What a difference a day makes!

Good morning

Well what a difference a day makes.  Or rather, what a difference one set of weak PMI numbers makes.  Both US services and manufacturing PMIs came in weaker than expected yesterday, sending USD lower.  GBPUSD, which had been down at 1.2300 on Monday, bounced to 1.2460, while EURUSD pushed above 1.0710 to hit 1.0715 overnight.  Both pairs are just off those highs now, GBPUD 1.2445 as I type, EURUSD 1.0695. 

GBPEUR is 1.1635 which is 70 pips or so up from yesterdays lows.  BoEs Pill mentioned yesterday that BoE rate cuts were a bit closer but still feels he’d prefer to see several more months of data before being convinced we are at the right time for rate cuts.  Pill did add that there is no reason for BoE, ECB and Fed to work in unison on rates.  Chances of a UK rate cut in June seem to run at about 50/50 according to a recent Reuters poll of economists.

USDJPY didn’t see significant declines as a result of the weaker USD, in fact it is trading right now at 154.90 which is the top end of this move so far.  There is a BoJ rate meeting that concludes in the early hours of Friday morning.  Ueda has recently been talking about the potential for rate rises to counter the weak yen but so far his warning has fallen on deaf ears.  The weak yen will certainly be on the agenda at the meeting, whether or not they take action remains to be seen.

Aussie inflation numbers came in above expectations overnight, sending AUD marching higher as banks push back their forecasts for rate cuts well into 2025.  The annual rate came in at 3.6% against an expected 3.4%, although RBA will take some comfort from the fact the reading, while above expectations, was still down on the previous month.  However, the areas RBA are most worried about such as domestic and services inflation both saw the highest quarterly increase for five quarters.  

It isn’t the biggest day for data today, German IFO this morning and US durable goods this afternoon being the key.  ECB’s de Cos, Nagel, Villeroy and Cipollone all speak this morning, while Schnabel speaks this afternoon.  If they do touch on policy, I can’t see them adding much more to the comments we’ve had recently, namely a rate cut in June looks more than likely.

Arsenal did their title chances no harm with a 5-0 demolition of Chelsea, if it comes down to goal difference then they are currently well in front.  Liverpool have a game in hand but can’t take top spot due to Arsenal’s goal difference, Man City can still take the lead if they win their two games in hand.  So much to play for in the last few matches of the season.  Leicester meanwhile took a giant step nearer promotion, beating Southampton 5-0.  Southampton have pretty much blown their chances of an automatic promotion spot, instead they’ll have to settle for the play offs. 

Still in sport, I’m not a great runner and certainly have little desire to run a marathon.  However my mind could be changed as I have been reading about a chap who ran this years London marathon, stopping every mile to have a taste of wine.  My interest in the event has been rekindled.  Mind you, it reminds me of a dream I had years ago where I ran the marathon, having a point of lager after each mile.  All was going well until I got to 24 miles and someone pointed out how many pints I’d had.  At that point I realised I couldn’t drink that many and fell over.  It’s still likely to be the closest I’ve ever got to long distance running.

Have a great day. Should stay dry today but its going to be chilly, highs of around just 10°c which is pretty cold.  Wrap up warm!

-  09.00 German IFO

-  13.30 US durable goods orders

-  13.30 CAD retail sales

-  18.30 BoC summary of deliberations

GBP remains under pressure while FTSE hits record highs

Good morning

Happy St George’s Day to you all

GBP slipped lower yesterday, GBPUSD hit a low of 1.2300 while GBPEUR traded to 1.1570.  Both are now a little off those lows, GBPUSD is 1.2340 while GBPEUR is trading just a few pips below 1.1600, unable so far to get back above that level.  The GBP weakness is, as I mentioned yesterday, mostly down to recent talk from BoE officials pointing to the possibility of earlier rate cuts.  We hear from BoEs Haskel and Pill today, both of whom err on the dovish side.

The UKs FTSE 100 closed yesterday at record highs (8,023.87), boosted by rate cut thoughts.  What I find strange then is that UK banks have raised mortgage rates, saying they think BoE will not cut rates as early, or as often, as originally expected.  The increases are not great but just seem to be moving in the opposite direction.

EURUSD sits at 1.0645 having traded in a fairly tight 1.0665-1.0625 range yesterday, unmoved by ECBs dovish official Centeno who said total rate cuts this year by ECB could be in excess of 1%. A reuters poll suggested three rate cuts this year, each of 25bps starting in June.  Lagarde spoke yesterday but said nothing on rates.  ECBs de Guindos suggested ECB action will be partially determined by the Fed, need to be careful what happens after June, must take note of FX movements and                            what happens in the US.  If a June cut by ECB leads to EUR weakness, and with no change from the Fed, further ECB cuts could be limited.

USDJPY trades at 154.75, so far unmoved by Ueda who again has said he could look at rate increases, and Japan FinMin Suzuki who has said the groundwork for intervention has been laid after last weeks discussions between South Korea, US and Japan.  We do have the BoJ rate announcement later this week but I have seen no reports looking for a rate rise this time.  GBPJPY trades at 191.00.

Gold was sold off aggressively overnight.  Having traded to $2,420 on Friday, it slipped to $2,330 into the evening and then dipped to $2,295 in the early hours of this morning.  Attempts of a recovery were brief, it now sits at $2,305.

As the US passes its Ukraine aid package, Russia warns we are on the brink of a direct military clash between nuclear powers.  I presume he means the West and Russia, but could of course be referring to China, if they were to invade Taiwan, or perhaps North Korea who have been stepping up their missile tests recently. 

In other news, I see Thames Water are looking to raise bills 44%.  They are not the only one, Southern Water recently proposed a 66% price rise in order to pay for much needed investment in infrastructure, having paid billions to shareholders.  Ah, don’t get me started.  Actually, while I’m sounding like a grumpy old man, I might as well mention my annoyance at the news of a train strike over the May bank holidays.  What on earth can train drivers want now? 

The UKs Rwanda bill has finally been passed by Parliament and I believe now needs royal consent to become law.  There are still legal challenges that could hold up the scheme but Sunak is confident the first flights will leave within 10-12 weeks.  The idea is that those seeking asylum and have travelled here from another safe country to seek the UKs protection, will be flown to Rwanda and dealt with there.  Whether this actually deters people from crossing the Channel in small boats remains to be seen, the BBC report just this morning they witnessed a small dinghy with 67 people on board setting off from France.  The BBC also report there are some 52,000 people in the group potentially sent to Rwanda for processing.

There is a great deal of opposition to the scheme, although I for one think it is has merits.  I fail to understand why someone who has fled their own country and arrives let’s say in France, a safe Western country, has the need or desire to make any further travel.  Surely they are safe from persecution there.  Now, we don’t want this law being abused, we know there are people who legitimately need our help, but not everyone arriving on our shores does so because they are in imminent danger.  I am well aware that my thoughts are not shared by all, but action is necessary.  Don’t be cross with me for my thoughts, I’ll happily have a sensible discussion with anyone about the plan and am open to hearing both sides.

Enough of that.  Mark will be happy to today as Leeds beat Middlesbrough last night to get back into the automatic promotion places. Team around them have a game in hand but at this stage it is important to have the points in the bag.  With just two or three matches to be played, it will be an exciting end to the Championship.  Indeed we are set to have a great deal of football to enjoy, with the Premier league title well and truly up for grabs, and the Champions league even though no English teams are still involved.  Then of course we will have the Euro 2024 tournament which kicks off in mid-June.  Fantastic.

PMIs will be in focus today, particularly those from the US which, if strong, could support the idea that Fed rate cuts are off the table for some time.   We’ll have the BoEs Haskel and Pill speaking, there will also be several ECB officials speaking through the day.  There are no Fed officials on the calendar as we are in their blackout period ahead of their next rate meeting.

Have a great day

-  09.00 EU manufacturing, services PMIs

-  09.00 BoEs Haskel speaks

-  09.30 UK S&P manufacturing, services PMIs

-  12.15 BoEs Pill speaks

-  14.45 US S&P manufacturing, services PMIs

-  15.00 US new home sales

-  23.45 NZ trade balance

-  02.30 AUS CPI

BoEs Ramsden comments send GBP lower

Good morning

Last thing I wrote Friday was that we could be in for a quiet trading day.  I was right, for most of the time.  Until BoEs Ramsden spoke.  Ramsden could be regarded as one of the more hawkish BoE officials although has opted for ‘no change’ at the last three meetings.  On Friday afternoon he said he was more confident inflation that inflation pressure were easing, not exactly ground breaking stuff but enough for the market to sense rate cuts may be close  and certainly enough to send GBP lower.

GBPUSD dropped 100 pips from the 1.2465 area to 1.2365, while GBPEUR moved from 1.1685 to 1.1605.  GBP also fell in the crosses with the likes of GBPJPY and GBPAUD falling from 192.65 and 1.9405 to 191.00 and 1.9200 respectively.  We are mostly off those lows as I type, GBPUSD, GBPJPY and GBPAUD at 1.2380, 191.50 and 1.9245, although GBP does remain under pressure against EUR with GBPEUR at a lowly 1.1610.

The GBP weakness came as something of a surprise, and it is perhaps more surprising it has not regained some lost ground against EUR, given the recent comments from ECB officials have all been pointing towards a June cut and then more to follow through 2024.  EURUSD is holding up well, currently 1.0665.  Lagarde speaks later today, I presume she’ll offer more of the same June rate cut idea.

USDJPY is up at 154.70, yen remaining weak despite Ueda’s ongoing suggestions that Japan rates could rise if the weak yen is seen to be affecting inflation.  We have a BoJ rate meeting later this week and surely they will try to sound hawkish in an attempt to prevent further yen weakness.  Whether they go so far as to raise rates again remains to be seen, I’ve not seen anyone really looking for that yet but wonder if we’ll see that change as we get closer to the meeting.

With no major escalation in the Middle East after the Iranian and Israeli strikes, risk sentiment has improved with oil prices lower and the safe havens such as Yen and CHF also weaker.  Gold prices are off the recent highs as well, now $2,358, but there is some thinking that losses could be limited due to the ongoing central bank demand I mentioned recently.

A new US/China trade war could be hotting up as China slaps a 43% tariff on a widely-used US chemical, claiming it is damaging China’s own domestic industry.  We wait for a US response.  US have asked China to stop providing weapons-related material and technology to Russia, meanwhile US has at last approved a US$95bn aid package, much of which is earmarked for Ukraine who have been struggling against the Russian invasion without much needed arms and ammunition.

It is a light calendar today but will liven up as the week goes on with EU, UK and US PMIs tomorrow, Aussie inflation wednesday, US GDP Thursday, that BoJ rate announcement Friday and then the closely watched US PCE deflator on Friday afternoon.  Attention will also be on equity markets, with some players concerned we could see something of a collapse. Let’s hope not.

We had a decent weekend of sport, Man City overcame a determined Chelsea side to progress to the FA cup final, Chelsea ruing several missed goal opportunities.  But they main event was Coventry v Man Utd yesterday.  With Man Uts 3-0 up they seemed to be cruising to victory, before Coventry scored three goals to take the tie to extra time, and them even thought they had scored a late winner, before being disallowed by VAR for the tightest of offside decisions.  They lost on penalties, very disappointing for them but the thousands of fans they had at Wembley had plenty to cheer about.  An all-Manchester final it is then.   

Meanwhile, Aston Villa helped their chances of a top four finish with a win at Bournemouth, and Liverpool drew level on points with Arsenal at the top of the table after a win at Fulham, but remain second on goal difference.  Spurs didn’t play, in fact they aren’t playing until Sunday when they will be facing Arsenal. They’re going to struggle to get top four and I’m even fearful of the potential for them to drop down the table despite the ten point gap they currently enjoy.  Its going to be a terrific end to the season, that’s for sure.

Have a great day

-  11.00 Germany Buba monthly report

-  15.00 US consumer confidence

-  16.30 ECBs Lagarde, ,Villeroy speak

-  00.00 AUS Judo Bank services, manufacturing PMI