ECB cut rates 25bps as expected, eyes now on US employment data

Good morning

Well I’ve been out and about for the past couple of days, what did I miss?  BoC and ECB both cut rates 25bps, you’d be right to think this could have led to a bit of volatility but the reality is that things have been pretty stable,  Certainly in the case of ECB, the cut was widely expected and priced in, indeed according to some sources some ECB officials thought it was a mistake how early ECB had seemed to commit to a rate cut, making it nigh on impossible to keep rates on hold even if they had wanted to.  As it turned out, all but one member, Holzmann, voted for a cut this time, but we would not be surprised if ECB rein in their forward guidance for future meetings.  A July rate cut looks unlikely at this stage.

Despite the cut, the tone of the accompanying statement was mildly hawkish, talking of the ongoing need for restrictive rates.  Inflation forecasts for 2025 were raised from 2% to 2.2%, 2026 was kept unchanged at 1.9%.  EURUSD has seen a 40 pip range since Tuesday, from 1.0860 to 1.0900, we are now at the upper end of that range.  GBPEUR continues to fail to break that upper level around 1.1770, now 1.1745.  As a reminder we’ve not been above there, other than very brief spikes, since August 2022.  If you are the type to worry about a few pips over a couple of years, lets call the big level 1.1800 and then there is no debate.

CAD weakened initially on the BoC rate cut of 25bps that took rates to 4.75%, however the move was limited and we have failed to see any major follow through.  USDCAD was 1.3675 at the time of the announcement, it pushed up to 1.3740 but has since made its way back lower and is now almost exactly where we were pre-rate announcement.  GBPCAD now 1.7500 having seen a post-announcement high of 1.7530.  No fireworks here.

GBPUSD is currently 1.2790 having also been in a fairly tight range over the past few days, 1.2760 the lower end and 1.2810 the upper.  GBPJPY is back below 199, now 198.80.

Overnight we had the latest China trade data which shows a hefty $82.6bn surplus, roughly $10bn higher than had been expected, led by a healthy rise in exports. 

Main event today is the US nonfarm payroll numbers.  A headline in the region of +175k is expected, similar to last month.  I have seen some looking for a lower headline which would indicate further slowing of the US nobs market, if we do see a lower number I would expect Fed rate cut expectations to start ramping up.  The unemployment rate is expected to stay at 3.9%, while average earnings are also expected to come in the same as last month, also at 3.9%.  Key risk today must surely be for a weaker USD on any weaker than expected data.

In other news, there seems to be something of an E-Coli outbreak which experts have said is likely to be from a nationally distributed food item.  However we’ve not been told what that food item may be, so it is difficult to avoid it.  Is it just coincidence that we have rising E-Coli cases with increased discharges on untreated waste by water companies?  Surely not.

The D-Day celebrations yesterday were, as one would expect, rather moving.  I use the word ‘celebration’ carefully, as the end result was worth celebrating but with it came a huge cost.  The photos of young men lining up in landing craft is fairly horrifying, especially as a father of two boys who are around the same age as those lads.  Their unflinching bravery, in the face of so much death and injury, is incredible.  Sunak covered himself in glory by leaving the event early in order to make a TV interview.  He has since apologised, but seriously, its just another mistake and I am left wondering who advises these people?

There is another TV debate this evening, this time on the BBC with seven parties including Reform, which has seen an uptick in the polls of some 5% since Nigel Farage announced he is going to stand at the next election.  I do still wonder whether Reform will take votes off Tories, but at the expense of Labour.  Tory voters do want change but voting for Labour would be a step too far. 

England are playing their final friendly ahead of the Euro 2024 tournament this evening, taking on Iceland.  The tournament itself starts one week from today with Germany taking on Scotland in the first match.  I’m actually on holiday for a lot of the Euros and counted some 28 matches taking place while I’m away.  Don’t worry, I won’t be watching them all, but I’m sure there will be a bar or two showing the matches just in case I need a break from the 30+ temperatures that are forecast. 

No such temperatures here unfortunately, it doesn’t look like it will get the right side of 20°c any time soon, although we might be in for a dry weekend.  I leave on 17th June, my guess is the weather here will turn fantastic on 18th June.  I won’t be complaining mind you, just mildly worried how long the grass will be by the time I get back. 

Have a great weekend as and when it comes

-  10.00 EU GDP, unemployment

-  13.30 US nonfarm payrolls

-  13.30 CAD employment

-  15.15 ECBs Lagarde speaks

USD lower again on weak US data

Good morning

A weaker ISM manufacturing PMI out of the US yesterday sent USD running for cover, with GBPUSD trading up to 1.2815 overnight and EURUSD to 1.0915.  These were the highest levels we’ve seen in both since March and although we are now a little off those overnight highs we are still within a few pips of the March levels. 

USDJPY was also impacted by the dollar sell-off, the pair trading down to 156.00 yesterday and this morning has taken another leg lower to 155.70.  GBPJPY is back below 200, now 199.25.  BoJs Ueda was speaking overnight, he mentioned there could be an upward adjustment to rates if inflation moves as expected.  Japan FinMin Suzuki was also on the wires, saying the recent intervention had come as a result of speculative accounts weakening the Yen, and made it clear they will continue to act as necessary.

In UK politics, Nigel Farage has confirmed he will be standing for the Reform party in the general election.  Some think this will split the Tory vote, while it does offer an alternative vote for disillusioned Tory voters I do wonder whether it prevents some votes going to Labour.  Could the Tories and Reform create a coalition?  Realistically I don’t think they’ll get anywhere near enough but I won’t be surprised if Farage and his merry men do better than expected.  The first televised debate takes place this evening with Sunak and Starmer taking the stage.

England ground out an unspectacular win over Bosnia Herzegovina yesterday evening, not quite the show we rfeally wanted to see but that is just the sort of performance that will get us through the group stages in the upcoming Euros.  England play again on Friday evening, this time against Iceland. England remain favourites to lift the trophy at around 3-1 with France close behind at 4-1.  Croatia, the world cup semi-finalists just two years ago, look a reasonable outside bet at 50-1 although they are in a group with both Spain and Italy which makes their life somewhat difficult. 

I’m out to some meetings through Wednesday and Thursday so there will be no reports over the next couple of days, I’ve added in calendars below.  Not great timing I know given I’ll be missing the BoC and ECB rate announcements, along with US ISM services PMI and some second tier US jobs data, coming ahead of the US nonfarm payrolls Friday.  We’ve already seen what a bit of weak US data can do to the USD so we’ll be watching the numbers closely, anything softer could weaken USD further, while a stronger reading could see some these USD losses pared back.

In terms of ECB and BoC, ECB seem set to cut rates 25bps.  I do think the same applies to BoC although there is more uncertainty here with some banks thinking they will leave rate unchanged this time round. 

Have a great few days.  I should be available by phone, otherwise email if you do need anything while I’m out and about.

Tuesday

-  08.55 German unemployment

-  15.00 US JOLTS job openings

Wednesday

-  02.30 AUS GDP

-  02.45 China caixin services PMI

-  09.00 EU composite PMI

-  10.00 EU PPI

-  13.15 US ADP

-  14.45 BoC rate announcement

-  15.00 US services ISM

Thursday

-  02.30 AUS trade balance, building permits

-  10.00 EU retail sales

-  12.30 US challenger jobs

-  13.15 ECB rate announcement

-  13.30 US initial jobless claims

-  13.45 ECB press conference

-  15.00 CAD Ivey PMI

Friday

-  04.00 China trade balance

ECB, BoC rate meetings, and US nonfarms this week

Good morning

Welcome to June, the last month of Q2 and indeed of H1 2024. 

Fridays US PCE deflator came in pretty much in line with expectations. USD weakened briefly on the headline, perhaps from the relief it hadn’t come out higher.  I’m surprised the much weaker than expected Chicago PMI number later in the afternoon didn’t send USD lower still, instead by the close GBPUSD was around 1.2735, with EURUSD 1.0845.  Both are pretty much at those levels now, which brings GBPEUR to 1.1730, off last weeks highs in the 1.1770 area, a level that is becoming more and more crucial each time we fail to break above it.

Feds Kashkari has said rates should stay on hold for an extended period of time, no major surprise with those comments.  We are entering the blackout period for Fed officials ahead of the Fed meeting next week. 

USDJPY is off last weeks highs although at 157.24 it is still at the higher end of the recent ranges and not too far off the 157.70 area that capped last week.  GBPJPY is holding just above 200.00.  Eyes obviously still on Japan for any signs of intervention.  Data released last week does confirm Japan intervened, likely on 29th April and 2nd May, selling some US$63bn.  They could well do so again, certainly any push higher in USDJPY is likely to increase the chances of intervention, we may need to see a US rate cut and a Japan rate rise to really stop the weak Yen theme. Until that happens, Japan will continue to warn that they are watching levels closely. 

ZAR weakened as ANC lost its majority in the South African elections. GBPZAR is now just around 24.00, the highest level since late March.

France has been downgraded by S&P from AA to AA-, a rather embarrassing moment for Macron.  S&P cited failed plans to get the budget deficit in order, France insists it is still getting on with the job and will meet the EU3% target.

Pressure is growing on Israel to accept a ceasefire proposal if Hamas agrees to it.  Israel have said they will accept nothing if it includes Hamas retaining power in Gaza but the international community is looking for Israel to accept the proposal.

US manufacturing ISM this afternoon, the key piece of data in what could be a quiet day as we await the bigger news later in the week in the form of ECB rate meeting and US nonfarm payrolls.

Of course, the new you’re all desperate to hear about is how the golf weekend went.  Well, I didn’t win, but I did survive it.  We are getting older, there is less desire among some of our members to stay up partying and more desire to have early nights.  Doesn’t make it much easier for me.  I played OK, but managed once again play well on one nine, and not well on the other nine.  No rhyme nor reason to that, just a reminder that I’m not as good as I think I am.  The fitness side was less of an issue as we had buggies on a couple of rounds.  I prefer walking but it’s a fairly hilly course and I’d have been in a far worse way had I had to trudge round for a few hours each day.  Weather-wise we couldn’t ask for more, it stayed dry and yesterday was an absolute scorcher.  All in all, a great weekend.

Have a great day

-  14.30 CAD S&P global manufacturing PMI

-  15.00 US manufacturing ISM

-  00.01 UK BRC retail sales