GBP slips ahead of tomorrow's BoE rate announcment

Good morning

Well it was a pretty quiet day yesterday.  GBP lost a little ground against USD and EUR, GBPUSD moving to 1.2530 and GBPEUR to 1.1635 through the day.  Perhaps the notion that tomorrows BoE rate announcement could come across as more dovish is to blame.  Some suggestion BoE may lower its inflation forecasts and potentially see at least one of the more dovish members vote for a rate cut, while the hawkish members are likely to express a desire to keep rates unchanged this time around. 

Overnight, a bid in USDJPY took that pair from 154.50 to 155.25, the USD buying spilled over to other currencies, GBPUSD slipped back further to 1.2485, EURUSD was also dragged lower to around 1.0740.  Both are currently just a few pips from their lows as I type, GBPEUR too is now a few pips off its 1.1620 lows.   BoJs Ueda was speaking, once again making the point that while monetary policy is not used to control currency levels, if a weak Yen is deemed to be contributing to inflation, they would have to raise rates.

Gold prices have been rather steady, now $2,315, as it is reported that PBoC continued to purchase gold through April, albeit at a slower pace.  They bought some 60,000oz, approximately $140m worth, down on the 550,000oz they bought through Feb and March.  Perhaps the high prices slowed their appetite for buying the precious metal.

Oil prices are at eight week lows despite the ongoing conflict in the Middle East.  The ceasefire negotiations between Hamas and Israel are ongoing but still facing major difficulties.  I read one report that suggested Hamas had offered its own solution, and then communicated to the world that it had agreed to abide by that solution.  Well, that’s never going to work.  Israel want to ensure supply routes to Hamas, which it says are from tunnels in Rafah, are permanently closed and are likely to widen their attacks on the area.  settle for any Hamas demands they deem unreasonable.  Peace still seems a long way off.

Any sign of agreement between the rail unions and the government also seem to be unlikely.  Commuters are faced with more strikes this week, while drivers seek more pay.  I don’t know any train drivers so I can only go by what I read in the papers.  They tell me the average driver gets just short of £60,000 and the pay rise Aslef have turned down would have seen that rise to £65,000.  I don’t know what working conditions are like, probably quite lonely, but I don’t think they are on bad money.

Still, any striking rail workers looking to fly away for a couple of days holiday would have been disappointed after huge disruption and delays were seen at airports as passport E-gates failed.  They are now back up and running.  The Home Office have said there is no evidence of a cyber-attack although I must admit when I see large-scale technical issues such as these, that is exactly the first thing that springs to mind.

In sports, congratulations to Borussia Dortmund for beating PSG to reach the Champions League final.  Bayern Munich will be hoping to make it an all-German final as they take on Real Madrid this evening in the second semi-final.  The first leg ended 2-2 so both teams have everything to play for. 

This morning we’ve had the Swedish Riksbank rate announcement.  They lowered rates 25bps as expected to 3.75%, SEK has weakened a little but the cut was largely priced in already.  Otherwise it’s an empty economic calendar today, but we’ll hear from some Fed officials this afternoon.  Aussie retail sales numbers are due overnight, as is the latest China trade balance which is expected to come in around +US$77bn, up from last month’s number of ‘just’ $58.5bn. 

Enjoy the sunshine….

08.30 Riksbank rate announcement

16.00 Feds Jefferson speaks

16.45 Feds Collins speaks

18.30 Feds Cook speaks

02.30 AUS retail sales

04.00 China trade balance

Decent weather at last, just as bank holiday is over!

Good morning

Welcome back after the long weekend.  I hope you enjoyed the great weather over the weekend, although Monday here was typically awful. Still, this week looks like we could see temperatures holding above 20°c until the weekend.  I’m away on a golf weekend at the end of the month and sincerely hoping we get some decent weather for that.

So, to the markets.  Well I sent an update late on Friday after the US nonfarms, ahead of the long weekend so I won’t go into much detail here but just to say since then the US dollar did try to weaken again but it was only brief and as I type GBPUSD is 1.2545, EURUSD 1.0765, pretty much where they were when I reported on Friday afternoon.  It is amazing how quickly the market can change its thinking.  Just one weaker nonfarms report and suddenly any idea of rate rises is forgotten and talk of rate cuts returns.  Feds Barkin said the full impact of higher rates has not yet been felt, while Feds Williams has said the next rate move will be down. 

Meanwhile, ECB officials are still eyeing a June rate cut and some still see a total of three cuts this year.  There is some concern as to how Fed actions may impact ECB decisions with ECB officials seemingly having differing opinions on this.  Time will tell.

USDJPY has ticked a little higher having touched as low as 151.85 on Friday, it is now 154.50, Japan still haven’t officially announced they did intervene last week but it is pretty obvious they did so.  The market obviously wary of further action, I think Japan will be pleased to have stopped the Yen depreciation that looked like it was out of control for a while. GBPJPY currently 193.65.

RBA left rates unchanged at 4.35% overnight but failed to add any new hawkish elements, instead seeming to err on the more neutral side, saying they see rates currently at the right level.  They see near term inflationary risks but still think inflation will fall back to target and see some deterioration in the labour market and household consumption.  They are not ruling anything out for rate moves but for now seem happy as they are.  AUD lost a bit of ground on the announcement, GBPAUD regained 1.9000 having touched a low of 1.8920 overnight.

China President Xi met some EU leaders over the weekend.  He and Macron got together, with Xi urging the EU to avoid siding with US over trade tensions and Macron appealing for fair rules for everyone in trade.  Xi did got to Hungary and Serbia, both of whom are not fully happy with Europe, erring more towards Russia perhaps, and have sought investment from China. 

Over the weekend we heard that Hamas had accepted a Gaza truce which would potentially see a permanent end to hostilities.  Israel are not convinced, saying the deal is watered down and far from what they see as necessary, indeed some sceptics are saying the Hamas announcement is just a soundbite to make the Israelis look like the ones who don’t want a deal.  In the meantime, a partial evacuation from Rafah is taking place as the Israeli military begins fresh attacks on what they say are thousands of remaining Hamas fighters, while Hamas have claimed responsibility for a rocket attack that killed four Israeli soldiers.  Peace talks are expected to resume today, Israel are under pressure from the international community to stop fighting but Israel are determined to ensure Hamas cannot rebuild their military power.  Have to see how this plays out.

The Championship ended at the weekend, Mark’s Leeds lost to Southampton while Ipswich won, which means Leeds will have to endure the pley-offs along with Southampton, West Brom and Norwich.  In the Premier league, Arsenal are still top but Man City are just one point behind with a game in hand.  Spurs have had a torrid time recently, losing four league matches in a row.  They’ll be hoping to change that on Saturday as they take on Burnly, who are fighting to avoid relegation.  Spurs are in danger of getting caught by a couple of teams below then if they are not careful. 

It’s a fairly light economic calendar today, and indeed much of the week remains fairly quiet.  However we do have the latest BoE rate announcement Thursday and UK GDP out early on Friday morning.

Have a great day, hope you get a chance to get outside and enjoy some of the decent weather.

-  10.00 EU retail sales

-  15.00 CAD Ivey PMI

-  16.30 ECBs Nagel speaks

-  16.30 Feds Kashkari speaks

Focus on US employment data

Good morning

We saw a bit of USD strength yesterday afternoon with GBPUSD trading down from 1.2540 to 1.2470, pretty much the Wednesday lows, before returning again to the mid-1.25’s.   EURUSD also fell from 1.0730 to 1.0675 but is now back to 1.0730.  The key event today is of course the US nonfarm payroll data where a headline in the region of +250k is expected.  Average hourly earnings are expected to drop around to 4% while the unemployment rate should stay at 3.8%.  We’ll also be watching the ISM services PMI which is expected to show a small increase to 52 from 51.4, however the risks must be to downside here.

Yen has been showing signs of strength, not so much through direct intervention this time.  USDJPY drifted lower from the high 155s yesterday morning down to a low of 152.75 overnight, and Yen has held the majority of those gains with USDJPY now 153.20.  GBPJPY is 192.10, EURJPY 164.30. 

Gold is trading at $2,300, still on edge for signs of escalation in the Middle East.  Goldmans have said they see gold moving higher to $2,700 by the end of the year, quite a forecast and we’d likely need to see ongoing uncertainty in the geopolitical arena, further Chinese official buying and increased talk of US rate cuts, for this to be reached.  Not beyond the realm of possibility..

Elsewhere, the Tories are having a torrid time in the by-elections, losing seats to Labour, LibDems, Greens and Independents. It is a clear sign, if one were needed, that the electorate is fed up with the Conservatives and will face a massive uphill struggle if they are to hold onto power in a general election later this year.

It is a long weekend in the UK with a bank holiday on Monday.  Of course the weather is looking miserable for the entire weekend, my hopes of a rare round of golf are fading away.  Spurs chances of finishing in fourth place are also fading away after losing to Chelsea last night.  Indeed the three teams below Spurs, Man Utd, Newcastle and Chelsea will be looking at Spurs fixtures, including Liverpool on Sunday, and then Man City, and thinking they will all have a chance to take that fifth spot if results go their way.  Meanwhile the last day of the Championship is tomorrow.  Leeds and Ipswich are vying for second place which brings with it automatic promotion.   

There will be no report Monday, normal service to resume Tuesday.  There is no major data on Monday but we do have the RBA rate announcement in the early hours of Tuesday morning.  Rates are expected to stay unchanged at 4.35% but therer is a chance we’ll get some mildly hawkish soundbites from the press conference.

That’s all I have for you this morning, have a great long weekend.

-  10.00 EU unemployment

-  13.30 US nonfarm payrolls

-  15.00 US services ISM