In-line US inflation keeps door open for Fed rate cut in September

Good morning

Mid-August, can you believe it.  And can you believe that I’ve got another holiday coming up next week.  Mark certainly can’t, but he has kindly allowed me an extra couple of weeks off to spend touring Europe with my close friend and his dear wife.  I went to school with him, he moved off to New Zealand in his early twenties and never really looked back.  They are coming over this way and a few of us are meeting up and travelling around various cities including Dubrovnik, Rome, Venice and Barcelona, with a bit of Tuscany thrown in the middle for good measure.

Anyway I got a bit ahead of myself there, I do still have a couple of days before I go but am out for most of today in client meetings so my holiday feels closer than it really is.

Anyway, to the markets.  US inflation was bang in line with expectations yesterday which meant market moves were limited, GBPUSD did tick up to 1.2860 although EURUSD was more impacted, the pair rising to 2024 highs around 1.1050.  Although both are off those highs right now, attention is clearly turning to the Fed’s rate announcement in September and a rate cut looks more and more likely. 

We’ve had both Bostic and Goolsbee talk of the Fed’s dual mandate, ie with inflation under some control attention turns to employment and both see risks of keeping rates too restrictive.  Question is whether Fed act before the November election and if so do they go with 25bps or push for a larger 50bps.  Much depends on incoming data, particularly the next nonfarm payrolls report due on 6th Sept.  Main question for me is whether a 50bps move would seem a bit panicky.  RBNZ mulled over a 50bps cut recently but preferred to go with the smaller cut to offer a sense of calm.  Sensible stuff.

UK GDP this morning was bang in line with expectations, June coming in at 0% leaving Q2 at 0.6%.  Industrial production data beat expectations but market impact has been .limited, GBPUSD currently 1.2845 as I type.  GBPEUR now 1.1665 having been as low as 1.1640 yesterday afternoon.

Overnight we had the latest Aussie employment data.  The headlines looked good, employment rising over 58k with over 60k in full time employment, part time lost 2k.  An uptick in the unemployment rate to 4.2% meant the overall result was not quite as upbeat.  AUDNZD rallied from 1.0925 to 1.1040 but GBPAUD holds around 1.9400 and AUDUSD is at 0.6620 having seen a range overnight of 0.6645 to 0.6570.

US retail sales likely to be the main event today, although there is a host of other US data out at the same time including the initial jobless claims which, with Fed starting to focus more on employment, means this could get more attention than usual.  We’ll have the UK’s retail sales numbers out early tomorrow morning, markets expecting a bit of bounce back from last months pretty dire numbers.

In other news, I see a rather alarming headline from WHO who have declared a global health emergency over the highly contagious mpox, or monkey pox as it used to be known, which has seen cases spread from DR Congo to several other African countries.  The hope is that the declaration of the mpox outbreak as an emergency will trigger more research, understanding and controls.

That all from me.  It is A level results day, good luck to anyone you know expecting their results and go easy on teenagers who may look even more gloomy than normal.   Go easy on Mark as well, who may also look more gloomy than normal after Leeds were dumped out of the EFL cup by Middlesbrough last night.  ‘Concentrating on the league’, I’m sure!

Have a great day

-  13.30 US retail sales, philly fed survey, NY empire state manufacturing, initial jobless claims

-  14.10 Feds Musalem speaks

-  14.15 US industrial production

-  18.10 Feds Harker speaks

-  22.30 NZ business PMI

-  23.45 NZ PPI

-  00.30 RBAs Bullock speaks

-  01.00 RBNZ Gov Orr speaks

-  07.00 UK retail sales

UK inflation comes in a touch lower than expected, markets await US CPI

Good morning

A softer than expected US PPI number yesterday sent USD lower with GBPUSD trading up to 1.2835 and EURUSD to 1.0960.  Gains against the US dollar were pretty evenly matched, with GBPEUR holding within a few pips of the around the 1.1710 level after the shift higher following yesterdays UK employment  data.  The softer US dollar has helped Yen push higher, an interesting sell-off in USDJPY in the early hours of this morning saw the pair trade to the low-146s, but has since recovered to 147.05.  The move seems to have been triggered by Japan PM Kishida’s surprise announcement that he will not be standing in the September elections.

This morning UK inflation came in at 2.2%, core at 3.3%, both a touch higher than last month but lower than most expectations.  GBP has fallen back a little, GBPUSD moving from 1.2860 to 1.2825, GBPEUR down from 1.1700 to 1.1670. 

EUR has had a little support after German wage agreements look set to be on the high side, damaging chances of another ECB rate cut.  So far 1.1000 has capped the upside for EURUSD.  We have the latest EU GDP release later this morning, markets looking for an unchanged y/y number of 0.6%.

A rate cut by RBNZ this morning took markets by surprise.  They cut 25bps to 5.25% but did announce they had mulled a 50bps cut, before deciding on the smaller cut, a sign they are in a good position to move calmly.  They did mention that they are more confident on inflation and noted the economy is contracting faster than expected, and since their last meeting the balance of risks has certainly shifted to the downside.  NZD lost ground as you’d expect, GBPNZD moved from 2.1165 to 2.1420, now 2.1350, AUDNZD rose from 1.0925 to 1.1035, while NZDUSD fell from 0.6075 to within a few pips of 0.6000.  RBNZ Gov Orr will be speaking again this evening.

Elsewhere, Ukraine’s surprise offensive into Russia continues leading to the evacuation of Russian citizens from the area.  It is difficult to see what the long-term objectives are here for the Ukrainians, although the news that Russia may be withdrawing troops from Ukraine to ward off the attack could be reason enough.  A very brave move by the Ukrainian soldiers.

It was another very pleasant day yesterday but today we’ve already had a bit of rain, and more is expected through the day, with temperatures forecast to be in the low 20’s for the next week or two.  That’s a bit disappointing for the time of year but is actually quite bearable, indeed I’d settle for that for most of the time. 

The latest US CPI inflation report is the main event today, both the headline and the core readings are expected to drop around 0.1% to 2.9% and 3.2% respectively.  There is some thinking we could see a lower number after yesterdays softer PPI release although I haven’t seem much correlation between US CPI and PPI recently.  As always, there is potential for market movement if CPI comes out away from expectations.

Overnight we’ll get the latest Aussie consumer inflation expectations and employment data, both have market moving potential but it is difficult to get a gauge of feeling for this.  The unemployment rate is expected to stay at 4.1%, while overall employment is hoped to see an increase of around 26,000 which, while lower than last months +50k would still be in positive territory.  As I recall, a lot depends on whether this comes from full or part-time employment.  We’ll know more by this time tomorrow.  GBPAUD currently  1.9335, AUDNZD 1.1035 and AUDUSD 0.6635.

Early tomorrow morning we’ll have the first print for UK Q2 GDP.  While June itself is not expected to show much, if any, growth (0.0-0.1%) the quarter should still be close to Q1’s 0.7%, perhaps a touch lower, leading to an annual rate just short of 1%.  Not exactly storming numbers but would certainly be an improvement on Q4 2023 and show some decent prospect for the remainder of 2024. 

Finally, not sure if you saw the BBC programme last night where Freddie Flintoff takes a team of novice cricketers to India.  It is the team he had set up a couple of years ago, this was the follow-up.  It was during the filming of this that Flintoff had the car accident while filing Top Gear.  There was some footage of Flintoff talking a while after the accident which gave an small insight into the scale of his injuries, and the difficulties he faced in his recovery. 

I cannot help but think that the young lads he had been helping had actually in turn helped him, giving Flintoff reason to get back to work.  The trip to India was delayed but they did get there, and Flintoff’s demeanour was certainly more relaxed whenever anything cricket-related was on offer.  He’s been through quite a lot, that’s for sure.

Have a great day

-  10.00 EU GDP, employment, industrial production

-  13.30 US CPI

-  19.00 RBNZ Gov Orr speaks

-  00.50 Japan GDP

-  02.00 AUS consumer inflation expectation

-  02.30 AUS unemployment

-  03.00 China retail sales

-  07.00 UK GDP, industrial/manufacturing production

UK employment numbers give GBP a boost

Good morning

It was a pretty slow day yesterday, not much in the way of movement as we’d expected.  This morning we have had the release of the latest UK unemployment numbers, a strong set of data that will have the hawks worrying about BoE cutting rates too quickly and could well put a dent in the potential for another rate cut at the next meeting in September.

The claimant count was actually much higher than expected, but the unemployment rate ticked down to 4.2% from 4.4% last month, where a rise to 4.5% had been expected.  Average hourly earnings came in at 5.4%, a touch down on the 5.7% last month but easily beating the 4.6% expected.  A pretty healthy set of numbers, except for that rise in claimants.

GBP is higher as you’d expect although hardly a particularly significant move.  GBPUSD is at 1.2800 having hit a high of 1.2810, GBPEUR has made it back above 1.1700, now at the highs around 1.1715 as I type.  Early tomorrow morning we have the latest UK inflation numbers which as we know always has real market moving potential, but perhaps more so now given the prospect of further BoE cuts.  A headline of 2.3%, up from 2.0% previously is expected, with core CPI hoping to have drifted a touch lower to 3.4%.  We’ll know by the time tomorrow. 

Not only do we have US inflation tomorrow, but also US inflation tomorrow afternoon, followed on Thursday by UK GDP and US retail sales.  With US Michigan sentiment survey out Friday, there is certainly [plenty of scope for volatility. 

Overnight we will have the latest rate announcement from RBNZ.  Still see them keeping rates on hold but likely with a more dovish tone once again, but we cannot discount the potential for a rate cut.  However, given the level of NZD at the moment I think they would prefer to keep the rate cut in their arsenal.  For the record, GBPNZD now 2.1200, AUDNZD 1.0930 and NZDUSD 0.6040.

In other news, another rare sighting of the aurora borealis has been noted as far south as Cornwall, although I am yet to see the spectacle.  It is also time to see the Perseid meteor shower.  Both involve finding somewhere dark to camp out around midnight, something I have so far failed to do. 

Still on the theme of space, scientists believe they have discovered proof that water in liquid form exists on Mars, something which would help a settlement on Mars should that ever happen.  However at 10-20km below the surface, that is a long way to have to drill to access it.  The deepest man made hole currently on earth is just over 12km, that took nearly 20 years to achieve before work stopped when the drill kept getting stuck in rock.  Still, I’m sure Elon Musk would give it a good go.

Closer to home, in a couple of days we will have the latest crop of A level results coming out.  This is one of the few years recently where I don’t have a child getting results, either GCSE’s or A levels.  Still, I know how it feels, and my thoughts and hopes are with anyone with kids expecting their results.  Best of luck to them.

That’s all for now.  I’m trying to keep track of the latest Premier League transfers.  Chelsea are leading the way having made eleven signings so far, spending £230m in the process.  They are selling some players so they’ll recoup some of that money, but the vast number of players in their squads is reported to be causing logistical issues, with not enough room for them all to get changed for training.  The BBC suggest Chelsea have some 55 players on their books.  Just a few days to go before the new season begins.  I think it’ll be a good one again, Man City are favourites but I wouldn’t be at all surprised to see them struggle more this year.  I can see both Chelsea and Man Utd doing well, perhaps at the expense of Liverpool.  As for Spurs, well I’ve been a Spurs fan long enough to have learned to expect nothing. 

Have a great day

-  10.00 German ZEW

-  13.30 US PPI

-  18.15 Feds Bostic speaks

-  03.00 RBNZ rate announcement

-  04.00 RBNZ press conference

-  07.00 UK CPI, RPI, PPI