Yesterday gave us the calm before the potential storm, Yen weaker ahead of BoJ meeting

Good morning

It was something of a quiet day yesterday and the overnight session was also pretty stable, no real surprise given the main events start today.  It’s a pretty packed calendar today with plenty of data from the EU and the start of the US jobs data releases that culminates in Fridays nonfarm payrolls.  Its JOLTS job openings today.  Overnight, Aussie inflation is out, followed by the BoJ rate announcement.  Timings is always a bit of guesswork but expect something around 3-4am london time.

Looking at Yen first, USDJPY had been up at 162.00 in early June before weak US data sent the pair lower, helped we believe by official Yen buying from Japan.  Since then the pair has seen pretty consistent selling which saw it hit 152.00 late last week, helped by a combination of possible intervention, position unwinds, lower risk sentiment and speculation of a BoJ rate rise. However, as I type we are trading up at 155.00 as the market fears it may have got ahead of itself on the rate move front. I have also suspected that Japan may have been intervening in small clips through the month and I wonder whether this has stopped.  Anyway, USDJPY 155.00, GBPJPY 199.30 and EURJPY 167.80.

In the UK, Chancellor Reeves did indeed highlight the funding black hole and announced some cuts to help fill the shortfall, including the removal of winter fuel payments to certain pensioners and also removing the cap on an individuals social care spending that was due to be introduced in 2025, among other things.  Higher wage agreements with teachers, armed forces and junior doctors, aimed at both retaining staff and attracting new staff do look like wiping out some of the savings. 

A new department, Office for Value Money, is created which will look at the effectiveness of public spending.  Not a bad idea, I’m sure we all feel that public money is spent far too frivolously without the necessary care and attention we deserve.  I’m looking forward to seeing how much the value for money department will cost.  Some taxes will rise but we’re not sure yet which ones they will be.  Corporation tax and tac on dividends is my guess.  30th October is the budget day.

GBPUSD is holding pretty well around 1.2850 and GBPEUR is off its lows, now 1.1875.  Not much change in the crosses, GBPAUD 1.6900, GBPNZD 2.1800 and GBPCAD just short of 1.7800.  EURUSD is 1.0825 ahead of the data releases from the Eurozone this morning.

In other news, obviously the horrific attack in Southport is high in the headlines, there is little I can add to anything that has already been said in the press, save to say it is a stark reminder of how fragile our lives are and how they can be changed forever in just a few seconds.  Our thoughts are with all those affected.

In the Olympics, having said I wasn’t overly interested, it is on in the background and yesterday we were treated to as stunning display by Tom Pidcock in the mountain biking, grabbing the lead with an audacious overtake late in the race, having come back from a puncture earlier in the race.   Today sees shooting, rowing, table tennis and a bit of beach volleyball.  We won’t have the men’s triathlon, that has been postponed due to the poor water quality in the Seine.  I’m really surprised the French relied on the Seine for the event, I know on paper it’s a great idea but there must be a lake or reservoir nearby that would have been a safe bet.  Organisers have even floated the idea of making it just a duathlon if the water wuality remains poor. 

That’s all for now but there will certainly be enough to keep us going through the day, and indeed the rest of the week, with EU inflation and FOMC rate announcement tomorrow, BoE rate announcement Thursday and US nonfarm payrolls Friday. 

Have a great day, yesterday was a scorcher but today is set to be even hotter, with temperatures here forecast to hit 32°c.  Not sure I’ll have time to get out an d enjoy it mind you. 

-  09.00 German GDP

-  10.00 EU GDP, consumer confidence

-  13.00 German HICP

-  14.00 US house price index

-  15.00 US JOLTS job openings, consumer confidence

-  23.45 NZ building permits

-  00.50 Japan retail trade

-  02.30 AUS CPI

-  02.30 China NBS PMIs

-  03.00 (approx.) BoJ rate announcement

Plenty of major event risk this week, GBP the early loser

Good morning

I hope you had a terrific weekend.  The weather was pretty fantastic, with temperatures in the mid to high 20’s.  It felt a bit like summer at last.  I’d love to say I spent the weekend sitting outside enjoying the sunshine, but alas it was not to be.  My daughter was moving into a flat with some friends and our time was spent ferrying her belongings to the new pad.  I couldn’t do much of the heavy work due to my recent shoulder operation, more disappointingly I couldn’t drive the van we hired.  I love driving vans for some reason, but had to be the passenger this time.  Anyway, she’s moved in, another one of those milestones in life has been reached. 

My mention last week of filling the £20bn funding deficit led to many responses.  I must admit it did all get a bit daft, we do know teachers and nurses are underpaid and as was pointed out, how on earth can a junior doctor earn less money than a train driver!  Some suggestions came in of how to better deal with the spending gap, many readers are business owners who frankly know more about the real world than those at the helm in government or opposition.  Between the readership here we probably have the makings of a pretty decent cabinet. 

We’ll hear from the Chancellor this morning about just how bad the funding shortfall is, and how she intends to deal with it.  Expect some infrastructure projects to be cut, but I’m not sure if she’ll yet talk of higher taxation.  GBP has been struggling over the past couple of days and this morning is a little lower again, with GBPUSD falling through last weeks lows of 1.2850 to reach 1.2825 as I type, and GBPEUR dropping to 1.1830.  It is of course a big week for GBP, with the BoE’s latest rate announcement due on Thursday.  A 25bps cut is the consensus forecast but as I mentioned last week it is likely to be a close vote, something like 5-4, so could very easily stay at unchanged. 

It’s a pretty packed calendar this week, plenty of potential for volatility.  Tomorrow sees EU GDP and German inflation, Wednesday we have Aussie inflation and BoJ rate meeting before we even get to our desks, followed with EU inflation and the US FOMC rate announcement, Thursday is the BoE rate announcement and also the latest ISM data from  the US, while Friday afternoon we have the latest US nonfarm payroll data.  Of the three major rate meetings, Fed are expected to stay unchanged, the firmer than expected PCE deflator last Friday makes a US rate move a difficult sell, BoE to cut 25bps and BoJ to possibly raise rates, but that is far from a done deal. 

Elsewhere, commodity currencies continue to look weak, GBPAUD and GBPNZD are holding up pretty well despite the GBP weakness, at 1.9600 and 2.1840 respectively, while against the US Dollar they are both at or near recent lows.  Of the two, its NZD that I having the worst of it, with AUDNZD up at 1.1130, the highest level since Oct 2022.  It wasn’t that long ago we were talking about possible RBNZ rate rises, they now look a thing of the past and a rate cut is now not a matter of ‘if, but ‘when’, and how many may come in 2024. 

Politicians on all sides are doing what they can to ease tensions in the Middle East, fearful that recent attacks on Israel and Hezbollah in Lebanon could turn into a full-blown war. 

The Olympics are in full swing.  I didn’t see the opening ceremony but understand it was a little contentious, although not having seen it means I am in no position to offer an opinion.  I can’t comment much on the games themselves having not really been around to watch much TV, however I’ll have it on in the background today.  Tom Daley will be looking for another diving medal with his partner Noah Williams.  I did see that triathlon training in the Seine was cancelled due to the poor water quality following heavy rain Friday and Saturday, the event is due to begin tomorrow and I really can’t see how they can make significant changes before then.  Organisers are confident all will be well. 

That’s about all I’ve got time for, somehow I’m running ,later than ever.  Can’t believe it will be August this week, this year is just slipping away so quickly.  See if you can get away from your desk to enjoy the sunshine for a bit while it lasts.  Could be touching 30°c here over the next couple of days. 

-  10.00 UK chancellor Reeves speaks

-  00.30 Japan unemployment

-  02.30 AUS retail sales, building permits

GBP struggles ahead of next week's BoE rate decision

Good morning

GBP suffered yesterday, trading down to 1.2850 against USD by the NY close, while GBPEUR pushed down to 1.1845.  The full reason behind this move is not clear.  I receive various pieces of research from banks and not only have none of them come up with a reason, none have really mentio9ned the move at all.  OK I understand in the scheme of things it is not exactly a huge move, but it is pretty consistent and as I type GBP is only 10 pips or so off those lows. 

Obviously we have the Bank of England rate announcement next week and the chances of a rate cut has increased over the past week or two, no doubt having some effect on GBP.  This certainly not a done deal however.  If there was a rate cut, voting is expected to be split 5-4, so just one different vote would change the outcome.  The news that the new Chancellor Reeves will announce a spending gap of some £20bn next week could also be weighing on GBP, that money will have to come from somewhere, and that ‘somewhere’ is likely to be our pockets.  Still, if every member of our 60 million population stuck in an extra £330 or so, we’d cover that deficit.  I know, I know, the numbers are not quite right, not every one of the 60 million can pay anything at all. 

One other place to save a decent chunk of that £20bn would be to change the plans for a 5.5% pay rise for teachers and NHS workers.  There are around 570,00 teachers in the UK, and some 1.5m employed in the NHS.  Assuming an average wage of £40,000, that’s a wage bill of some £83bn.  A 5.5% increase would cost over £4.5bn.  Now, I’m being a little harsh here I know, and I’m guessing on the average wage, but while we know those industries are hugely important and a huge struggle, they are pretty recession-proof and as Covid highlighted,  safe industries in terms of job security.  Let’s not get started on the pensions.  So, how about we leave the 5.5% for a year or two, I’m sure they will all understand given most of them probably vote for Labour anyway.  It brings the per-head cost of covering the deficit to nearer £250.  All in it together and all that.

Obviously the issue here is that 60 million people cannot pay £250.  Some are babies and children, some are on benefits etc.  So let’s focus on the upper end of earners.  There are 6.3 million higher rate tax payers in the UK, so if we target just those that per-head number goes up to around £3,000.  £250 we could agree to.  £3,000?  Well I’ll tell you where I am.  I’m out.

Anyway, now that I have completely scuppered any chances I ever head of becoming Chancellor, back to the currency markets.  The latest US GDP numbers were out yesterday, we saw a decent uptick form the previous quarter of 1.4% to 2.8%, surpassing the estimated 2%.  US equities were mixed, they opened weaker, recovered strongly, then fell again to close not far from their opening levels.  

USD did push higher on the release, most notably against Yen, with USDJPY rallying from its morning lows of 152.00 to around 154.25.  This has taken GBPJPY off its lows around 196.00 to 198.00. 

It’s getting late so I might wrap it up there even though I’m sure there is plenty I should be writing instead of wittering on about teachers pay.  Today we have the core PCE deflator from the US, a key release and certainly one the Fed watch closely.  It is expected to show a small drop from last months 2.6%, we could see some movement in the market if it stronger or weaker than expected.  

Looking to the sports side of things, we have the Olympics officially starting today, although there have been some Olympic football and rugby matches already.  I really hope for a safe, uneventful games.  Unfortunately, as I type I see news that the French high-speed rail network has come under a coordinated sabotage attack, resulting in delays and cancellations, no doubt disrupting travel for many trying to get to the opening ceremony.   

The next few days also brings the next cricket test match between England and West Indies beginning today, and the Belgian F1 grand prix this weekend from Spa, one of the most stunning race circuits with the iconic ‘Eau Rouge’ section of track. The weather looks reasonable over the weekend and improves into next week.  Perhaps we’ll get a bit of summer after all.

-  13.30 US Core PCE, personal income/spending

-  15.00 US Michigan sentiment survey