Some calm returns to equities, USDJPY higher

Good morning

With so much attention on stock prices right now it seems only reasonable to start there, and I am pleased to report some sense of calm has returned, with global equities closing on a generally positive note yesterday, and futures prices pointing to further gains today. 

This relative calm hasn’t really fed into currencies, which does continue to see some decent swings.  GBPUSD fell through 1.2700 yesterday afternoon to hit 1.2675, it has since staged a small recovery to 1.2700, while GBPEUR continues to lose ground, now 1.1635 having been down to 1.1605 yesterday. 

USDJPY jumped overnight to 147.85 from 144.80 after BoJs Uchida eased rate rise concerns, saying the central bank would not raise rates when the market is unstable.  It has since slipped back a little to 146.35.  Meanwhile it was confirmed that Japan sold some US$68bn in their intervention on 29th April and 1st May. They were selling USDJPY up near 160.00, by my rough reckoning they are some US$4.5bn in profit on that trade.  I know, it doesn’t quite work like that but they will be pleased with the subsequent moves.

NZ unemployment came in better than expected, with the unemployment rate coming in at 4.6%, below the 4.7% consensus although therer had been some talk that it could be even higher.  NZD rallied on the more positive number, with GBPNZD immediately trading down from 2.1320 to 2.1185 and then on to a low of 2.1115 earlier this morning.  The release makes a rate cut from RBNZ next week less likely but still runs at about 50%.  It is worth noting that the better number is still higher than the 4.3% last time, perhaps the initial positive feeling could wear off.  Tonight we will have the latest inflation expectations from RBNZ which as always has the potential market mover. 

It is a light calendar today, we do have a rate announcement from Romania this morning where another 25bps cut well be seen to take rates to 6.5%, following the 25bps cut in early July from 7%.  It is certainly not a clear cut decision though, some of the doves are pointing at services inflation that is still high as a reason for the central bank to keep rates on hold this time. 

Canada provides the other possible excitement in the form of Ivey PMI’s this afternoon and the minutes from the latest BoC rate meeting after the London close. 

We had a miserable day here weather-wise, it rained and was noticeably cooler.  I’m pleased to see a bit of sunshine outside this morning.  The Olympics continues, I have to say I’ve been more interested than I thought I would be but more because it gives the opportunity to show some sports that I wouldn’t ordinarily see.  I’m thinking of the mountain biking, speed climbing, that sort of thing.  A lot of cycling and wrestling on offer today among others.

Have a great day 

-  09.00 Romania interest rate announcement

-  15.00 CAD Ivey PMI

-  18.30 BoC minutes

-  03.00 RBAs Bullock speaks

-  04.00 RBNZ consumer inflation expectations

Equities volatile as market looks for 50bps cut from Fed next month

Good morning

Stock markets are in turmoil, US equities closed down around 3% yesterday as markets turn fearful of a hard landing following recent weak data from the US, despite the fact yesterdays ISM release beat expectations. Mind you, this morning EU/UK equities have opened higher, futures pricing shows a bit of a recovery in US stocks as well, while overnight Japan’s Nikkei rose over 10%, not quite eclipsing yesterdays losses but a strong step in the right direction.

In terms of  currencies, GBP is still struggling against USD and EUR, at 1.2750 and 1.1655 respectively, EURUSD currently 1.0940 having briefly broken above 1.1000 yesterday to reach the highest levels since the start of Jan this year.  USDJPY has tracked Nikkei to some extent, now 145.80 having traded as low as 141.80 yesterday afternoon, at the peak of the equity and USD sell-off.  GBPJPY back up to 185.75.  Who would want to be a yen trader right now?

RBA did keep rates unchanged earlier this morning as widely expected.  Their forecasts suggest inflation reaching 3.5% by the end of 2024, then reaching its 2-3% target band by end-2025.  AUD is broadly unchanged following the announcement, at 0.6500, 1.0975 and 1.9590 against USD, NZD and GBP, if anything a touch higher overall as RBA all but rule out any near-term rate cuts.

In other news, three water companies have been fined £168m, the bulk of which goes to Thames Water, following what Ofwat described as a catalogue of errors over raw sewage releases.  You know I have no time for water companies, I think their actions have verged on criminal over the years, but I fail to see what a fine is going to achieve other than ultimately higher bills for the public.

Congratulations to GB’s Hodgkinson who ran a superb race to take gold in the women’s 800 metres yesterday.  Meanwhile, Polish speed climber Miroslaw broke her own world record yesterday with a time of 6.06 seconds for what I think is a 15 metre wall.   Worth a watch if you didn’t see it. 

This seems like a short report with all the volatility in the markets but I’ll leave it there for now.  Now much on the calendar today, although NZ unemployment will be closely watched by RBNZ, a higher unemployment rate is expected which could encourage a rate cut by RBNZ earlier than the November currently pencilled in. 

Have a great day

-  10.00 EU retail sales

-  23.45 NZ unemployment

-  04.00 China trade balance

Weak US data Friday sends equity markets reeling, GBP and AUD lower, JPY higher

Good morning

US nonfarm employment numbers Friday were considerably worse than expected,  Not only was the headline of +114k well down on the 175k the market was looking for, the previous reading was revised lower, the average earning rate dipped to 3.6% and the unemployment rate ticked up surprisingly to 4.3% from an expected 4.1%.  Not a great set of numbers and one that has the market talking of possible recessions and hard landings, and now the idea of a Fed rate cut of 50bps in September looks far more likely.

This did lead to USD weakness, at least initially, with GBPUSD trading up from 1.2745 to 1.2840, and EURUSD reaching as high as 1.0940.  By the US close both were just off those highs, this morning however while EURUSD is up at 1.0940 we have seen we were back down at 1.2800 and this morning we have seen GBP selling which has seen a low in GBPUSD 1.2715 as low as 1.2715 and GBPEUR down to 1.1660, the lowest level since May. Both are just off those lows as I type but it is clear GBP is remaining soft after last weeks rate cut.  I’m not sure what impact the weekend riots have had but the growing unrest within factions of the population cannot be helping. 

Yen has seen big moves.  USDJPY was trading up at 149.00 ahead of the US employment numbers, as I type it is just below 143.00, quite a substantial drop and with GBP weakness and Yen strength, GBPJPY is down at 182.60, but has been to almost 180.00 this morning.  Why?  Well there is increased talk of the need for further BoJ rate rises, but taking a look at Japanese equities we can see where the real problem lies.  The Nikkei and Topix are each down over 12% today.  Futures pricing this morning suggests Western indices will be trading sharply lower.  Risk sentiment is now only waning, it is disappearing. 

AUD is another than has seen big moves this morning.  AUDUSD had been around 0.6500 but fell to around 0.6350, GBPAUD traded from 1.9700 to over 2.0000 and AUDNZD dipped to 1.0850.  We do have the latest RBA rates announcement early tomorrow morning, there had previously been calls for higher rates but it would seem that talk of rate rises has been clearly replaced with no change and a possible open door to lower rates in early 2025.  Another factor in AUD weakness could well be that Australia raised their terror threat level to ‘probable’ from ‘possible’.

Not helping the global risk sentiment is the concerns that we will see retaliation by Iran and/or Lebanon for recent attacks by Israel.  The US are sending additional warships and aircraft to the region, partly in a show of strength but also to provide some defence for Israel if required.  The world is not a great place at the moment.

Still, there are beacons of light.  The Olympics are going strong and there have been some pretty exceptional performances including the mens 100 metre final yesterday which saw an incredibly close finish in a race where every competitor ran under ten seconds.  Mens 400m hurdles this morning, then some speed climbing later in the day which, if you haven’t seen it, is worth a watch as climbers seem to defy gravity with the speed of their climbing.  Honestly, if you laid the wall down flat, I don’t think you could crawl across it in the time they can climb it.

An interesting weekend for me, it was my daughters birthday and we headed to London to do a treasure hunt type thing which was like an escape room but out on the streets, I really don’t want to say too much for fear of messing it up for you but will say that on a couple of occasions we had to go into a pub, up to the bar, and say to the bar staff ‘Moneypenny sent me’ and we then got handed a briefcase with codes to crack. Pretty fun, some tough bits in it but we got through it in the end.  I’d recommend.

What wasn’t quite as fun was the fact our car was stolen at the weekend.  I was out but quick work from my youngest son who was at home at the time got the police out on the streets and the car was found about a mile from my house, and a couple of hours later was back in my drive.  We then found a tracker placed in the car by the thieves, apparently it is normal practice for them to steal a car, dump it not far away, and then go back to it a day or two later if it is still there.  It removes the risks of them being in a car with a tracker apparently.  Anyway, I’d been trying to sell the car and it would seem that someone who came round to see it had cloned the key.  Apparently having failed once they won’t try again.  We’ll see. 

So, back to work.  Last week had all the event risk but we’ve seen the bigger moves already this morning.  Keeps us on our toes, that’s for sure.  Watch US PMI and ISM today, more weak readings could send that risk sentiment lower still.

Have a great day

-  09.00 EU composite PMI

-  10.00 EU PPI

-  14.45 US S&P composite PMI

-  15.00 US services ISM

-  22.00 Feds Daly speaks

-  00.01 UK BRC retail sales

-  05.30 RBA rate announcement

-  06.30 RBA press conference