Labour are in and it's raining. Looking forward to nonfarms and weekend sport

Good morning

Well it’s no surprise that headlines are focussed on Labour’s landslide victory in the general election.  The turnout was pretty low, whether that is down to general political apathy in the UK, or whether it is because regular Tory voters couldn’t bring themselves to vote for Conservatives or anyone else this time, I’m not sure, but its disappointing that so many people chose not to exercise their right to vote. 

Not much I can add that the papers haven’t covered but the highlights for me are that Farage has become an MP for the first time, while his party Reform have won just four seats despite winning over four million votes, making them the third largest party by votes, ahead of LibDems.  Most of those votes are taken from the Conservatives, indeed UBS report that in many constituencies the combined Tory and Reform vote totals were greater than Labour.  Labour won’t mind.  The unbearable George Galloway lost the Rochdale seat he won a few months ago, and SNP have lost a huge 38 seats in Scotland leaving them with just nine.  I am not Scottish so should have no real comment on the political situation up there, but SNP have hardly showered themselves in glory up there in recent times.

We will have the French elections this weekend, I’ve mentioned before that parties are working hard to block Le Pen’s National Rally (RN) party winning enough votes to form a government.  Many candidates are withdrawing to allow their political rivals a greater chance of winning votes.  There is a possibility that a coalition could be formed from parties other than far right and far left.  Meanwhile in the US some donors are warning they will withdraw party funding unless Biden steps down. 

So, to the currency markets.  US dollar is slightly weaker across the board with GBPUSD at 1.2770, EURUSD 1.0825 and USDJPY slipped below 161.00 to hit a low of 160.55 overnight, now 160.75.  No sign of the intervention that I thought we may see given the less liquid markets over the US holiday.  Today we have the all-important US nonfarm payrolls.  Last month we got a much larger than expected headline at +272k against an expected +175k.  This time a headline around +190k is expected, risks I think this time are to the downside, I have seen a couple of banks looking for a lower headline.  If they are right we must surely see USD weaken into the weekend. 

If so, recent highs in GBPUSD of 1.2860 back in mid-June and 1.2890 in March could come under pressure, which would put us on track to test highest levels for almost one year.  In EURUSUD a break of 1.0900 will open up higher levels but with the French political situation I can’t see us getting to 1.1000.  Of course, we could get another surprise increase as we did last month, which would push USD back to levels seen in late June/early July, GBPUSD around 1.2670 and EURUSD 1.0715.  It’s a tough one to call so we’ll just have to sit and wait.

Plenty of sporting action to get our teeth into this weekend, just as well given the rather miserable wet and cold weather we’ve woken up to this morning.  Lets start with the Euro’s, tofay sees the quarter finals between Spain and Germany and then Portugal v France.  A couple of crackers there.   England take on Switzerland tomorrow.

Before then, England rugby players take on the mighty All-Blacks tomorrow morning.  All-Blacks are favourites but they are going through something of a period of change, so England may just pull off a bit of a shock.  Currently 4-1 if anyone is interested although I would always find it difficult to bet against New Zealand unless they were playing South Africa.  Should be an interesting match anyway. 

I’ve always found it difficult to really get into tennis but for those who enjoy the sport, Wimbledon is still in full swing.  Of course, it’s likely to be affected by rain over the weekend, as will the British Grand Prix at Silverstone.  I do feel sorry for the fans who are camping there.

Have a great weekend as and when it arrives.  I hope it stays drier where you are, if not just settle down in front of the TV for the rugby, football, tennis and F1.  There are worse ways to spend a weekend…

-  10.00 EU retail sales

-  10.40 Feds Williams speaks

-  13.30 US nonfarm payrolls

-  13.30 CAD unemployment

-  15.00 CAD Ivey PMI

US Independence Day means quiet markets, nonfarms tomorrow could liven things up

Good morning

The US dollar weakened yesterday afternoon, helped along by yet another soft PMi reading, this time in the form of the ISM services release.  GBPUSD traded up from 1.2700, where it had spent most of the morning, to hit 1.2775, while EURUSD traded up to 1.0815 from the mid-1.07s, both hitting the highest levels seen since before I went on holiday back in mid-June.  However as we have seen many times we failed to hold those levels and as I type GBPUSD and EURUSD are 1.2750 and 1.0790 respectively, the USD perhaps helped by FOMC minutes that suggest Fed are comfortable with a ‘wait and see’ policy, in no great rush to cut rates. 

GBPEUR is 1.1815, I’m still surprised as the resilience of GBP ahead of the general election.  The polling stations are open and by this time tomorrow we’ll know just how large the Labour majority will be, with some suggesting we could see a new record.  I remain amazed at just how weak the Tories have been, looking back it was really probably since Truss too the helm that the real decline started, although the highly damaging infighting started well before then. 

France will have its second round elections this weekend.  Le Pen is set for victory but the other parties are conspiring to ensure she does not get the 289 seats required for full control, latest polls suggest RN and its allies will win around 200 seats.  In the US, Biden has insisted he will not be stepping down despite the ongoing questions over his health, there has been some suggestion he could even be asked to stand down if he didn’t do so voluntarily.  Trump holds a lead in the polls and is still form favourite at the bookies to win in November.  Kamala Harris is now second favourite ahead of Biden, demonstrating the possibility that Biden won’t stand.

Not a huge amount to add today, it is a very light calendar with just the ECB minutes from the last meeting to come this afternoon.  We expect a quiet day given the US holidays and lack of new positioning ahead of the US nonfarms tomorrow. 

Have a great day, don’t forget to vote….

-  12.30 ECB minutes

US Independence Day tomorrow adds to holiday feel in markets, will Japan use illiquid markets to intervene?

Good morning

There is something of a weird holiday feel to the markets even though the schools haven’t broken up yet.  I guess it has felt like this for a while, we sit and wait for what looks like it should be key event risk, we may get a bit of a move in the markets, but then the status quo returns and we look to the next set of data or rate announcements.  Not that there is anything wrong with this of course, most customers are happy when currency markets are stable, so other than a few wild moments H1 2024 was pretty comfortable.  Long may it continue.  Tomorrow of course we have the US 4th July independence day, this afternoon sees some US markets close slightly early, and I’m sure many will take the opportunity to make it a long weekend even though we do have US nonfarms Friday.

Powell spoke yesterday and his comments probably went some way to explaining why the markets have been so reluctant to move.  He could hardly have been any more on the fence if he’d tried, not because he is indecisive but because he still sees clear risks on both sides.  He is pleased with progress made on inflation to date and believes we will see lower inflation trends resume.  But he needs to be more confident on inflation to start talking rates cuts.  The Fed are having to balance the risks of moving too quickly with those of moving too slowly, a difficult task for sure.  The Fed still run a dual mandate, to keep inflation stable and employment high.  The employment data this week, particularly the nonfarms, will be as important as always as the Fed looks for reasons to start moving rates.  JOLTS yesterday beat expectations, Challenger and ADP out today.  Despite the lack of US rate cuts, the S&P 500 closed above 5,500 for the first time yesterday, while the Nasdaq 100 hit 20,000.  Impressive stuff.

Lagarde spoke with Powell yesterday, the ECB has a slightly easier inflation battle although they do look closely at the components making up the headline numbers and Lagarde pointed out the rather sticky service inflation that is still above 4%.  Lagarde also mentioned the action taken by other central banks when deciding on rate moves, I do wonder whether the lack of rate cut by Fed and, so far, BoE will deter ECB from making too many cuts.  Perhaps we’ll see just one more ECB rate cut this year.  She did also mention the political risks facing Europe although avoided discussion on the French political situation, which will come to a head this weekend as Le Pen strives to win a majority.

I’m not sure US relations with China will improve any time soon.  There is evidence apparently that China is developing attack drones that could be used by Russia in Ukraine, which would dent China’s image of being neutral in the invasion.  Meanwhile China have confiscated a Taiwanese fishing vessel as the issues there continue, although I have read that China and Philippines have held taks to defuse their ongoing tensions in the South China Sea.

In terms of currencies, GBPUSD is now 1.2690, EURUSD 1.0755 leaving GBPEUR right on the 1.1800 level.  USDJPY has ticked higher again, now 161.85 which take GBPJPY up to 205.40, surely Japan will step in at some point.  In fact, we have to look at the US holidays coming up and think with limited liquidity, a bout of intervention tonight and tomorrow could have a more exaggerated impact.  40 yen pips buys the Monday expiry 161 USJPY put, just in case.

Elsewhere, numbers released this morning show Turkish inflation has dropped to a mere 71.6%, down from 75.45% last time.  USDTRY dropped from the 32.60’s to 32.50, now 32.56, similarly EURTRY dropped from 35.05 to 34.96, but has ticked back up to 35.03 as I type.

So, UK elections tomorrow, I see the Tories wheeled out Boris Johnson to add some support, like him or loathe him, he certainly commands and audience is a way neither Sunak nor Starmer can do.  Farage is similar as well, not everyone likes what he has to say, I understand that, but he does sound confident in his beliefs and doesn’t mind voicing his opinion.  Still, too little too late for the Tories who have really done everything they can over the past couple of years to lose this election.  Labour look set to win a handsome majority.   

In football, Turkey surprised with a win over the very organised Austrians, while Netherlands looked comfortable beating Romania by three goals.  We have a couple of days off before the quarter finals, starting with Spain v Germany on Friday, that could well be a tremendous match.  England remain favourites but more because they are on the easier side of the draw.  I’d imagine the winner of Spain/Germany will become favourites on Friday.  Netherlands at 7-1 look like value although they were not so convincing in the group stages.

Have a great day

-  09.00 EU composite PMI

-  10.00 EU PPI

-  10.00 ECBs Cipollone speaks

-  11.30 ECBs Lane speaks

-  11.30 Des Williams speaks

-  12.30 US challenger job cuts

-  13.15 US ADP employment

-  13.30 US initial jobless claims

-  14.45 US S&P composite PMI

-  15.00 US services ISM, factory orders

-  15.00 Feds Bostic speaks

-  15.15 ECBs Lagarde speaks

-  19.00 FOMC minutes

-  02.30 AUS trade balance