Improved risk sentiment was short-lived, bring on the volatility

Good morning

A temporary bout of improved risk sentiment saw European equities finish up around the 2-3% area yesterday and for a while it looks as though US markets would do the same.  That was until Trump slapped a 104% tariff on China after Beijing had refused to remove its retaliatory tariffs.  US equities turned negative and overnight Asian markets followed suit.  US/China trade tensions don’t look like easing any time soon as Trump accuses China of weakening CNY to offset the impact of tariffs. 

GBPUSD ended the day slightly off its highs at 1.2760, but off its lows vs EUR at around 1.1690.  USDJPY had a 100 point push higher late afternoon from 146.65 to 147.65 but dropped off back below 147.00 into the London close.   Since then it’s all change once again, the latest escalation in tariffs sent USD lower pretty much across the board.  GBPUSD traded up to 1.2860 this morning, EURUSD got as high as 1.1090 and USDJPY broke lower to 144.60.  USDCHF also  traded down to 0.8385.  Classic safe haven buying of JPY and CHF.

Plenty of speculation over the course of action the Fed may take from here.  There have recently been calls for more Fed cuts in 2025 than previously thought but others now think that with the likely rise in inflation Fed may have to stay on hold until or unless the US labour market starts showing real signs of weakness.  Trump wants Fed to cut but he may be disappointed.  He may also be disappointed to see US 10 year yields up at 4.5% from a low earlier this week of around 3.9%.

So Trump’s tariffs are playing havoc with the markets and global trade in general.  The US continue to insist that they are simply righting the wrongs that have been in place for so long.  The White House has said some seventy countries have already got in touch with them to negotiate on trade, but the key country really is China and they don’t look like coming to the table any time soon.  Still even those who do negotiate may find it difficult to make an agreement.  I believe Vietnam’s offer to reduce tariffs to zero was rejected.  Lowered tariffs are one thing, but Trump is looking for deficits to be cleared as well.  His suggestion that EU buys $350bn of US energy is more about clearing the existing deficit before any tariff talk can take place.

Overnight RBNZ did cuts rates 25bps to 3.5% as had been expected, NZD did see a brief push higher suggesting the markets were possibly considering a larger cut, GBPNZD traded from an overnight high of 2.3285 down to 2.3085, bounced again to 2.3260 before dropping to the 2.3100 area.  GBPAUD saw similar moves, popping up to 2.1600 briefly, dropped below 2.1400, back up to mid-2.15’s, now 2.1380.  Volatile, that’s for sure.

RBI also cut rates 25bps as expected in the early hours of this morning, bringing their rates to 6%.  INR is generally weaker, USDINR now 86.55 and GBPINR around 111.00. 

Moving on from the market turmoil, I was pleased by the reactions to both previous reports this week, the first from a few people who said they’ love to join me for a beer in the sun but probably wouldn’t have made it in time, and then yesterday a small but important number of people who are not yet clients gave a glimmer of hope of a meeting in the not too distant future.  To be honest, it is quite good to receive anything back from anyone about anything I’ve written, even if its in disagreement with something I’ve said.

I watched the Arsenal v Real Madrid match yesterday and I have to say Arsenal scored two of the finest free kicks I have seen for a long time, Declan Rice scored both, in the process paying back a decent chunk of the £100m Arsenal paid for him.  Their third goal was pretty good as well, giving them a 3-0 lead to take into the second leg.  Not bad for a team currently without a striker.  Kane’s Bayern Munich lost 2-1 to Inter Milan.  More Champions League action this evening as Villa take on PSG, while the fourth quarter final sees Barcelona take on Borussia Dortmund. 

Mark will berate me if I don’t mention Leeds and their 1-0 win over Middlesbrough last night which was enough to get Leeds back to the top of the Championship as their nearest rivals Burnley and Sheffield Utd could only draw and lose respectively.

A sparse economic calendar today but of course tariff talk will dominate the headlines.  European equities are already lower this morning, setting the tone for the day I fear.

Have a great day…

-  13.30 ECBs Cipollone speaks

-  19.00 FOMC minutes

-  02.30 China CPI, PPI

Volatility continues amid talk of US trade deals, retaliation and fighting until the end

Good morning

Another day, another equity market rout.  At one stage yesterday a headline suggested that Trump was considering a 90 day suspension of tariffs which got the markets turning into positive territory, only for such talk to be dismissed by the White House and we were back to where we started, basically much lower than the Friday close.  By the NY close US equities were off their lows and the Nasdaq was actually in positive territory, albeit by just 0.1%.  Asian equities had a great day, Nikkei was up over 6% and European markets are opening higher.

GBP was hit particularly hard yesterday, GBPUSD traded to a low of 1.2710, around 500 pips of the Thursday high. GBP lost ground against EUR as well, the pair trading to mid-1.16s for the first time since Aug 2024 and perhaps more relevant over 350 pips off last weeks highs.  A dramatic turn, EUR strength coming despite US and EU clearly not being on the same page.  EU have talked of zero tariffs on certain goods and vehicles if US reciprocate, but EU are also planning retaliatory tariffs which is to be voted on this week.  Meanwhile I see a US Admiral has been fired from NATO, that won’t please Trump.

Markets were spooked again in the afternoon as Trump threatened China with 50% tariffs unless they dropped the retaliatory tariff of their own.  Trouble is, I can’t see them bowing down to Trump’s demands.   Chinese stocks were up overnight despite China accusing US of blackmail, bullying and confirming they will fight to the end. 

With the comeback in stocks, currency prices have normalised to some extent.  GBPUSD is currently 1.2775, EURUSD 1.0960, so GBPEUR still mid 1.16’s.  AUD and NZD fare better with the improved risk sentiment, trading at 2.1050 and 2.2750 against GBP, while USDJPY is up at 147.00 from yesterdays morning lows around 144.85.  I’m not sure if the news that US will possibly meet Iran for direct talks is helping the risk environment but that has to be a good thing. 

I must be honest that I didn’t see this coming although in hindsight I have to wonder how we missed it.  That’s not the point.  The point is that when we speak to clients, or specifically new or potential clients, we make it clear we rarely make calls as to which way the market is going, instead we create positions structures and programs that offer good currency purchase/sale levels, while having protection against excessive market movements.

The latter factor is important for many reasons.  It limits the mark to market losses on positions, which in turn eases strains on balance sheets.  It also offers the potential for purchase/sale levels to improve should we see significant market movement.  Do we claim we will beat the markets?  No.  Do we offer ideas that are designed to outperform spot?  No.  But do we offer programs that give clients the peace of mind in knowing their currency requirements are fulfilled without the headaches that come with undue risks?  Yes, absolutely. 

In summary, at some point you may need to trust someone who talks about FX.  We know the FX market doesn’t exactly engender trust, we know that by people still putting down the phone at the first sound of the words ‘currency’ or ‘foreign exchange’.  But most of you rely on pension advisers, auditors, lawyers, accountants, health and safety officials.  We can only ask you to think of adding RAM to that list of trusted specialists.  Mark and I, having worked together in FX for the past 35 years or so and now co-owners of our own business, will look at your requirements with an independent and expert head and offer help, advice or just general thoughts as appropriate.

Anyway, that’s enough of that for now, but I hope I managed to get the point across.  But what else has been going on?  Well Premier League action last night saw Newcastle move into fifth place by beating Leicester.  This evening sees Arsenal host the mighty Real Madrid in the first leg of the Champions League quarter finals, while Harry Kane’s Bayern Munich take on Inter Milan.  Should be a couple of cracking matches I hope.

I’m watching the Birmingham bin issues for a while now, at first I presumed it would all die down quickly but it has now been five weeks since the refuse workers went on strike amid pay rise disputes.  I don’t know the ins and outs, it does seem Birmingham Council are looking to cut pay for some workers, from what I hear perhaps higher paid workers whose roles are not entirely necessary.  That may be unfair, that’s just my take on it.

Anyway, with some 20,000 tonnes of rubbish lying in the streets, something needs to be done.  We do all moan at councils, mostly for good reason, but a few weeks of no rubbish collection clearly shows how vital some of the services they offer really are.   Rats the size of kittens are reportedly running around, they are known to multiply very quickly so they’re going to have a very big problem soon if rubbish remains in the streets.  Surely someone with a big tipper lorry and a grabber could offer their services to clear the streets.  Nothing like getting workers back to work than seeing someone else do your job.  

RBNZ are likely to cut rates by 25bps to 3.5% overnight, RBI are also expected to but by a similar amount to bring their rates to 6%.  Both should be pretty well priced in.

Crikey, a lot of words today, still with a limited calendar you’ll have plenty of time to read it all.  Still, well done if you got this far. Don’t be taken in by the brief improvement in risk sentiment.  We all want to see calm restored but I think it’s too early to be too hopeful that we’ve seen the end of the mayhem.

Have a great day…

-  10.00 ECBs de Guindos speaks

-  15.00 CAD Ivey PMI

-  15.00 ECBs Cipollone speaks

-  17.00 BoEs Lombardelli speaks

-  19.00 Feds Daly speaks

-  03.00 RBNZ rate announcement

-  05.30 RBI rate announcement

Trump continues to sound defiant despite sending global equity prices crashing

Good morning

A stronger nonfarm payroll number Friday was partially offset by a revision lower of the previous reading, plus a higher unemployment rate of 4.2% didn’t make for great reading.  Still, it was nothing compared to the tariff driven declines in the equity markets, most US indices lost well over 5% on Friday and futures prices are pointing to further losses today.  Asian markets fell sharply on the open, with Nikkei for example down almost 8%, Hang Seng was down over 12%.  We’re expecting similar fallout from Europe.

In terms of currencies, GBPUSD is currently around 1.2920 having hit a low overnight of 1.2825, while EURUSD saw a fall to 1.0880 on the open but has since recovered to 1.1030.  GBP continues to lose ground against EUR, the pair now just a touch above 1.1700.  AUD, NZD and ZAR continue to lose ground, now approximately 2.15, 2.32 and 25.00 against GBP, while the safe havens such as JPY and CHF make gains, GBPJPY now 187.75 and GBPCHF 1.0940, the latter down from the 1.1450 area just last week.  I’d actually questioned the idea of JPY as a safe haven a while back, but it certainly looks as though it has retaken that mantle.

Trump remains defiant on his tariffs, indeed he actually seems to be doubling down by saying that he won’t negotiate unless such talks eliminate the trade deficit with that country completely, and also possibly even with repayments for previous years of deficits.  He continues to sound particularly angry over the EU although the Euro is defiantly showing signs of strength. 

I’m not convinced Trump envisaged the turmoil we are currently seeing.  It must surely hurt him to see his decisions lead to collapsing markets.  Not really a show of confidence.  This is a massive gamble on Trump’s part that could well lead to the end of trade as we know it, and also the end of the great relationships US has with Europe, Canada and other parts of the world.  There is a massive chance that the rest of the world just says to the US ‘you’re on your own’.

There is some talk that the whole market selloff was cleverly engineered by the US administration in order to make their borrowing cheaper.  Trump has said this is not the case, but I see some major banks are starting to look at more Fed rate cuts through 2025, UBS for example now see cuts of 1% this year, compared to 0.5% previously followed by another 1% of cuts in 2026.  This comes as US growth forecasts are severely downgraded and inflation forecasts are raised. 

The key question now is whether the markets stop falling and perhaps start to make gains again, or whether we are in a continuing spiral of downward moves.  OK, at some point they’ll stop but there is so much uncertainty it would be a brave man who calls the bottom of this move. 

Mind you, the markets are not the only area that are producing surprises at the moment.  Let’s look at the Premier League, where none of the top five teams registered a win over the weekend, indeed the managed just three points between them.  Spurs did get three points at the expense of Southampton who are now relegated with just ten points accrued so far this season.  Newcastle play this evening against Leicester who, if I am not mistaken, have won just one of their premier league matches this year, of course against Spurs back in January. 

No surprise that with the fine weather this weekend a great deal of my time was spent mowing the lawn and generally sorting things out in the garden.  The aches I am feeling today are a sign of just how unfit I am and how I really need to get out and be healthier.  Still, if anyone is available for a beer in the sun do let me know…..

Not the biggest week in terms of economic data this week, US CPI probably the highlight but still likely to be overshadowed by the fears over global trade.  We’ll have rate announcements from RBNZ and RBI this week, both expected to cut by 25bps but with the trade tensions we are seeing I wouldn’t be surprised if there was some speculation of larger cuts. 

Have a great week…

-  10.00 EU retail sales

-  10.45 ECBs Cipollone speaks

-  15.30 BoCs business outlook

-  23.00 NZ NZIER business confidence

-  00.01 UK BRC retail sales