Iranian missile attack on Israel unsettles markets

Good morning

USD pushed higher through the day yesterday, GBPUSD reached 1.3250 after the London close,  while EURUSD slipped to 1.1050.  Initially the move looked like it was triggered by better than expected JOLTS jobs data, even though the ISM PMIs out at the same time disappointed compared to expectations. 

However much of the move is down to the news that Iran had launched missiles towards Israel, in response to Israeli offensives in Lebanon.  Safe haven USD buying was noted, as was some Yen buying which took GBPJPY down towards 190.00, having been up above 193.00 earlier in the morning.  The risk that Israel may look to hit targets in Iran is clear, indeed therre is a risk that further escalation could see the West drawn into a conflict with Iran.

CHF was also bought as news of the attack broke, EURCHF which had been up near 0.9500 last week traded as low as 0.9335 prompting SNBs new chair Schlegel  to warn of further possible rate cuts by SNB, and potential for currency intervention should CHF appreciate too far.  GBPCHF currently 1.1240, down from last weeks highs around 1.1370.

This morning things have calmed a little, the missile barrage was largely intercepted although many did get through but some did get through.  For the time being it would seem that Iranian action has ceased.  The key now is whether Israel retaliates with direct attacks on Iran or continues its offensive against Hezbollah, Hamas and Houthis.  The relative calm has seen GBPUSD push back up to almost 1.3300, EURUSD 1.1070 which puts GBPEUR 1.2010.  GBPJPY is well off the lows at 191.55.

Today’s calendar includes a bundle of central bank officials, not sure what they can add that we don’t already know although perhaps the various ECB officials could give some pointers as to whether we’ll see a cut this month.  We are gradually seeing more calls for a 25bps at their meeting later this month.  We do have the US ADP employment chance, still watched for clues as to what the nonfarms may look like, although I still think it is an unreliable indicator.

Congratulations to Arsenal and Man City for last nights wins in their Champions League matches.  Aston Villa and Liverpool are in action this evening, remember though that the big competition of course is the Europa League tomorrow evening, with Spurs taking on the mighty Ferencvaros from Hungary.

Have a great day

-  09.15 ECBs de Guindos speaks

-  10.00 EU unemployment

-  10.30 ECBs Lane speaks

-  12.00 ECBs Elderson speaks

-  13.15 US ADP employment

-  14.00 SNB economic bulletin

-  14.00 Feds Hammack speaks

-  15.05 Feds Musalem speaks

-  16.00 Feds Bowman speaks

-  17.15 Feds Barkin speaks

-  17.45 ECBs Schnabel speaks

-  02.30 AUS trade balance

Rates, inflation and employment all in focus

Good morning

Welcome to October, and with it the 4th quarter of 2024. 

We saw a little USD strength after a very slightly better Chicago PMI number but as we’ve become used to recently, the initial move soon unwound and we saw GBPUSD move from its lows around 1.3360 up to 1.3415.  Overnight it was pretty rangebound, but as I type GBPUSD is back down at 1.3350.  I’m wondering whether this most recent bout of USD strength is down to some safe-haven flows as news emerges that Israeli troops are on the ground in Lebanon. 

This move off the lows yesterday did seem to be more of a GBP move.  EURUSD had slipped from above 1.1200 to 1.1140 through the afternoon but any recovery was limited and by the London close we were still down around those lows.  This put GBPEUR up at 1.2025, other GBP crosses were also off the day lows after the late afternoon GBP rally.  The moves this morning do seem to be more USD-led, EURUSD is also lower at 1.1115, GBPEUR holding above 1.2000.

Several Fed officials were speaking yesterday, Bowman repeated her concerns about high core inflation, while Goolsbee wants rates to be lowered further.  Bostic went so far as to call for another 50bps cut if employment numbers are weak.  Feds Powell gave little away, saying that the Fed are confident on inflation returning to target, and that the labour market is still strong despite cooling.  Rates will move lower but there is no preset course and moves will be decided on a meeting by meeting basis.   He doesn’t seem to be in much of a rush.

Lagarde was also speaking yesterday, she too suggested ECB were confident inflation was under some control and that today’s HICP reading could come in below the 2% target.  She does add that Q4 may see a slight uptick in inflation but overall the trend is lower.   

Elsewhere, Aussie retail sales overnight were stronger than expected which gave AUD a boost.  GBPAUD is currently 1.9320, it did test the 1.9280 level a bit earlier, worth watching that area as it has been tested, and held, a few times since July.  In New Zealand however things don’t seem to be going so well.  RBNZ meet on 9th Oct and there is growing feeling they will follow their August 25bps cut with a 50bps this time, and perhaps another 50bps cut in November.  AUDNZD is up, trading as high as 1.0950, the highest level since August.  GBPNZD though is at 2.1180, exactly the midpoint between the 2.1000-2.1360 range we’ve had since August. 

China’s recent stimulus measures have been helping the Chinese equity markets and overnight we saw yet another 8%+ rally in their major indices which puts them back into positive territory for the past year.  This cannot all be down to the stimulus, I can’t help thinking there must be some ‘official’ buying of stocks, although I’ve seen nothing to confirm this.

I’ve been complaining a lot recently about the rain we are having, which, give or take the odd day or week seems to have been going on through the entire summer to now.  I have to admit that as bad as it is, I’ve seen images from Florida of the damage caused by Hurricane Helena where some 100+ people have lost their lives and over 1000 are still missing, with over 1 million people still without power.  It really doesn’t look good and I don’t think we’re really seeing the true scale of the disaster.  Perhaps I should stop complaining.

Yesterday marked a big day in the UK’s energy generation as the last coal power station closed.  Coal is known to be one of the dirtiest fossil fuels and we’d imagine the closure of the plant should be lauded.  However we still pay a lot for our energy in the UK and the renewable alternatives are not quite as stable, being so hugely weather dependent.  Until we can properly harness fusion power, still several decades away, we’ll be heavily reliant on both nuclear and renewables.  I’d imagine we’ll also probably be more reliant on other countries to provide our power.  While reducing emissions is important, I’d rather not be reliant on other countries for energy. 

This morning brings the EU inflation numbers, this afternoon we will have ISM PMIs from the US, plus the JOLTS jobs data, the first set of US employment numbers this week that will culminate on Friday with the nonfarm payrolls.  Weak employment numbers could steer the Fed towards another 50bps cut at their November meeting.  They got away with the previous 50bps cut but at some point people must be thinking 50bps cuts point to a bit of panic that they are behind the curve. 

Have a great day

-  08.55 German manufacturing PMI

-  10.00 EU HICP

-  14.30 CAD S&P manufacturing PMI

-  15.00 US manufacturing ISM, JOLTS jobs

-  15.00 BoEs Pill speaks

-  15.00 Feds Bostic speaks

-  16.10 Feds Cook speaks

-  23.15 Feds Barkin, Bostic, Collins speak

China markets up, Japan markets sharply down

Good morning

I hope you had a great weekend.  We were away just for one night in Brighton, set off early Saturday morning with the car packed full of warm clothes, harts and coats.  Boy did I feel overdressed!  Saturday in particular was warm, stretching to actually hot when protected from the breeze and the sun was fully out.  The place was buzzing.  Sunday was a touch cooler, much windier, but even then we didn’t need to wrap up too much.  It rained most of last week, its raining today, we certainly got lucky with the weekend weather, that’s for sure.     

Fridays US core PCE number was actually pretty much in line with expectations, if anything a touch softer, which led to a bit of a USD sell-off that saw GBPUSD up to 1.3425 and EURUSD just above 1.1200, but by the close those USD losses had been undone and we were trading back to the 1.3380 and 1.1165 area, where we currently sit. 

GBP has had a decent run, mostly led by interest rate divergence with both the Fed and ECB, as BoE still fights some sticky inflation readings.  However let us not confuse a strong currency with an outperforming economy.  UK GDP numbers this morning were lower than hoped and there is a suggestion that some of the growth we may have seen has come from government spending.  While the focus at the moment remains on US interest rate moves, there are some expecting GBP to come lower into the year-end, HSBC for one are looking for a return to the 1.28s.

USDJPY has remained under pressure after Fridays election result.  As you may recall, USDJPY had pushed higher to almost 146.50 on speculation that Takaichi may win, however as news emerged that Ishiba had won the pair dropped sharply to the low 143s.  The move has now extended with USDJPY hitting 141.65 at one stage this morning, now 141.95.  The move comes as Japan stocks crumble, Nikkei is down nearly 5% today. 

On the contrary, China stocks have seen some incredible gains, major indices up around 8.5%, despite PMI numbers overnight coming in a bit lower than expected.  I presume with the host of stimulus measures announced last week that previous economic data is less important as the hope now is that the economy is taken to a new level.  I believe there were some new measures announced over the weekend to help homebuyers, which adds to the positive sentiment. 

Austria has become the latest EU country to see the right-wing parties perform well in elections.  The Freedom Party won 29.2% of the vote, ahead of the People Party with around 26.5%.  The voter turnout was a high 75%.  Despite the win, they don’t have a majority and will struggle to form a government, as their opposition may well refuse to join a coalition, particularly if Herbert Kickl, the divisive head of Freedom Party, wants to be in charge. 

In other news, I see the cruise ship that has been stuck in Belfast for four months is finally due to set sail today.  Villa Vie Residences Odyssey Cruise is not your normal holiday cruise ship, instead I think passengers can buy a cabin for 15 years and live there.  I don’t think it’s a cheap option mind you, there are some hefty monthly fees to add on top of the cabin cost, but you are guaranteed to see the world several times over.  Whats a few months wait when you have possibly 15 years travelling ahead of you.

Spurs managed a win over Man Utd yesterday to lift them into a more reasonable 8th position.  Brighton lost their unbeaten record as Chelsea’s Palmer scored four goals.  What a signing he has proved to be.  Liverpool are top with Man City and Arsenal just below them, Villa missed the chance to go top yesterday with just a draw against Ipswich.   

So, as we are in the last day of September I find myself once again thinking how quickly this year is passing by.  October tomorrow, we’ll have the UK budget at the end of next month, something for all of us to look forward to!

German inflation numbers out today, plus we hear from Lagarde and Powell.  Calendar does look pretty busy this week, tomorrow we have EU inflation, US ISM PMI’s plus a host of Fed officials speaking.  Wednesday is quieter, but Thursday brings more US ISM PMIs, while Friday has the main event, the US nonfarm payrolls.  

Have a great day

-  13.00 German HICP

-  13.50 Feds Bowman speaks

-  14.00 ECBs Lagarde speaks

-  14.45 US Chicago PMI

-  18.00 Feds Powell speaks

-  21.10 BoEs Greene speaks

-  22.45 NZ building permits

-  23.00 NZ business confidence

-  00.30 Japan unemployment

-  00.50 Japan Tankan index

-  01.30 AUS retail sales, building permits