certainly hope so.

In other sports, the America’s cup starts tomorrow.  It is best of 13 races between GB and New Zealand, a competition we have never won, a bit disappointing as we were the hosts for the first race back in 1851.  No doubt that Ineos’s vast money has helped us become a real challenger.  The event takes place in Barcelona, the actual tournament has been going on for a couple of months now, it was taking place when I was out there in August, but this is the now the main event. 

US PPI today could well be a market-mover.  Last month it came in softer than expected, if we see the same this time we could see the US dollar lose some of the gains it has made this week. Of course, if it follows CPI and comes in stronger, the 1.30 and 1.09 levels in GBPUSD and EURUSD could be under pressure again.

When we arrive Monday we’ll had the latest China trade figures, more interesting just for the vast numbers they produce.  The previous monthly reading was a US$90bn surplus.  Think about that when Reeves talks of £22bn black holes. 

Have a great weekend, be prepared, It might look sunny but its chilly.  Still, it is mid-October I guess. 

-  13.30 US PPI

-  13.30 CAD unemployment

-  15.00 US Michigan sentiment survey

-  15.30 CAD BoC business outlook survey

-  18.10 Feds Bowman speaks

-  19.00 US monthly budget statement