BoC cuts, China surprises with rate cut overnight, equities lower, Yen higher

Good morning

Bank of Canada did indeed cut rates 25bps to 4.5% yesterday.  Market impact was minimal, highlighting just how priced in the decision was in advance.   I did wonder whether we’d see more movement during the press conference but as BoC Gov Macklem spoke, there was still little change.  He said they are confident they can eventually get inflation to 2%, suggesting it could take until the end of 2025, but made it clear there was no predetermined path for rates.  They are keeping a close eye on downside economic risks.  USDCAD now 1.3835, helped by a mildly stronger USD overnight , GBPCAD 1.7820.

Otherwise the majority of currencies were stuck in familiar ranges.  The US dollar weakened steadily through the day but not to any great extent, GBPUSD ticked up to 1.2920, EURUSD to 1.0855.  We had had an odd bag of PMIs, the EU numbers were generally soft, UK were reasonable, particularly the manufacturing element which exceeded expectations, the services element missed expectations, while the US versions were the mirror image, with services better than expected and manufacturing worse.  All in all, not much to grasp hold of and I don’t think we can really blame any market moves too heavily on these numbers. 

Overnight a bit of USD strength saw both GBPUSD and EURUSD push lower, now 1.2885 and 1.0835 respectively, right on levels this time yesterday morning.  A Reuters poll of economists suggests BoE will be cutting rates at its meeting on 1st August and will follow that cut with another later in the year.  Meanwhile ex-Fed official Dudley made it clear he would back a Fed rate cut now, worried by some softer economic data.  The S&P 500 dropped over 2% yesterday, its worst day since Dec 2022, suggesting all is not well. Other equity indices also saw losses, led by tech stocks which saw both Nasdaq and Japan’s Nikkei losing over 3%.

We had a surprise rate cut from China overnight which spooked the markets somewhat, they cut the MLF rate 20bps to 2.3%, the largest cut since the Covid outbreak back in April 2020.  Gold also fell by over 2%, trading from $2,430 yesterday afternoon to $2,365 this morning.  and the commodity currencies have been hit again, GBPAUD now up to 1.9725, GBPNZD to 2.1800.

USDJPY did have another leg lower, reaching 153.20 through the afternoon after having managed to creep back up to almost 155.00 in the morning, and then seeing further declines overnight which has taken us to 152.210.  GBPJPY traded to 197.80 at one point yesterday afternoon, recovered to 198.80 overnight before that Yen buying kicked in and took GBPJPY back to 196.00 in the early hours of this morning, the lowest levels since mid-May. 

I’d mentioned a couple of weeks ago how I’d quite like to start building a long-yen position but that with the forward points as they are it makes life difficult.  It really comes down to timing.  As it was, it looks like that would have been terrific timing, with GBPJPY now almost 1000 points lower.  A boat well and truly missed. 

We still think there is potential that Japan are involved in these bouts of yen buying.  It is not like usual intervention, the moves are smaller for sure, but very consistent.  However it is also clear that there is a ‘risk-off’ theme in the markets and it is possible that Yen is pushing higher in response to lower equities.  Of course, there are also huge short yen positions that are certainly being unwound.  Talk of another rate rise from BoJ next week is also adding to Yen strength, particularly when combined with the possibility of a Fed rate cut, although I do wonder whether the level of Yen now could give BoJ reason to keep rates unchanged again this time. 

So, having had a few days of relative calm, things are hotting up.  Todays US GDP release could add some volatility, while Japan inflation numbers overnight could well give reason for further Yen moves.  I’ll have an eye on equity markets as well which look vulnerable to further losses. 

Have a great day

-  09.00 German IFO

-  13.30 US GDP, core PCE, durable goods, initial jobless claims

-  15.00 US pending home sales

-  16.00 ECBs Lagarde speaks

-  00.30 Japan Tokyo CPI

Will we see a second consecutive 25bps cut in rates from Canada?

Good morning

Yen is stronger once again, UDSJPY traded down to 154.35, the lowest level since mid-May, now 154.65.  As always when Yen pushes higher, we look for signs of intervention.  On the face of it this looks more like just a USDJPY sell-off, exaggerated by a push through technical support levels, however I would not be surprised if Japan had, shall we say, gently helped it on its way.  GBPJPY has slipped below 200.00, now 199.40 having been as low as 198.95 earlier this morning.

GBPUSD has been pretty stable so far this week, now 1.2890, a few pips lower than this time yesterday but nothing really significant.  EURUSD is 1.0835, also a touch lower, while GBPEUR is 1.1895.  Some interest in commodity currencies, both AUD and NZD are continuing their move lower, with GBPAUD now 1.9530 and GBPNZD 2.1725, both just off the highs from earlier this morning which saw GBPAUD at its highest levels since September last year and GBPNZD breaking its March 2020 highs to hit levels not seen since May 2016.  One month ago GBPNZD was around the 2.06 area, quite a move that has, to some extent, gone relatively unnoticed.

A big day for another commodity currency today.  Bank of Canada will be announcing their latest rates decision this afternoon.  Everything is pointing towards another 25bps cut to 4.5%, we have had softer inflation numbers and some weak housing and retail trade data recently which is likely to influence the decision, although there are still a couple of economists who think they will pause this time around.  USDCAD now 1.3790, GBPCAD 1.7785.

Although the bookies still have Trump marginally ahead in the US Presidential elections, some polls are now showing Harris with a slight lead, having broken a host of fundraising records.  Biden is set to speak tonight, his first such speech following his decision to withdraw from the Presidential contest.  We may find out what finally encouraged him to withdraw.

In France, Macron has rejected an attempt by the left-wing alliance to name a prime minister, confirming the government will remain in place through the Olympics.  Meanwhile some 75,000 police and troops will be taking to the streets of Paris in a security operation of unprecedented size.

Other than the BoC announcement, we will have EU, UK and US PMIs through the day, all potential market movers, particularly should the US readings come out softer than expected which will encourage the doves to look for a Fed rate cut at its meeting this time next week.  There are many road closures in the capital, ahead of the opening ceremony.  I can only hope that the Olympics takes place with no major security issues.  An attack on a soldier in Kent yesterday evening reminds us that there are always some people out with a desire to harm others.

Aside from the Olympics, I’m starting to look at the football transfer market gossip a bit closer as the start of the season draws nearer.  Most of it is nonsense, perhaps with a degree of truth in it, but we see many teams linked with many players around this time and they rarely come to fruition.  Plenty of time before the Premier league kicks off on 16th August. 

Have a great day

-  09.00 EU manufacturing, services PMIs

-  09.00 South Africa CPI

-  09.30 UK S&P manufacturing, services PMIs

-  13.00 ECBs Lane speaks

-  14.45 BoC rate announcement

-  14.45 US S&P manufacturing, services PMIs

-  15.00 US new home sales

-  15.30 BoC press conference

-  21.05 Feds Bowman speaks

-  01.00 Biden speaks

Can Kamala be President before November?

Good morning

Not a bundle of news from the currency markets this morning, GBPUSD is 1.2925, EURUSD 1.0885, still just unable to really breach 1.0900, GBPEUR 1.1870.  If these levels sound familiar, they are pretty much where they were this time yesterday. 

USDJPY is 156.65, over 500 pips off the July highs, remember we believe Japan intervened by selling USD when the US inflation numbers came out a couple of weeks ago.  Since then we have seen some further moves lower in USDJPY, it reached 155.50 late last week.  GBPJPY is 202.25, worth watching 202.00 which has really been the lows over the past month or so.

We have a rate announcement from Turkey today, I tend to watch this only because the numbers are pretty incredible.  Rates are currently 50%, they are expected to stay there although some are starting to talk of potential rate cuts after inflation has declined from its highs of almost 75% in May to 71.5% in June.  Possibly a touch early.  USDTRY is 32.95, EURTRY 35.90, GBPTRY 42.65.   

I’ve not really been to Turkey much, but I do fancy going.  I did have a look at possible cheap holidays to Turkey recently but they all came in quite a lot more than I’d expected.  I’m not saying there are no bargains, but most of those I looked at and most people I know who have been have looked at all-inclusive deals which were priced more akin to UK prices.  I’m sure there are places where you feel like you’re getting some value at 42.65 Try to the GBP, I’ve just not seen them yet.  Or maybe they are good value, just a lot more than I thought I might get away with, particularly now I’m paying for five adults.  Any suggestions feel free to let me know.

Much of the news is obviously on the US Presidential race, Harris gaining quick support following Biden’s stand down, she reportedly raised US$81m in the past day or so to help her campaign and seems to have the support needed to secure nomination.  I can’t help thinking that this is what is wrong with US democracy.  It seems one can really only stand if they have huge bundles of money to help them along.  I have no doubt there are some better candidates out there but without the vast financial support required they won’t stand much of a chance.

There is a lot of speculation as to how Biden is right now. Obviously the source of much merriment when he fumbles his way through speeches, but remember he remains the President of the US and there is a decent chance he is more ill than is being reported.  As current vice-president, could Harris become the next President ahead of the November elections?

Just a few days to go before the Paris Olympics begins.  I’d mentioned the other day that I didn; think the Olympics were quite the event they used to be.  I remember gathering round the TV to watch the flagship races, such as 100metres, or 4x100 and 4x400 relays.  I don’t feel the same these days.  OK, if I’m in when its on I’ll watch it, but I’m not adjusting my extensive(?) social calendar around the Olympics.  My comments were met with a mixed response, some of you completely agreed, while some are counting down the days, looking forward to the Olympics as perhaps I used to. 

Have a great day, it does have the potential to be another quiet one but with a busier economic calendar over the next few days there is a chance things could get a little more exciting.

-  12.00 CBRT rate announcement

-  15.00 US existing home sales

-  15.00 EU consumer confidence

-  00.00 AUS Judo Bank manufacturing, services PMI