US PCE today, then attention turns to central bank meetings in June

Good morning

Not the most exciting day ever yesterday, the markets pretty much ignored the very much in-line US GDP numbers and instead chose to focus on the US PCE release later today.  The US dollar lost its gains from the day before, GBPUSD trading up to 1.2745, EURUSD to 1.0845.  Since then both pairs a little lower at 1.2715 and 1.0825.

GBP has lost a little against other currencies, GBPEUR is down a few pips to 1.1745, GBPAUD is 1.9155, GBPNZD slipped back to 2.0750, but we’re within the same ranges as we’ve been in for the rest of the week.  GBPZAR is bucking the trend, trading up to near 24.00 as ANC performs poorly in the elections and looks set to lose its majority.  Overnight USDJPY moved lower on higher than expected Tokyo CPI numbers, moving from 157.00 to 156.60, but has since managed to regain all of those losses.

Today could be more interesting, with the US Core PCE deflator out this afternoon, one we know the Fed watches closely.  EU inflation in the morning and Canadian GDP may cause something of a stir but the PCE is the key today, that’s for sure.

Next week we are in June, which certainly has the potential to be lively.  We will have EU retail sales and GDP.  We’ll also have US employment numbers in the form of ADP, JOLTS and Challenger coming out through the week, culminating in the nonfarm payrolls on Friday.  The latter is usually the main event for the week, however I have feeling it could be eclipsed by both the BoC and ECB rate announcements on Wednesday and Thursday respectively.  Both are poised to cut rates 25bps which would leave CAD rates at 4.75% and ECB rates at 4.25%.

In terms of market impact, an ECB cut is surely priced in more than BoC, as such I’d expect less initial market impact for EUR.  CAD has greater potential to weaken on a rate cut but the reality is it that it will be the press conferences from both that will likely dictate the fortunes of both currencies.  For the record, EURUSD is 1.0845, GBPEUR 1.1745.  USDCAD is 1.3670, GBPCAD 1.7375.  EURCAD is 1.4795, I guess based on what I’ve said above I’d have to expect that to push a bit higher if they both cut rates.  Recent high was 1.4880 just last week, before that we have to go back to Nov 2023 when it had reached a high around 1.5045.

30 cad pips would buy the Monday expiry 1.4775 /1.4825 strangle.  There must be a chance for the pair to break out of the recent range given the potential volatility over the rate announcements.

In other news, Trump has been found guilty on all counts, the first ex-President to be convicted of a crime. I guess ordinarily he would be facing a jail sentence, however i presume this will be delayed, postponed or even cancelled were he to become President again.  Sentencing is set for 11th July. 

The Russian invasion of Ukraine is at risk of escalating, with US allowing Ukraine to carry out strikes with US weapons inside Russia.  Russia has previously warned of severe consequences should Western weapons be used on Russian territory but with the situation looking pretty dire for Ukraine, it seems to be a case of needs must.  Meanwhile in the Israel/Gaza conflict, Hamas has suggested it is ready to come to an agreement to return hostages in exchange for prisoners, but only if Israel stop their attacks.  I think we know that Israel will need more than that before they stop their military activity.

With little else to offer I’m going to bid you a good weekend.  I’ll be packing the car up and heading off to play 3 ½ rounds of golf over the next three days which sounded fantastic when I signed up for it but now seems rather foolish.  Still, I’ve known the guys I’m playing with some 35+ years, we used to play football together and its great when we all get together.  When we started this golf weekend lark, I’d look at the groups of older guys who would be at the same venues, thinking how lucky they are to still be playing with their mates.  We’re at that stage where we are probably those old guys in the bar!  Still, plenty of beer, golf and talking about our footballing exploits never did anyone any harm. 

We’ll be in June by the time we get back to our desks on Monday, just where has the time gone?  June is a big month for central bank meetings, I’ve mentioned ECB and BoC above, we’ll also have Fed on 11th June and BoE on 20th June, so should be plenty to keep us on our toes.  I’m not sure I’ll be able to be on my toes after this weekend but I’m hoping I’ll be able to move enough Monday to write an update.

Have a great weekend

-  10.00 EU HICP

-  13.30 US Core PCE, personal income/spending

-  13.30 CAD GDP

-  14.45 US Chicago PMI

-  23.15 Feds Bostic speaks

Yen higher but doesn't look like intervention, ZAR lower after election

Good morning

The US dollar has been pushing higher very slowly over the past couple days ahead of some of the key data due out of the US, in the form of GDP today and PCE deflator tomorrow.  GBPUSD is currently 1.2690, EURUSD 1.0795, both close to 100 pips off the highs seen earlier in the week.  GBPEUR is 1.1755, still unable to really break above 1.1770 despite a valiant effort yesterday morning.  The stronger USD comes despite Feds Bostic saying he is hopeful prices will normalise over the next year and hopes the Fed will be in a position to cut rates in Q4 2024.

The most interesting move has been in USDJPY, which has bucked the stronger dollar trend and traded 100 pips lower from the overnight highs of 157.70 to sit now 156.70, taking GBPJPY back below 200 to reach 198.90, where we are now.  The move was reasonably stead rather than the straight line moves we have seen with the recent intervention. Friday should see the latest intervention data on Friday which covers the period from late April to 29 May which should show the scale of Yen buying.  It is mildly interesting that this latest move lower came outside that time period, so we will not know for some time whether this was the result of official yen buying, however the speed and scale of the move suggests it may well not be.

ZAR is a little weaker following the South African elections, although it can take up to seven days or so for the full results to be announced.  We do have the SARB rate announcement today, rates are widely expected to remain unchanged at 8.25%, the focus will more likely be on the election results.  At the moment it seems that ANC have underperformed expectations, GBPZAR currently 23.70, the highest level since late April.

NZD is a little weaker following the NZ budget, some talk of potential credit agency downgrades no doubt having some impact.  AUD is also a little lower despite news that China will remove bans on five Australian beef exporters.  GBPNZD and GBPAUD are now 2.0825 and 1.2930 respectively.

There is potential for a bit of volatility today although tomorrow’s US PCE deflator is the key talking point for now.  This is my last full day in the office for the week although you’ll be lucky enough to get a report from me tomorrow morning.  I’m still aching after my round Tuesday so goodness knows what I’ll be like after a full weekend of golf.  Ah well, it’ll be fun.  Looks like it might stay dry as well, which would be a pleasant bonus.

Have a great day

-  10.00 EU consumer confidence

-  13.30 US GDP, personal expenditure, initial jobless claims

-  13.00 SARB rate announcement

-  15.00 US pending home sales

-  17.05 Feds Williams speaks

-  19.30 Feds Logan speaks

-  00.00 RBNZs Orr speaks

-  00.30 Japan unemployment, Tokyo CPI

-  00.50 Japan retail trade

-  02.30 China NBS manufacturing, non-manufacturing PMI

-  07.00 German retail sales

GBPEUR testing that 1.1770 area

Good morning

US consumer confidence yesterday lifted to 102 from an expected 96, serving as a reminder that many areas of the US economy are still enjoying some good times despite rates being stuck at high levels  Several Fed officials were speaking, the most notable was Kashkari who said he still wants to see many more months of data before agreeing to a rate cut, and sees certainly no more than two possible rate cuts this year.  He mentioned some softening in the job markets but that wage growth remains robust.  He also mentioned that rate rises were not off the table just yet. 

All this helped to reign in the USD weakness that we’ve seen over the past few days.  Not turn it around, but at least slow it down.  GBPUSD had touched 1.2800 but slipped to 1.2750, now 1.2765, while EURUSD which had been 1.0890 fell back to the 1.0845 area, now 1.0855.  GBPEUR traded once again to 1.1770, failing to break higher as it has done every time it has tested that levels since Sept 2022.  It is definitely still worth watching that 1.1770 area. 

In the Eurozone, Macron and Scholz have agreed to work on deeper ties in EU’s capital markets, aimed at boosting investment in the EU itself.  I’m presuming this means EUR denominated bonds guaranteed by the bigger countries in the bloc, something that I know was frowned upon a few years ago.  No reaction in the currency markets.

USDJPY pushed a little higher, helped in part by the mildly stronger USD but more a continuation of a weak yen theme that has been in place since the ‘intervention’ in late April/early May.  USDJPY reached 157.40 overnight, it is off those highs now at 157.00, a sharp move from 157.20 to 156.90 around the London open showed how nervous the market still is.  GBPJPY hit a high overnight of 200.75 before dipping to 200.10 this morning, now 200.50.

 Aussie monthly inflation overnight was higher than expected at 3.6%, also higher than last month’s reading.  This initially pushed AUD higher, with GBPAUD trading from 1.9205 to 1.9135, but the realisation that this level is still within RBA’s forecasts soon softened the blow and GBPAUD regained some of those losses, now 1.9180.

South African elections take place today, voting stations close 19.00 London time and counting will begin soon after then.  Impact on ZAR will depend on ANC holding their majority, or at least getting enough votes to form a friendly coalition.  GBPZAR around 23.30 as I type.

German inflation is the highlight for today, coming ahead of the EU version on Friday.  German numbers are expected to show a slight rise from 2.4% to 2.7%, EU numbers are also expected to see a small uptick.  Otherwise there is little else on the calendar, it starts getting more interesting tomorrow with US GDP and then Friday sees that EU inflation and US core PCE.

I managed another round of gold yesterday, good practice ahead of my long-awaited golf weekend.  It served as a reminder that I am quite capable of hitting a decent ball and scoring quite well, I am equally capable of looking as though I’ve never picked up a club before.  I could blame the shoulder replacement, and/or the fact the other shoulder needs replacing, however it is clear I struggle more towards the end of the round which can only be put down to fitness, or lack of it to be more precise.  That doesn’t bode well for 3 ½ rounds in three days. 

I’ve got a family holiday in June and then go away again later in August, the latter of which will have a fair bit of walking around various European cities.  Between the two I’m going to have to do something to get a bit fitter.  Knowing my luck the weather will be fantastic and all I’ll want to do is have a bbq with a couple of beers.  I reckon I could find any excuse to put off my health kick. 

Mind you, I’d been worried about the round yesterday as rain had been forecast all day.  As it was, we stayed dry the entire round.  Just don’t know whether to believe these forecasts!

Have a great day

-  13.00 German HICP, CPI

-  18.45 Feds Williams speaks

-  19.00 Feds Beige Book

-  23.45 NZ building permits

-  00.00 Feds Bostic speaks

-  03.00 NZ budget