Yen gets pulled around by LDP leadership battle, China stocks benefit from stimulus plans

Good morning

Some marginally better than expected US data yesterday looked as though it may be enough to send the US dollar higher.  Indeed, GBPUYSD dropped 30 pips or so from 1.3380 on the release, EURUSD experienced a similar move.  We then had a spell of indecision, with GBPUSD being pulled between 1.3350 and 1.3375 several times through the afternoon, not huge moves at all but made for an exciting looking chart for a while. 

In the end USD did weaken, GBPUSD pushed back above 1.34, reaching 1.3435, EURUSD up to 1.1190.  GBP gained vs EUR, that pair back up to the 1.20 area.  Overnight those USD moves reversed once again, as I type GBPUSD is 1.3370 and EURUSD 1.1130, GBPEUR 1.2015.

Lagarde yesterday gave crypto a bit of a boost, saying DLT could have it uses in the future.  I can’t claim to understand DLT, I thought she was referring to a disgraced radio DJ from the 60s/70s/80s.  Turns out it stands for ‘distributed ledger technology, some sort of blockchain and possibly a better term to use than ‘crypto’.  I reckon we’ll see more usage of that term in the future. 

Nothing particularly new from other central bank speakers, Fed members generally continued to voice support for the 50bps cut, while ECBs Schnabel gave a slightly downbeat talk, warning of a stagnating Eurozone economy.

In Japan, the LDP leadership race has pushed Yen around.  Therer were reports that Takaichi could emerge victorious, she is well known for opposing rate rises and UDSJPY climbed as high as 146.50 at one point this morning.  Now it appears Ishiba has won which reversed the USDJPY move, it is now down at 143.20.  Quite na swing

China stocks have enjoyed a decent week, boosted by the various measures announced earlier in the week.  Shanghai Comp was up almost 3% while the CSI 300 gained almost 4.5%.  Mind you, China shares are not the only ones to benefit from China’s stimulus plans.  Shares in luxury goods firm LVMH have rallied over 15% this week, a lot of the move has been put down to hope that the measures will boost demand for those luxury goods.

The weather was pretty horrific yesterday, we’d been warned of thunderstorms and boy did we get them.  I cannot remember when I last saw rain like it.  It eased off a bit but its still coming down.  There is a hope it will be a bit clearer by the weekend but I’m not holding my breath.  A bit of sunshine would be appreciated but at the moment I’d take just anything dry.  Still, as bad as it gets, there are always those worse off.  I see Florida was hit by a category 4 hurricane, with wind speeds reaching 140mph.   

Spurs managed a win their Europa league tie against Qarabag despite being reduced to ten men for over 80 minutes.  Spurs are back in Premier League action on Sunday as they take on Man Utd.  Chelsea vs Brighton on Saturday could be an interesting match, with Brighton one of just four teams not to have lost so far this season.

Today we’ll have the important US PCE deflator figure, the core reading is expected to rise from 2.6% to 2.7%, not ideal for rate cuts but if it comes as expected it shouldn’t be enough to sway Fed thinking on rate cuts.  Always potential for this release having some market impact mind you.

That’s about all for now.  Stay dry and have a splendid weekend as and when it comes. 

-  09.00 German unemployment

-  09.15 ECBs Lane speaks

-  10.00 EU consumer confidence

-  10.40 ECBs Cipollone speaks

-  12.15 ECBs Nagel speaks

-  13.30 US core PCE, personal income/spending

-  15.00 US Michigan sentiment survey

-  18.15 Feds Bowman speaks

China announces additional stimulus overnight in an effort to boost economy

Good morning

USD off its recent lows, with EURUSD reaching as low as 1.1120 after the London close, GBPUSD was down at 1.3315 overnight.  Both pairs a touch higher now at 1.1155 and 1.3350 respectively.  GBPEUR stays below 1.2000, now 1.1970.  Still questions over the size of the Feds next rate cut seem to dominate current market movements.

It wasn’t a busy calendar yesterday, Swedens Riksbank lowered rates by 25bps to 3.25%  but otherwise there isn’t much to report.  A different story overnight as China announce further measures to offers support to the economy following the rate announcements Tuesday.  The needy in China will receive a cash handout by the end of the month, while bank capital could be boosted by up to US$142bn.  The coordinated measures across various Chinese government agencies suggests they are serious and further measures could well be announced.

CNY/CNH moved lower with USDCNY now 7.0180 having been up at 7.0625 earlier in the week.  AUD, susceptible as it is to Chinese market weakness, has seen a bit of a rally with AUDNZD trading up from 1.0850 to 1.0930 and GBPAUD down from 1.9530 to 1.9440. 

SNB cut rates 25bps this morning to take rates to 1%.  There had been quite a difference of opinion between some of the bigger banks, with CITI looking for no change and UBS talking of potential for a 50bps cut.  However 25bps it was.  EURCHF has been capped around 0.9500 for a month or so now, we are just a few pips away from that level now, GBPCHF is near 1.1370, the highest levels seen for almost two months.  We could well see further CHF weakness although bear in mind the potential for safe-haven buying should tensions rise in both Ukraine and the Middle East.

It’s a much busier calendar today, US GDP the highlight, looking for a number at or close to 3%.  We will also hear from several central bank officials including Powell and Lagarde.  The general theme from Fed officials recently has been the agreement with the 50bps cut and the need for Fed to balance inflation and employment, support seems to be erring on the side of employment at the moment.  Whether we’ll get any clues as to Fed thinking on rates path from Powell or his colleagues remains to be seen but don’t hold your breath.

Bowman, the sole dissenter at the last Fed meeting who called for a 25bps cut does speak today, she has previously voiced concern that a 50bps would signal too much economic weakness and worries that it sends a premature ‘we’ve beaten inflation’ message. 

I’ve mentioned above Ukraine and the Middle East.  We’ve seen US calling for a ceasefire in Lebanon but as yet that has fallen on deaf ears, with Israel continuing its attacks against Hezbollah targets.  Israel seem as intent on destroying Hezbollah as they do with Hamas, although as we know even if those groups were to be defeated, the underlying feelings of hatred between the two sides will not go just away.

In terms of Ukraine, Putin has been throwing the ‘nuclear’ word around, suggesting that should Russia be attacked by Ukraine with weapons supplied by a nuclear force, it would be reasonable to retaliate with their nuclear capability.  This perhaps shows how Russia fear the tide in Ukraine could be turned by the use of such weapons but we do know that Putin’s threats shouldn’t always be ignored.

It looks like being another unsettled day in terms of weather but I’m hoping the heavy rain we had overnight has eased off for good.  Warnings of thunderstorms remain in place.  Wonderful.

Plenty of domestic and European football at the moment, Spurs will face Man City in the next round of the League Cup, lets hope Guardiola stands by his recent comments that they won’t waste energy on the competition.  Spurs in action this evening against the mighty Qarabag in the Europa League, I have to be quite confident but I wouldn’t be at all surprised to see a weakened team being fielded.

That’s about all for now, have a great day…

-  09.00 SNB rate announcement

-  09.00 ECB economic bulletin

-  10.00 ECBs Elderson speaks

-  13.30 US GDP, durable goods, initial jobless claims

-  14.10 Feds Collins, Kugler speak

-  14.15 Feds Bowman speaks

-  14.20 Feds Powell speaks

-  14.25 Feds Williams speaks

-  14.30 ECBs Lagarde speaks

-  15.00 US pending home sales

-  15.15 ECBs de Guindos speaks

-  15.30 Feds Barr, Cook speak

-  17.00 ECBs Schnabel speak

-  18.00 Feds Barr, Kashkari speak

-  23.00 Feds Cook speaks

-  00.30 Japan Tokyo CPI

-  02.30 AUS RBA financial stability review

GBPEUR fails to hold 1.2000 after a mild but surprise lift in EUR

Good morning

It was a pretty quiet day on the currency markets yesterday.  GBP did come within a pip or two of 1.3400 vs USD, couldn’t quite break through but stayed well supported, trading around 1.3380 into the London close.   EURUSD made some gains, reaching 1.1160 through the afternoon, which took GBPEUR just off its highs but holding around the 1.2000 area.  A pretty shocking consumer confidence number out of the US in the afternoon did nothing to help USD fortunes.

Overnight we’ve seen a bit of a change.  GBPUSD had traded up to 1.3430 at one point but is back to 1.3395 as I type, but it is EUR this time that has seen the bigger move, EURUSD is just a few points away from 1.1200 and GBPEUR is back down to 1.1965.  Quite why EUR has had this latest little push isn’t quite clear.   ECBs Nagel had commented that the German economy will slowly pick up some momentum, but that is hardly enough to impact the markets.  Perhaps there were plenty of people who took my comment on board yesterday that 1.2000 is perhaps the right level for EUR buyers to cover some of their forward requirements.  

BoEs Bailey has warned not to expect a rapid reduction in interest rates even though he is encouraged by lower inflation readings.  He has made it clear we should not expect to see near-zero rates, ECBs Knot made similar comments about ECB rates, saying he sees ‘normal’ rates starting with a 2.  He sees gradual rate cuts in the coming months and early 2025.

Overnight, Aussie monthly CPI dipped to 2.7%, slightly lower than expected and back within RBA’s target band of 2-3%, which saw AUD sold off.  Do remember RBA’s Bullock did earlier make it clear that just because inflation may drift back into the band it does not mean it can sustainably hold those levels.  However this hasn’t stopped players seeing slightly increased chances of a cut later this year.

Not much on the calendar today but tomorrow could be more interesting with US GDP and several Fed speakers including Powell and Lagarde, while Friday we’ll have the latest PCR deflator number from the US. 

I’m out and about a bit this afternoon, normally one of my favourite pastimes although I’m looking out of the window now at some rather heavy rain once again.  That difficult conundrum of which coat to take without getting too hot but still staying dry.  Still at some point I’ll be in the confines of a nice restaurant in London with a nice glass of red, so perhaps I shouldn’t complain too much.

Have a great day

-  09.00 BoEs Greene speaks

-  15.00 US new home sales

-  21.00 Feds Kugler speaks

-  00.50 BoJ minutes