Big day ahead with US inflation and then Fed rate announcement

Good morning

I was right when I said yesterday could well be quiet.  We did see a little USD strength through the afternoon which dragged GBPUSD down from 1.2745 to 1.2710 and EURUSD from 1.0770 to 1.0725, and as EUR suffered a little more than GBP, GBPEUR managed to push up to 1.1875 briefly, before settling back at 1.1855.  Since then both GBP and EUR have made very small gains over the USD, GBP slightly more so, now at 1.2740 while EURUSD is 1.0740, putting GBPEUR a few pips higher at 1.1865.

This morning we saw the latest UK GDP estimate which came in as expected at 0% against 0.4% last time, putting Q2 on track to show lower growth than Q1, as I’d mentioned yesterday.  We did also see UK industrial and manufacturing production this morning but despite coming in much worse than expected has had little impact on GBP. 

German inflation also came out early this morning, absolutely in line with expectations and as such largely ignored.  Elsewhere in the Eurozone, ECBs Lane has mentioned that despite seeing an overall decrease in the rate of inflation, wage growth remains elevated.  He seems to follow recent ECB officials in taking a mildly hawkish tone, or at least steering away from the idea of a linear rate cut path.  Meanwhile EU are set to impose additional tariffs on electric vehicles imported from China, despite warnings from Germany of potentially damaging retaliations by China.

Now, the remainder of the day could get interesting.  US inflation this afternoon, followed by the FOMC rate announcement this evening.  For CPI, the feeling is the headline will be similar to last months 3.4% reading, while it is hoped core dips to 3.5% from 3.6%.  By the time the Fed make their announcement they will have seen the inflation data.  No one is really expecting a rate cut this time, the key will be Powell’s speech and any forward guidance he may offer. 

We’ll also have the latest rate forecasts in the form of the ‘dot plot’ which is likely to show a move away from the lower end of expectations seen at the previous set of forecasts.  In March the dot plot suggested some 75bps of cuts through 2024, this is likely to show just 50bps of cuts but could potentially move as low as 25bps of cuts in 2024, given the slow progress inflation has made towards the 2% target. 

I have seen a couple of warnings about the exposure to commercial real estate for some regional US banks, this is not new, it rears its head once in a while, but I’m thinking the less rate cuts forecast, the more risk of CRE exposures becoming a bigger issue. 

Regardless, a weaker than expected inflation number will send USD lower, a higher reading will push it higher.  Fed suggesting two 25bps rate cuts in 2024 could see a lower USD, while a signal of just one 25bps cut is likely to send USD higher. 

In other news, I see Hunter Biden has been found guilty on all charges in his drugs/gun trial.  He could face up to 25 years in prison, but that’s unlikely to happen.  He has broken the law but it doesn’t seem severe enough to spend a quarter of a century locked away.  He’ll end up on probation I’m sure.  I guess if need be his Dad can simply pardon him, even though he has said he wouldn’t do that.

Hamas has made some tweaks to the latest US-backed Gaza/Israel peace proposal.  I’m not sure what the amendments are, but Israel have made it clear they regard this as a rejection of the hostage release proposal and as such I would think the likelihood of peace inches further away once again.

I’m on holiday soon.  Wwhile I’m looking forward to going away, I can’t say I’m looking forward to the flight.  I’m not a worried traveller but after the recent turbulence issue on the Singapore airlines flight, I saw that an Austrian Airlines flight was damaged by hail, bad enough to rip the front nose cone off and break the cockpit windows.  That can’t have been a pleasant experience for passengers!  Still, when I get there I am pretty certain to feel some warmth at last.  OK, we’ve had the odd day where its reached just over 20°c but those have been few and far between.  It was actually cold yesterday, I ended up putting the heating on for an hour. That’s not right in June!

I am actually out and about over the next couple of days.  I seem to have a habit of sitting at my desk for the quiet days and being away for major pieces of data, mind you so far we’ve not really had anything that has produced really aggressive moves, lets hope it stays that way.  I’ll be back some time Thursday afternoon, so in time for Friday’s report, but then I’m away on holiday for a couple of weeks. 

I’ll be leaving you in Marks exceptionally capable hands while I’m away, all I’d ask is that anyone with outstanding paperwork to complete, and there are a few, do try to get it back to us in the next couple of days so we I can deal with it before I go.  You know who you are!

Have a great day and I’ll be back in touch Friday, just in time for the start of Euro 2024.

-  10.30 ECBs Schnabel speaks

-  13.30 US CPI

-  14.00 ECBs de Guindos speaks

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  20.30 BoCs Macklem speaks

-  20.30 ECBs Nagel speaks

Thursday

-  02.30 AUS employment

-  10.00 EU industrial production

-  13.30 US PPI, initial jobless claims

-  17.00 Feds Williams speaks

-  23.30 NZ business PMI

Friday

-  02.00 AUS consumer inflation expectation

-  04.00 BoJ rate announcement

-  09.30 UK consumer inflation expectation

-  10.00 ECBs Lane, de Guindos speak

-  14.30 ECBs Schnabel speaks

-  15.00 US Michigan sentiment survey

-  16.00 US Fed monetary policy report

-  18.30 ECBs Lagarde speaks

-  19.00 Feds Goolsbee speaks

Currency markets steady as EU digests election results, big data day tomorrow

Good morning

After all the excitement from Friday and over the weekend, yesterday was a picture of relative calm.  GBPUSD traded to 1.2690 through the morning before pushing back to the 1.2725 area by the London close.  EURUSD traded down to 1.0730 before creeping steadily up to 1.0745, leaving GBPEUR at 1.1840.  Since then EUR has made a very slight recovery, with EURUSD at 1.0765 and GBPEUR 1.1815, Lagarde’s comments that ECB are still in a tight monetary policy and can now keep rates on hold for some time offering a touch of support. 

It is fair to say the markets are still taking stock of the EU political situation, in particular the decision by Macron to dissolve the French parliament and force an election and the resignation of the Belgian PM following a heavy defeat in Sunday’s elections. 

This morning’s UK unemployment numbers were disappointing, the unemployment rate was the highest for two years.  GBP did tick lower, GBPUSD shifting from 1.2740 to 1.2715 and GBPEUR from 1.1830 to 1.1815, not huge moves but the data was weak enough to have some market participants see more potential for UK rate cut next week.  The difficult issue for BoE is that wage growth still seems to be stuck at high levels, BoE would really like to see this start to come lower.

Today’s calendar is as empty as the bottle of wine I opened last night to celebrate my youngest passing his theory driving test.   He’s not the most academic, nor is he particularly good with exams having something of a short term memory issue, however with a few hours of cramming on the day he went in and absolutely nailed it, with a pretty impressive 48 out of 50 for one part of the test.  He was over the moon as you can imagine.

Not much to get excited about in the news.  I see the Baltimore shipping channel has fully reopened following the cargo ship accident some eleven weeks ago.  The bridge repairs could take four years and cost some £1.5bn.  I’m no structural engineer but I fail to see why so much time is needed.  I know it’s a difficult undertaking but surely it can be done quicker.

Tomorrow is the big day with UK GDP, then US CPI and the FOMC rate announcement, until then I would not be surprised if markets had something of a holiday feel to them.  UK GDP is expected to show a drop from last months 0.4% to something around 0.1%, if so it would be Q2 on track to show lower growth than Q1. 

With little else to offer I’ll leave it there, just a short message this morning.  You can drink your coffee in peace!

-  12.05 ECBs Lane speaks

-  02.30 China CPI

-  07.00 UK GDP

-  07.00 German HICP

US nonfarms stronger, EU in election turmoil, GBPEUR breaks higher

Good morning

For the first time I can remember there are no major economic releases on the calendar today.  However this doesn’t mean there is no news, far from it.

Let’s start with Friday’s immense US nonfarm payroll number.  A headline in the region of +175k had been expected, it actually came out at +272k with the average earnings figure up to 4.1%, which sent the US dollar surging higher as rate cut hopes faded once again.  It wasn’t all good news, the previous months data had been revised lower, only by 10k mind you, the unemployment rate ticked higher to 4%.  The move was exaggerated as the risks seemed to have been lined up for a weaker headline, so when the data was released all those USD sellers were cutting their shorts. 

GBPUSD traded from 1.2810 to 1.2720, where it has pretty much stayed ever since.  USDJPY jumped from 155.50 to 157.00.  EURUSD lost its recent gains, trading from 1.0900 to 1.0800.  However, the EU elections which, if I am honest, I’d not paid enough attention to, have seen a surge in voters to the right which has sent EUR lower still.  EURUSD is now 1.0755, leaving GBPEUR up at 1.1825, up through that 1.1770 area that has capped the upside since August 2022, before the Truss/Kwarteng debacle.

EU politics is in turmoil.  Macron has called a snap election after his party suffered huge losses at the hands of Le Pen’s National Rally.  Gains from right wing parties have also been noted in Italy, Australia and Germany, the latter has seen Chancellor Scholz’s own party earn their worst ever result, dropping behind conservatives and the right wing AfD.  Its not all gains to the right mind you, Sweden, Finland and Denmark saw left and greens make gains.

In the UK, Labour must be looking at the European elections and thinking that perhaps their hopes of a huge win in the general elections may be at risk. 

While it’s a pretty non-existent economic calendar today, and other than UK unemployment tomorrow morning Tuesday has a limited calendar, there is plenty of event risk later in the week.  Wednesday is the key, with German HICP and UK GDP in the morning, the main events follow in the afternoon with US inflation and then the FOMC rate announcement, which will include updated forecasts and rate projections, the ‘dot plot’.  No changes expected in rates but it is thought the dot plot could point to fewer lower rate calls. 

We’ll skip over England’s performance in their loss to Iceland on Friday.  They really looked like an England team of old, no real ideas, limited shots on target, not at all what we’d been hoping for as tournament favourites.  The Euro’s begin on Friday with Germany v Scotland.   I’m not downplaying Englands chances, they do have a reasonable squad but need to gel a lot better as a team.  With France, Germany, Portugal, Spain and Italy, plus world cup semi-finalists Croatia, there is a lot of quality to get through to win the trophy.   

That’s about all from me for the moment.  No data today but I’ll be watching headlines out of Europe closely.  UK unemplpyment early tomorrow morning

Tuesday

-  0700 UK unemployment