Bumper US jobs data suggests another 50bps Fed rate cut is off the table

Good morning

An incredibly strong nonfarm payroll headline from the US, together with a surprise reduction in the unemployment rate to 4.1%, a rise in the average hourly earnings number and upward revisions to previous releases all served to limit expectations of another 50bps rate cut by the Fed in November.  Indeed the markets are now pricing in pretty much a 25bps cut for November.  Indeed, some of the bigger banks are now looking for 25bps rate cuts from the Fed at their next five or six meetings.  We’ll hear from several Fed officials later today.

As a result we saw USD strength which took GBPUSD from 1.3170 to 1.3070 (now 1.3100), while EURUSD slipped from 1.1030 to 1.0950 (now 1.0970).  GBP has made ground over the Euro after hitting those lows Thursday following BoEs Bailey comments, GBPEUR had been as low as 1.1860 but has since recovered to the 1.1960 area.  A rate cut this month from ECB is highly likely according to many ECB officials, although there is still two weeks to go until the meeting and as we know plenty can happen in that time.  Still, a rate cut looks probable and the upside for EUR is likely to be capped ahead of the announcement.

USDJPY also made gains, trading just above 149.00 for a brief time, now 148.40.  The Yen weakness isn’t just down to the stronger US dollar, we have also witnessed some dovish talk from BoJ officials and new PM Ishiba which helped push yen lower.  GBPJPY currently 194.25.

Looking ahead, China markets reopen tomorrow after a week or so of holidays.  Remember the last trading day saw huge gains in Chinese equities following the announcement of stimulus measures, tomorrow is likely to see further gains with some commentators looking for a rally of around 15%.  There is also some suggestion that China could introduce yet more measures to show just how serious they are in supporting the economy.

In the early hours of Wednesday morning we’ll have the latest rate decision from RBNZ.  A 50bps is widely expected, there are still some looking for a more sedate 25bps but overall the market is pricing in the larger cut.  RBA minutes tonight likely to confirm Aussie rate cuts are not likely any time soon, no sirprise then that AUDNZD is close to two month highs at 1.1045. 

The highlight of the week is likely to be the US CPI inflation release on Thursday.  The market is hoping for softer numbers, but any upward surprise is likely to knock the idea of a strong of Fed rate cuts and we could well see a stronger US dollar.  If they do come as expected I’d not really expect much in the way of market impact.  Bold words perhaps!

Today marks one year since the shocking Hamas attacks on Israel that killed around 1,200 people and triggered the ongoing Israeli offensives in Gaza and Lebanon.  Of course, we also have the very real potential for further escalation as Israel continues to talk of possible retaliation on Iran following their recent missile attack.  So far this retaliation has not materialised, but it certainly remains a real possibility.   

Probably best I don’t dwell too much on the weekend sport.  Spurs looked comfortable at 2-0 at half time to Brighton, only to lose 3-2, while Mark’s Leeds conceded a late equaliser by Sunderland which was either a goalkeeping howler or a shocking bounce.  We now look forward to international action, England take on Greece on Thursday evening.   

The forecast for the week seems to have changed, it looks warmer and drier than when I looked last week, we could up near 20°c today.  Meanwhile, Florida, still reeling from Helene, is bracing itself for another hurricane to make landfall Wednesday, which could see some 500,000 people evacuated.  We still don’t know the full extent of the damage from Helene but I have seen some pretty incredible before/after pictures and read some horrific stories that, if true, suggest a death toll far greater than that currently reported. 

Apologies, didn’t mean to finish on that sad note.  I’m thinking the markets might be quiet ahead of China market reopening and the data later in the week.  Have a great day.

-  10.00 EU retail sales

-  18.00 Feds Bowman speaks

-  18.50 Feds Kashkari speaks

-  23.00 Feds Bostic speaks

-  23.30 Feds Musalem speaks

-  00.01 UK BRC retail sales

-  00.50 Japan current account

-  01.30 RBA minutes

Market awaits US nonfarms, watching for any Israeli action against Iran

Good morning

GBP continued to struggle yesterday, with GBPUSD reaching a low just below 1.3100 briefly after better than expected US ISM PMI numbers sent the USD higher.  EURUSD also dipped, hitting 1.1010 at one point.  GBPEUR hit a low around 1.1860 but by the London close it was back above 1.1900.  As I type, USD is a touch softert, GBPUSD at 1.3145, EURUSD 1.1030.

In terms of US employment numbers, initial claims were a tiny bit above expectations, challenger job cuts were a smidge lower, as was the ISM employment index.  Not much to take away from that as we await this afternoon’s main event, the US nonfarm payrolls.

Otherwise the markets are watching geopolitical risks closely.  Talk of possible Israeli attacks on Iranian oil facilities has pushed oil prices higher, up some 12% or so from the weeks lows.  Not only that, reports have said Israel attacked a Russian base in Syria, I have since seen suggestions Putin has warned all Russians should leave Israel, however to be honest I’m not convinced that last piece of news is actually true.  Still, an Israeli attack on Russia is quite a big step, some that many are saying is a mistake. 

Meanwhile Israel continues to hit targets in Beirut as it seeks out more Hezbollah members.  Does make me wonder just how many weapons Israel has stockpiled.  There must be thousands and thousands sitting somewhere.  

So, to the nonfarms this afternoon.  A headline in the +140k region is expected, although I have seen a couple of the bigger banks looking for a larger headline.  It should be a simple case of the higher the headline, the higher the US dollar moves, and vice versa. Mind you I have already seen some banks looking ahead to next weeks US inflation numbers, with a view that better US employment numbers today and a higher inflation reading next week is likely to lead to further USD strength.  Equally I have seen others who see a lower headline, down in the +70k area, plus an increase in the unemployment rate.  We’d see USD weakness were that to be the case.  So, a real mix of opinions.  Great minds obviously don’t always think alike. 

This afternoon we’ll also hear from BoEs Pill.  It will be interesting to see what he has to say, particularly given Bailey’s comments yesterday that triggered the GBP decline.  It is possible the market has got ahead of itself after Bailey, perhaps Pill will shed a bit more light on current thinking.

Spurs scraped another win yesterday in the Europa League, but the exciting match was Porto v Man Utd which ended a 3-3 draw after Porto came behind from 2-0 down to take a 3-2 lead, only for Utd to equalise in injury time.  Back to premier league action this weekend, Spurs take on Brighton, while Sundays match between Villa and Man Utd could be the pick of the bunch.

We had a little sunshine yesterday and more is forecast for today and tomorrow.  It doesn’t look like it’ll last so make the most of it when you get the chance. 

Have a great weekend as and when it comes.

-  11.00 ECBs de Guindos speaks

-  13.30 US nonfarm payrolls

-  13.55 BoEs Pill speaks

-  14.00 Feds Williams speaks

-  14.10 ECBs Elderson speaks

-  15.00 CAD Ivey PMI

Bailey rate cut comments sends GBP lower

Good morning

A calmer day in the markets yesterday, for most of the time GBPUSD was in a 1.3270-1.3295 range, we did dip down to 1.3245 in the afternoon but it didn’t take long to head to the 1.3270 area.  EURUSD was similar, trading down to 1.1035 before recovering, although that recovery was more limited than GBP, leaving GBPEUR a touch higher at 1.2015,.

The slight USD uplift through the afternoon can be put down to better US employment numbers, this time in the form of ADP employment change which not only had a better than expected headline, but also a slight upward revision to last months reading.  We’ll find out on Friday whether or not this accurately indicates a better than expected nonfarm headline.    

Having said it was all a bit calmer, Yen saw some pretty heft moves.  We did have a bounce in USDJPY yesterday, trading up from 143.60 yesterday morning to to 147.20 overnight.  GBPJPY topped out just above 195.00.  Dovish talk from new PM Ishiba and BoJs Ueda responsible for the yen weakness.  Ishiba was reported as telling BoJ that further tightening is not appropriate right now, an unsual and rather direct comment.

All a bit more lively for GBP this morning.  We have seen GBP weakness which has dragged GBPUSD down to 1.3165 and GBPEUR to 1.1925.  BoEs Bailey has offered some dovish opinions in a Guardian article, saying we could except more aggressive rate cuts than the market is currently pricing.  Whether this is actually what he meant remains to be seen, we know BoE see inflation approaching target and that they would like to cut rates but for now data such as wage growth and consumer spending haven’t supported cuts.  While GBP is lower, market pricing of rate cuts to the year-end haven’t actually moved a great deal, still with around 36bps of cuts priced in.

EURUSD has remained reasonably stable, now 1.1035.  We do have PPI and PMIs from EU today but I’n not expecting them to have a great deal of market impact.  Rate cut expectations seem to be mixed with ECB officials happy to sit on the fence for now, saying all options remain open.  Tomorrow we could see an EU vote for tariffs on Chinese electric vehicles.

Markets are still looking at the Middle East for signs of further escalation.  US are trying to persuade Israel to not hit back at Iran and focus instead on the Hezbollah offensive.  I still feel Iran don’t want to be dragged into this, but they do have to make a show of force.  If Israel can hold off I’d expect Iran to remain on the sidelines.  Let’s hope so anyway.

EURCHF is up to 0.9420 after weak Swiss CPI numbers this morning.  We also had Turkish inflation which has come in at 49.4%, down from last months 52% but higher than had been hoped for.  Frightening numbers!

Today we will have the US Challenger job cut release, coming ahead of tomorrows key nonfarm payrolls.  We will also have the ISM services PMI, which certainly does have market moving potential.  Other than the headline, the breakdown will be closely watched, particularly the employment index given the focus the Fed is putting on the labour market.

For those clients who make regular payments, I see banks will have the power to hold suspicious payments for up to four days.  I’m not suggesting any of you have anything suspicious going on but I reckon banks will look to take advantage of this and find reason somewhere to hold funds longer than necessary.  Just for interest, let me know if you experience any such delays.

Both Villa and Liverpool won their Champions League matches last night.  For Villa it was something of a record, if I understood the commentators correctly, Bayern had not lost a group match in the competition since 2017.  A great performance.  However the big action comes this evening as Spurs take on the mighty Ferencvaros from Hungary. 

Next few days might actually stay dry, make the most of it as at the moment my forecast has rain drops every day from Sunday for the next week.  Enjoy a bit of sun and possibly some higher temperatures while it lasts.

Have a great day

-  07.30 CHF CPI

-  08.00 Turkey CPI

-  09.00 EU composite PMI

-  10.00 EU PPI

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  14.45 US S&P composite PMI

-  15.00 US services ISM, factory orders

-  15.40 Feds Bostic, Kashkari speak