GBP lower after BoE rate cut, global equities fall

Good morning

GBP has slumped after the BoE cut rates 25bps to 5% in a tight 5-4 vote as had been expected.  GBPUSD is now 1.2715, GBPEUR 1.1780, down from the levels we were at this time yesterday and certainly down from the heady heights we had one week ago which saw GBPUSD over 1.3000.   Bailey, and then Pill a bit later, made it clear we should not get too excited about the prospect of further cuts, certainly the speed and timing of them.  Inflation is likely to have bumps in the road ahead and we should not necessarily expect successive cuts at each meeting from here.  Still, I believe we will see another cut later in the year, particularly if the Fed start to cut rates as well.

However, the GBP move is a little odd.  GBPUSD had actually pushed higher after the announcement, USD losing ground on weaker than expected ISM data which led to increased talk of a possible 50bps rate cut as and when they do finally act, most likely September.  At 3pm, some three hours after the BoE announcement, GBPUSD was up at 1.2840.  Only after that did GBP begin to head towards, and then break, the lows seen earlier in the morning. 

Perhaps the markets needed time to digest the BoE decision, but the move coincided with a sharp drop in equity prices, the FTSE100 fell from 8,400 to 8,260 or so which, after a rate cut is surprising but it smells as though something isn’t right. Is the rate cut less to do with inflation and more to do with helping an ailing economy?  Is the UK political scene creating uncertainties?  

But It wasn’t just UK stocks that were lower.  US indices closed over 1% down, Asian markets have seen some huge falls, with Japan’s Nikkei down almost 6%, that move fuelled in part by talk of further rate rises, while USDJPY is down at 149.00. With Gold prices at $2,460 I cannot help but think geopolitical risks are increasing, and maybe markets are planning for an escalation in hostilities between Iran and Israel.

In other news, a surprise prisoner swap has taken place between Russia and the West, a deal that some reports suggest has been negotiated for a couple of years, all the more surprising given the soured Russia/West relationship since the invasion of Ukraine.

US nonfarm payrolls in the key today, consensus seems to be for a headliner of +175k although I have seen a couple of big banks this morning favour something closer to +150k.  Still a fairly strong number mind you.  The unemployment rate is expected to hold at 4.1% with average hourly earnings drifting lower to 3.7%.  There is a good chance USD will react strongly to firmer or weaker data. 

The weather has cooled off a bit as we head towards the weekend, we did have some rain but not much in the way of thunderstorms.  Today should be warm again, tomorrow less so, but I’m OK with low to mid-20’s.  Stitches came out yesterday and although full recovery will take some time, I do need to get back out on the garden to mow the lawn which desperately needs a cut having been neglected for a couple of weeks.   That bit of rain seems to have helped add another couple of centimetres. 

Sport over the weekend really revolves around the Olympics.  Some more athletics today including the mixed 4x400 metre relay which can be fun plus round one of the women’s 100metre.  Plenty more action Saturday and Sunday.

Have a great weekend…..

-  12.15 BoEs Pill speaks

-  13.30 US nonfarm payrolls

Fed keep rates on hold, GBP lower this morning ahead of BoE decision

Good morning

Welcome to August.  Could this be the day we see an interest rate cut in the UK?  The BoE announcement is at midday, the consensus is for a 25bps cut which would take rates to 5% although I have said before this is based on a projected vote of 5-4 in favour of a cut, so there are clear risks that one different vote sways the decision.  Some are calling it a 50/50 chance of a rate cut, I see the chances greater for a cut. 

This morning we have seen GBP get sold off, GBPUSD has traded from 1.2850 or so down to three week lows at 1.2790, while GBPEUR is 1.1835 as the market starts to get the idea that a rate cut really is likely.  As always, it is not only the rate decision and vote-split that is important, but also very much the statement that comes with it, which may give us some sort of guidance as to future rate path.  I have already seen calls for another 25bps cut in November which would leave rates at 4.75% into the year-end. 

Sp what happens to GBP from here is down to the decision itself, the vote split, and any forward guidance.  A vote-split of 6-3 in favour of a cut would be a dovish signal for sure.  Even if we see no rate cut today, there is a chance Bailey could talk of cuts later in 2024, in other words a dovish hold.  It’s going to be interesting.

The Fed kept US rate unchanged at 5.5% yesterday evening.  The door however is wide open for a September cut, Powell made it clear once again that the Fed has a mandate to control not only inflation but also employment and with some weaker economic data recently there seems more concern of a slowing economy than inflation at the moment.  Therer has even been some talk that we could see a 50bps cut in September and the market is actually pricing in a little under 75bps cut through 2024 and a total of 2% in cuts by the end of 2026.   Powell did his best though to also make clear that there is plenty that can change in the coming weeks and a cut is not a certainty.  ISM data today and of course nonfarm payrolls tomorrow will be closely watched.

Japanese Yen surged to its strongest level since March, we saw a decent sell-off in USDJPY yesterday morning and then traded as low as 148.50 overnight.  As always I do wonder whether Japan are drip-feeding intervention in rather than trying the usual shock and awe tactic.  Recent weak US data and BoJ rate rise have helped push USDJPY down, with an official helping hand of course.  As I type, USDJPY is at 150.00, unable to hold lower, perhaps the lack of a US rate cut stemmed the USD selling.  GBPJPY, which three weeks ago was at 208, treaded as low as 191.00 overnight and although it soon staged something of a recovery to 192.70, this mornings GBP selling sees the pair at 191.60.  There was I worried about a few negative forward points not so long ago, those brave enough to ignore them and bought yen will be sitting very happy now.

AUD was little moved on trade data released overnight.  The headline surplus of AUD 5.6bn was larger than expected but the previous headline surplus was revised lower, pretty much equalling things out.  GBPAUD had been reasonably settled around 1.9675 overnight but this morning has slipped to below 1.9600

We’ve had a few days of pretty hot weather and today looks set to keep those temperatures in the high-20’s, however we have warnings of thunderstorms which could bring with it some heavy rain.  It’ll cool down after but still hold at a reasonable and comfortable 24°c or so.  I can live with that.

Plenty of action and medals for GB in the Olympics, including gold for women’s rowers and men’s triathlete Yee.  Let’s hope he suffers no after effects from swimming in the Seine.  Athletics starts today, sounds interesting although it kicks off with the mens and women’s 20km walk.  One really has to be a fan of the sport to be glued to that.  Golf starts today, I’m not really sure I see that as an Olympic sport but it could be interesting nevertheless.  I think there is some BMX racing today which could be fun, i don’t mind watching a bit of that once every four years.    

Stitches are due to be coming out this morning, assuming all is healing as it should.  I have my fingers crossed. 

Have a fantastic day…

-  09.00 ECB economic bulletin

-  10.00 EU unemployment

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  14.30 CAD S&P manufacturing PMI

-  15.00 US manufacturing ISM

-  17.15 BoEs Pill speaks

-  02.30 AUS PPI

BoJ raise rates, FOMC expected to keep door open this evening for a possible September cut

Good morning

Lets start with the overnight news, BoJ did indeed raise rates 15bps to 0.25%.  USDJPY, which had been up at 155.00 yesterday morning had started to move lower through the day on talk we could see a rise of up to 25bps, reaching around 153.30 by the London close.  The announcement brought a wave of volatility that saw USDJPY swing from 151.60 to 153.80, as I type it is 152.10.  GBPJPY is 195.20.  Although volatility over such an announcement is not unusual, I’m wondering whether it was the result of some mixed reporting.  I have seen some reports suggesting BoJ raised rates 25bps which perhaps added to confusion.

A small uptick in EU GDP yesterday didn’t really cause much of a stir, EURUSD not moving far from level seen this time yesterday, although did sneak below 1.0800 for a short time later in the afternoon.  Now 1.0815, todays EU inflation report could bring a little more volatility. 

GBPUSD hit a low of 1.2820 yesterday, it did manage to regain 1.2850 overnight but this morning is showing signs of weakness again, slipping back to 1.2830, with GBPEUR 1.1865.  Not huge moves, it feels like we are treading water ahead of the BoE rate announcement tomorrow.

AUD weakened overnight on the release of their latest inflation numbers.  GBPAUD traded up to 1.9800, the highest we’ve been since August last year, although it has since backed off to 1.9725.  To me the numbers look in line with expectations although the trimmed mean CPI which tries to lessen the impact of the more volatile components, did come in 0.1% lower at 3.9%.  AUDNZD, which had reached 1.1150 yesterday, is now back just below 1.1000 AUD weaker on the reduced chance of any rate rises.

US JOLTS job opening data yesterday had minimal market impact although therer was an initial bout of USD buying.  We have the ADP employment index today but of course the main event will be the FOMC rate announcement this evening.  There had been some talk of a possible cut at this meeting but September is by far the more likely.  There is some suggestion this morning that while Powell may well keep the September door open, he could warn of various risks that could delay rate cuts.  So, we think a rate cut in September but Powell will fall short of setting that in stone. A failure to signal any cut in September is likely to lead to a higher USD.

Having traded as low as $2,370 this week, gold has pushed up to $2,420 on renewed geopolitical concerns after Israel hit targets in Tehran which killed the Hamas leader, Haniyeh.  Risks of escalation are increasing.  Meanwhile Venezuela’s government is cracking down on opposition members and protestors after Maduro claimed victory in the election.  With the ongoing Russian invasion of Ukraine, China threats over Taiwan and the entire South China Sea region and North Korea lurking in the background, there is plenty of scope for things around the world to get worse.  Mind you, all is not well at home, as you have no doubt seen in the headlines.

In sport, congratulations to the GB mens swimming relay team who took gold in the 4x200m freestyle after Hales also took gold for GB in shooting.  The triathlon events have started today, Beth Potter took bronze this morning in the women’s event, quite a story for Potter who competed in the Olympics 10,000 metres eight years ago in Rio.  The mens is due to begin around 9.45am having been postponed from yesterday due to the water quality.  Quite how a river can get ‘clean’ in one day is something of a mystery although organisers say the hotter weather has had an impact. 

It was a scorching day here yesterday, 30°c plus with little in the way of breeze.  Today looks like being another hot one, as does tomorrow although the forecasters are warning of thunderstorms Thursday afternoon. 

Have a great day

-  10.00 EU HICP

-  13015 US ADP employment

-  14.45 US Chicago PMI

-  15.00 US pending home sales

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  02.30 AUS trade balance

-  02.45 China caixin manufacturing PMI