Israeli attack on Iran dominates headlines, initially sends oil and gold higher

Good morning

The slightlly improved risk sentiment we had seen over the past few days has been shattered with news of Israeli attacks on Iran.  Oil prices have moved higher with WTI up from $82 to $85.50 and Brent from $86.75 to a high of $90.70.  Gold also leapt higher from $2375 to $2417.  However all are well of those highs now, perhaps it was the headline ‘Israel launches attacks on Iran’ that sent them marching higher, particularly the speculation that one attack had hit an Iranian nuclear facility, but the somewhat limited scale of the attacks have encouraged the market this is not a major escalation.  Still, I don’t like where this is heading at all.

The US dollar also pushed higher against most majors on the reports, GBPUSD traded down to 1.2390, EURUSD to 1.0610, but these too have reverted to pre-attack levels around 1.2430 and 1.0645.  Yen proved itself as a safe haven currency once again, bucking the trend by strengthening against USD, USDJPY hitting 153.60 at one point but has not reverted to the 154.40 area.  Yen may also have had a bit if support from Ueda who reiterated the idea that, should they see a large impact on inflation from a weak yen, BoJ could raise rates.

It was another day full of central bank speakers yesterday.  ECB officials all seemed confient that barring any major surprises, they’d be cutting rates in June regardless of whether Fed were cutting rates.  ECBs Holzmann did however suggest that the number of ECB cuts could be limited if the Fed chose not to make any rate cuts.  Fed officials continue to play down any chance of a June cut, Kashkari said he’d be happy to keep rates unchanged while both Bostic and Williams are open to higher rates if needed, although their base case is for one 25bps cut this year.

This morning we have seen the latest retail sales data from the UK.  They don’t make great reading, the March headline came in at 0% against an expected +0.3%, while March excluding fuel was down to -0.3%.  The only glimmer of hope is a very slight upward revision to last months numbers.  GBP did drop a few points initially but very quickly shrugged off the data and is now higher than pre-release levels.  GBPSUD currently 1.2430, GBPEUR 1.1675.

Another disappointing night for English teams in Europe with Liverpool and West Ham both out of the Europa league.  This is the first time for a few seasons that England have not had a team in the semi-finals of either the Champions League or Europa league.  Aston Villa did scrape through their quarter final of the Europa conference, beating Lille on penalties.  Good, we could do with them concentrating on Europe and ignoring the premier league! 

FA cup semi-finals this weekend, Man City v Chelsea Saturday, Coventry v Man Utd Sunday.   Always difficult to bet against Man City but Chelsea at 4-1 might not be a bad shout.  We also have the Chinese grand prix to enjoy although looking at the forecast we could be in for some drier days over the weekend so might be better to get out and about. 

Not much on todays calendar to upset the markets although we do have any developments in the Middle East conflict to contend with.  Barring any further retaliations there, I’m wondering whether we could be in for a quiet day.  Famous last words perhaps!  

Have a great weekend

-  15.15 BoEs Ramsden speaks

-  15.30 Feds Goolsbee speaks

Fed officials continue to push back on rate cuts, while ECB look set to cut in June

Good morning

For much of the day yesterday GBPUSD was stuck in a 1.2445-1.2465 range although by the London close it was down at 1.2425. Since then a small bout of USD weakness, led in part by concerns raised by Japan and South Korea over the strong US Dollar, has helped GBPUSD higher again, now at 1.2480, the highest level since Monday.  EURUSD has done even better, now 1.0690 which is the highest since last week and has helped push GBPEUR back below 1.1700, now 1.1675.  The relative GBP weakness comes as BoEs Bailey confirms inflation is pretty much where BoE forecasts have it and that a larger decline is expected next month. 

USDJPY dipped below 154.00 overnight after Kanda mentioned an agreement with other G7 nations that excessive currency moves help no one, and FinMin Suzuki said he met with Yellen and his South Korean counterpart,  although the move was short-lived and as I type we are 154.25, 50 or so pips off the recent highs.  Dovish comments from BoJs Noguchi who made it clear BoJ must maintain an ultra-loose monetary policy encouraged the market to sell the Yen once again.  We’ll see inflation numbers out of Japan tonight.

AUD performed well overnight after what I think looked like mixed employment numbers.  The net change was -6,600 having been expected at +7,200 but this did come on higher full-time staff and lower part-time staff.  The unemployment rate was a touch higher at 3.8% than last month, which came in at 3.7% although fell short of market expectations of a rise to 3.9%.  So if I read these right, they are not great, just not quite as bad as some feared.

We’ve had plenty of central bank speakers this week and there are more to come today, many at the IMF’s semi-annual conference.  I’m expecting more of the same really, Fed officials pushing back on the idea of a June rate cut, while ECB officials are still looking at June cuts and ECBs Vasle went so far as to say he sees rates close to 3% by year end, a drop of up to 1% or more likely three or four 25bps cuts.

As each day passes the hope rises that Israel will not retaliate for Iran’s attack a few days ago.  We know that nothing is certain and further action by Israel cannot be discounted completely, but for the time being the lack of escalation is helping he markets to some extent. Oil prices are around US$5 off the recent highs with Brent at $87.30 and WTI just above $82.   Still, geopolitical events continue to pose the largest risks.

It was a disappointing night for English football as both Arsenal and Man City lost their respective champions league quarter final matches to Bayern Munich and Real Madrid.  We have Liverpool and West Ham in the Europa league this evening.  Liverpool have a mountain to climb after losing 3-0 in the first leg while West Ham will have to overcome a two goal deficit if they are to proceed to the next round. 

With Bayern going through and Leverkusen looking likely to progress, the chance of England getting a fifth champions league place looks highly unlikely.  Spurs will have to fight very hard to get that fourth spot.  England hopes could be on Aston Villa who hold a goal advantage over Lille in their Europa conference quarter final.

Looks like it could be dry today with temperatures reaching a heady 12°c by the afternoon.  Not exactly t-shirt weather and looking at the forecast it doesn’t look like getting much above there for the rest of April.  There is of course still rain on the calendar but not quite as much as we’ve had recently.  On the subject of rain, Dubai is trying to dry out after the floods they experienced due to huge amounts of rainfall.  There has been suggestions that could seeding contributed to the extreme weather, although experts suggest it was a storm that had been well forecast for a few days previously.

Other than the many central bank speakers, the calendar is relatively light.  We have US initial jobless claims and the philly fed manufacturing survey, both important but unlikely to drive the markets too far.  UK retail sales numbers will be out early tomorrow morning, it is thought they could be disappointing after the wet weather in March.

-  13.00 ECBs Nagel speaks

-  13.30 US philly fed survey, initial jobless claims

-  14.05 Feds Bowman speaks

-  14.15 Feds Williams speaks

-  15.00 US existing home sales

-  16.00 Feds Bostic speaks

-  18.30 ECBs Schnabel speaks

-  20.30 ECBs Nagel speaks

-  22.45 Feds Bostic speaks

-  00.30 Japan CPI

-  07.00 UK retail sales

Feds Powell casts doubt on US rate cuts, but GBP up after UK inflation numbers

Good morning

It was an interesting day in the currency world yesterday, the US dollar weakened a little through the morning, pushing GBPUSD up to 1.2470 and EURUSD up to 1.0650, but those moves reversed through the afternoon, and a hawkish Powell sent USD higher still after the London close, taking GBPUSD and EURUSD down to 1.2405 and 1.0600 respectively.  

He mentioned the lack of progress on inflation so far in 2024, perhaps suggesting his previous ideas that Jan and Feb numbers were just a bump.  He also made it clear that Fed can only consider rate cuts if inflation falls.  The divergence in Fed and ECB views is clear, as Lagarde yesterday spoke of the potential for a June cut by ECB.  Even BoEs Bailey said that UK could well be cutting rates before the US.

USDJPY had an odd move lower, moving from 154.75 to 153.90 in a straight line but did work its way back to the 154.60 area.  The move was unexplained but is perhaps a sign of how nervous the markets are when it comes to certain yen moves.  CITI see 155.00 as something of a line in the sand for BoJ

Canadian inflation was pretty much in line with expectations yesterday, but with core coming in at 2%, down from 2.1% last month, CAD did see a bit of weakening which drove USDCAD to 1.3840 from 1.3780.  USDCAD now is 1.3820, having held above 1.3800 ever since the release.

NZ inflation overnight looked like it was heading in the right direction, coming in at 4% from 4.7% last time.  However the emphasis by RBNZ on non-tradeable inflation which accelerated sharply has helped NZD push higher after the release, not substantially but certainly a lot more than the headline would suggest is reasonable.  RBNZ will be on guard so watch for any hawkish talk from them in the coming weeks.   

GBP made gains after this mornings inflation release.  Both the headline and core reading were lower than last month but not quite as low as had been hoped.  GBPUSD has so far reached 1.2470, and with EURUSD holding around 1.0625, GBPEUR crept a little higher to 1.1735.

We’ll see EU inflation numbers later this morning, the rest of the calendar today is filled with a plethora of central bank officials speaking.  I’m out and about again visiting both existing clients and new clients, one of my favourite parts of this job although I’d prefer it to stay dry while I’m driving around.  We were hit with another deluge of hail yesterday, quite fun to watch but I’ve had enough of it given its now mid-April.   Nothing on the forecast to suggest it’ll get much warmer over the next week or two although as I type the sun is shining.

By now you are aware of my dislike for water firms, but I saw an article yesterday, not exactly certain when it was actually from, of the boss of United Utilities being asked about profits made (£300m) and dividends paid (452m), while trying to explain why it was reasonable to allow thousands of litres of waste flow into lake Windermere.  Their suggestion that they have invested some money over the years certainly didn’t make up for the amount of waste leaked and the incredible dividends paid.  I’ve not personally verified the numbers I’m quoting but I don’t really need to.  The lack of investment in infrastructure by water companies while paying away substantial sums to shareholders is nothing short of criminal.

In sport, the champions league saw a turnaround from the first legs in yesterdays matches with PSG and Dortmund overturning defeats in the first leg to beat Barcelona and Atletico Madrid to make it through to the semi-fianls.  This evening sees Man City and Arsenal in action against Bayern Munich and Real Madrid respectively.  Both first legs ended with scores even after some incredibly exciting football. Hoping for more of the same this evening.

Rory McIlroy has denied reports he could look to move to LIV golf in a deal rumoured to total around US$850m.  His strong anti-LIV stance would make such a deal unusual although there does come a point where the money is so large it is difficult to say no.  There is doubt over whether the claims were ever true but that never stopped anyone making a good story.  No smoke without fire mind you

Ah, speaking of smoke, the government, with cross-party support, have passed new laws that will make it illegal for anyone born after 2009 to buy cigarettes, although the act of smoking itself will not be outlawed so there would be nothing to prevent those people buying cigarettes overseas and bringing them into the country.  Not sure where I stand on this.  There is no denying that smoking is bad for the smoker and indeed for people around the smoker, but I’m not sure it is the governments job to tell us what we can or can’t do.  Well, I say that, but some substances are already banned so I guess it’s nothing new.  New Zealand tried to bring in a similar law but then overturned it late last year.  No doubt this will be a talking point for some time to come.

One more talking point is the weather in Dubai.  I might complain about rain here but we are used to it.  Anyone heading to Dubai for some winter/spring sun be warned.  The area has been hit by torrential rain, one years worth in just one day.  Flights were have been diverted as the airport was under water, and images show roads flooded, and cars homes partially submerged.  Other parts of UAE are also affected.    

That’s all for now, I have to get on the road for my meetings.  Have a great day…

-  10.00 EU HICP

-  13.05 BoEs Greene speaks

-  14.00 ECBs Cipllone speaks

-  16.45 ECBs Schnabel speaks

-  17.00 BoEs Bailey speaks

-  18.45 ECBs Lagarde speaks

-  19.00 BoEs Haskel speaks

-  19.00 Fed Beige book

-  22.30 Feds Mester speaks

-  00.15 Feds Bowman speaks

-  02.30 AUS unemployment

-  02.30 AUS NAB business confidence