Quiet start to the week, but picks up in the coming days, ahead of the main events next week

Good morning

Well its been a few days since my last report and It feels like a lot has happened in that time.  Thursday I went under the knife for a shoulder op to tidy up a couple of bits from the replacement I had a couple of years ago.  All seems to have gone well although I’m now stuck with an annoying sling and an inability to do too much with my left arm for a period of timer.  It shouldn’t be too long, although I do want to be sure I don’t rush into anything that would negate the work they have done.  I am amazed that you can have muscles and tendons detached and reattached and come home with movement, feeling and little in the way of pain. 

The timing of the operation could hardly have been better.  I missed the worldwide outage of computer systems.  While recuperating, namely sitting on the sofa feeling a bit sorry for myself, I had the Open, test cricket, F1, Hurling and Tour de France to keep me company.  Oh, and some decent weather as well although sadly I didn’t venture out too much.  What a way to recover though.  Congratulations to Schauffele in the Open who took a well-earned victory over Justin Rose.  England looked like they were going to be in for a difficult time in the cricket but a last innings collapse from the West Indies gave England victory, and in the F1 it was Oscar Piastri who took the chequered flag.   Hurling is quite a decent spectacle, not sure I could watch it every week but its fast, action-packed and pretty brutal at times.

Tadej Pogocar took the Tour de France title for the this time but it was Mark Cavendish who deserves a special mention for his historic achievement of breaking the record of the most stage wins in the race at the age of 39 years old, having twice come out of retirement to achieve the feat having failed last year after a crash ended his race with a broken collarbone.   With 35 stage wins he is now ahead of the legendary Eddy Merckx. 

Very well done to all those winners, and of course those who took part.  Someone who won’t be taking part in a contest now in the US president Joe Biden who, after much talk, speculation and promises he is fully committed to being President again,  has finally stepped out of the November elections, handing over to Kamala Harris.  Trump remains odds-on favourite to win the election, Harris frankly doesn’t look as though she has what it takes with almost as many videoed outtakes and nonsensical mutterings as Biden.

To the markets, well the US dollar has gained and GBP dropped a little since my last report from the middle of last week.  GBPUSD had hit a high of 1.30445 on Wednesday, by Friday afternoon it was back down at 1.2900, now 1.2925.  Similarly, EURUSD had reached 1.0945 before slipping back to 1.0880, not quite seeing the scale of losses as GBP which is highlighted in the fall in GBPEUR from 1.1930 to current levels around 1.1870. 

ECB left rates unchanged last week as widely expected, we do have a BoC rate meeting this week and after softer than expected inflation numbers last week  the consensus seems to be for a 25bps cut in rates.  USDCAD currently 1.3745, GBPCAD 1.7760.  Otherwise, interest this week comes from a host of EU, UK and US PMIs, US GDP and US inflation data in the form of PCE.  So we do have some decent data this week but I must warn you that next week is where much of the event risk remains, with FOMC rate announcement and nonfarm payrolls from the US, while we will also find out what our own central bank will see fit for UK rates. 

Have a great day, not much on the calendar today but it does pick up later in the week.

-  11.00 German Buba monthly report

GBP higher after UK inflation numbers, GBPUSD finally breaks 1.3000

Good morning

A stronger than expected US retail sales number pushed the US dollar a touch higher yesterday, GBOUSD traded down from 1.2980 to 1.2940, EURUSD also dropped from 1.0905 to 1.0875.  However the move didn’t last long, by the London close the USD had regained some of those losses and overnight it was back pre-retail sales levels.

This morning we saw the latest UK inflation numbers, all very much in line with expectations, but firm enough to send GBP higher, with GBPUSD now just a few points away from that 1.3000 level that has capped the upside since late last week.  GBP is higher across the board, GBPEUR is 1.1920, GBPAUD near 1.93, GBPNZD 2.14 and GBPCAD pushing towards 1.7800.  I wonder if we’ll see 1.30 break higher while I’m writing this report.  I wouldn’t be at all surprised, I’ve seen a few reports already suggesting an August rate cut from BoE is less likely now.  Not sure how that can be when the numbers come out as expected mind you.

We did have CAD CPI yesterday which came in on the softer side of expectations.  CAD initially pushed a touch higher before losing ground, ending up pretty much as pre-release levels before this mornings UK inflation numbers sent GBPCAD higher.  There is a lot of expectation of a BoC rate cut next week, I thought they’d have kept them unchanged this time but the market seems to be more in favour of a second consecutive cut.

Overnight we got the latest NZ inflation numbers.  The headline was actually a touch lower than expectations, but elements of the headline number still show risks to the upside.  Non-tradeable inflation, something RBZN have previously warned about, came in at 0.9%, above the expected 0.8%.  The mixed nature of the release will allow RBNZ to fit the results into whatever narrative they prefer.

A lot of talk around Trump, his choice for VP and his priorities should he become President.  First, Trump has warned the Fed they should not move rates ahead of the November election.  He has said Powell could stay in charge of the Fed until his tenure runs out in 2026, if he ‘does the right thing’.  A not very veiled threat, and I’m not sure Powell will appreciate taking orders from Trump.   I’m not sure the reason for this, perhaps he wants to be in charge and be able to say he brought rates down, assuming he gets in of course.  Otherwise, Trump has got JPMorgan’s Dimon in his sights to take over. 

Vance, Trumps VP choice, has voiced opposition to US funding Ukraine, saying US should be focussing on China, who he says is the real threat.  Trump has talked of a Ukraine ceasefire if he does get in, my guess is he’d be pushing Ukraine to accept losing some of the ground Russia has taken in their invasion.   

Talking of China, the EU voted on China EV tariffs.  Twelve members voted for, eleven abstained and four voted against the proposals.  That’s a pretty mixed bag. Meanwhile in France the government has resigned but will stay in place until a replacement is secured.   

Gold has taken advantage of the generally weaker US dollar, trading up to new highs.  It reached US$2,482/oz overnight, last month we’d seem limited central bank purchases and prices moved below $2,300 for a while, but I wonder whether China re back on the gold-buying trail once again.  US$2,500 a clear target.  Shame Gordon Brown sold a huge chunk of UK’s gold reserves below $300 25 years ago.  Hindsight is a wonderful thing, but I remember much opposition to the sales at the time.   

Still, we are in a new era, and another Labour government. We will have the State opening of parliament today and a chance perhaps to understand the new governments political and economic plans.  I wonder whether gold sales are on their agenda.  A better trade at $2,500 mind you!

EU inflation is out this morning, while the UK’s latest unemployment figures will be out early tomorrow morning.  We also have the ECB rate meeting tomorrow.  I’ve included calendars for Thursday and Friday below as I’m due to have a small shoulder operation tomorrow morning, nothing major, just a tweak, but I’m not sure what state I’ll be in Friday. 

I’ve been complaining a lot recently about the weather, the next couple of days though are looking pretty decent, with temperatures up to 25°c, perhaps even higher.  Typical, I’ll be lying in a hospital bed.  Fear not though, temperatures will be back to the 20°c area by the weekend!

Have a great day

Ah, by the way, 1.3000 has finally given way for the first time in almost exactly one year.  GBPUSD is 1.3010 as I type….

-  10.00 EU HICP

-  13.30 US building permits, housing starts

-  14.15 US industrial production

-  14.35 Feds Waller speaks

-  19.00 Fed Beige book

Thursday

-  00.50 Japan trade balance

-  02.30 AUS unemployment

-  07.00 UK unemployment

-  13.15 ECB rate announcement

-  13.30 US philly fed survey, initial jobless claims

-  13.45 ECB press conference

-  17.45 Feds Logan speaks

-  23.05 Feds Daly speaks

Friday

-  00.30 Japan CPI

-  00.45 Feds Bowman speaks

-  07.00 UK retail sales

-  13.30 CAD retail sales

-  15.40 Feds Williams speaks

-  18.00 Feds Bostic speaks

GBPUSD fails to break 1.3000 so far, Powell remains cautious on rates but September still looks likely for a Fed rate cut

Good morning

Currency markets all pretty calm for the time being although as I mentioned yesterday we do have quite a few major data releases out this week.  Yesterday was light on data, the markets were really waiting for Powell to speak.  He said little that was new, the Fed don’t need to wait for inflation to hit 2% to cut rates, they are gaining confidence from the past few inflation releases, he did also make reference to the Fed’s dual mandate.  While he drew the line at sending any signal as to potential rate moves, for me these comments do point to a rate cut and I tend to agree that September is as good a time as any to begin lowering rates.  Powell did add that the ‘neutral’ rate had risen, suggesting rates will eventually settle higher than pre-pandemic levels.

Feds Goolsbee also spoke, he said the recent inflation report makes him more confident that inflation is easing in a way that supports lowering rates.  He also mentioned rising unemployment, and his concern that holding rates makes policy too restrictive.  Everything he said suggested he’d be happy to cut rates.  Feds Daly said she isn’t ready yet to cut rates despite being more confident on inflation and despite a slowing labour market.  He is happy to see more data before making a decision, again perhaps opening the door for a September move.

Despite these dovish comments, there wasn’t really anything that we hadn’t heard already and USD failed to find new sellers.  GBPUSD failed to break up through 1.3000, indeed it is now back to 1.2955, still a very elevated level but off its highs, while EURUSD is sitting on short term support around 1.0885.  GBPEUR is just about holding the 1.1900 area, although in other crosses GBP is performing well, with GBPAUD above 1.92, GBPNZD almost 2.14 and GBPCAD just short of 1.7750.

We do get US retail sales later today, these are expected to be pretty soft, as have the last couple of sets of retail sales data.  While this isn’t normally a key driver for rates, a softer reading could add to the idea of a more widespread slowdown.  We’ll also have the latest inflation report from Canada, a week ahead of the next BoC rate meeting.  BoC cut rates by 25bps at their last meeting in June to leave rates at 4.75%, but made it clear they will take decisions one meeting at a time.  They also made it clear there are limits as to how far they can diverge from the US in terms of rates, although they did add they are not currently at those limits.  However with a Fed cut pencilled in for September, we are more likely to see no change from BoC next week, todays inflation report will have to be far softer than expectations for those rate thoughts to change. 

Tonight we will have the latest inflation numbers from New Zealand.  Remember RBNZ surprised the market with a dovish tone at their meeting last week, this latest reading will be closely watched to see if inflation is indeed headed lower as RBNZ suggested.  Current expectations are for the headline to fall to 3.5%, from 4% last time.

Early tomorrow morning we will get the latest UK inflation reports.  Expectations are for a lower monthly reading but annual headline numbers to be in line with last month.  There has been some talk recently of a possible cut in rates by BoE in August, this latest set of data will need to be at least in line with those expectations for an August rate move to become more or a reality.

I did say yesterday that we were now without any major sporting events for a while.  How on earth could I have missed the oldest golf tournament in the world, the (British) Open, which begins on Thursday, just a couple of days to wait.  Thank you to those who pointed out my mistake! 

I’m hoping the weather improves for the golf.  We’d been forecast some pretty heavy rain yesterday, I thought we’d got away with it but by the evening the clouds came and the heavens opened.  It was like the middle of winter.   We have more forecast today but actually later in the week it looks like it’ll be a bit better and actually get a bit warmer, reaching mid 20’s.  I don’t think it’ll last more than a couple of days mind you.

Anyway, while we are waiting for the golf, I’m sure many of you will have had an email from Amazon informing us that Prime Day is here.  Yes, its that time where all the things you didn’t need are allegedly cheaper than they have been.  If you’re in the market for an Alexa device or a Ring doorbell, now is probably the time to get one, otherwise I’m never sure if the deals really are that good.  Mind you, I had a quick glance this morning and there are decent savings to be had on Apple AirPods, which is unusual I think.  I’d better turn it off before I end up with a robot vacuum cleaner, an air fryer, a new electric toothbrush and a shed.  None of which I knew I wanted!

Have a great day

-  09.00 ECB bank lending survey

-  10.00 German ZEW

-  10.00 EU trade balance

-  13.30 US retail sales

-  13.30 CAD CPI

-  23.45 NZ PMI

-  07.00 UK CPI, RPI, PPI