Risk sentiment remains high in otherwise slow start to the week

Good morning

We had a fairly slow day on Friday, equities were mostly a fraction higher, US dollar was a fraction lower.  By the close GBPUSD was around 1.2670, EURUSD around 1.0820 and since the open we’ve not veered more than 10 pips or so from those levels, a flurry of USD buying soon ran out of steam.  GBPEUR is at 1.1700, USDJPY at 150.45. 

The key focus for markets remains inflation and the resulting timing and pace of rate cuts by the likes of Fed, BoE and ECB.  The feeling is that the two former central banks will push back on rate cuts, while ECB is perhaps the favourite to cut first despite comments from ECB officials warning of the risks of cutting too early.  We hear from Lagarde today although she rarely gives much of interest away.

There has been some talk over the weekend of a potential peace deal on the table between Hamas and Israel which would apparently include the release of hostages by Hamas, although the details are sparse and until anything is signed an implemented we know we should not hope for too much.  Meanwhile the UK and US launched new airstrikes in an attempt to prevent Houthis attacks on shipping in the Red Sea. 

In Ukraine, it is two years since the Russian invasion.  Zelensky warns of a possible new offensive by Russia forces, likely to come before the summer, while he adds that Ukraine have their own offensive plans that will not be telegraphed in the same way the previous, and dare I say doomed, offensive was.  Russia does seem to be getting the upper hand for now.   

It isn’t the busiest start to the week in terms of economic releases, indeed the week as a whole may not be too inspiring.  By the end of the week we will have made it into March, that’s come around pretty quickly.  The days are getting longer, and hopefully the weather will turn a little warmer and drier.  For now, its dry here but there’s a pretty decent wind shaking the trees.

Plenty of sporting action over the week.  Mark will be upset if I don’t mention Leeds victory over Leicester which opens up the title race in the Championship and perhaps more importantly cements Leeds place in the automatic promotion places.  There wasn’t really much else to cheer about.  Engfland lost the cricket test series to India this morning, England had built a reasonable first innings total but were all out for 145 in their second innings which left India a target they reached easily. 

A similarly dismal display from England rugby team saw them lose to Scotland in the six nations, congratulations to our friends north of the border for that.  Liverpool beat Chelsea in the EFL cup with a late winner in extra time.  As a neutral I thought it was a reasonably exciting match although I’d liked to have seen it go to penalties. 

Its mostly FA cup fixtures this week, Spurs cleverly sitting this out in order to concentrate on the league.  We also have the start of the first F1 race of season this week, it will be interesting to see whether any teams can challenge the dominance of Red Bull.   Judging by early testing, Red Bull are likely to remain on top, Verstappen is already the odds on favourite to win the title again. 

That’s all for now, hope it gets more interesting as the week goes on!

-  11.00 BoEs Pill speaks

-  15.00 US new home sales

-  16.00 ECBs Lagarde speaks

-  23.30 Japan CPI

Fed officials still pushing back on rate cuts for a couple of months at least

Good morning

Back at the desk after a couple of says visiting clients, potential clients and old friends, one of my favourite parts of this job.  What did I miss?  Well US dollar weakness is an ongoing theme, as are higher equities, with the US S&P back above 5,000 and the Dow Jones above 39,000, driven by higher tech stocks after the release of Nvidia’s earnings.  Asian equities are also up, Japan’s Nikkei 225 was up over 2% overnight, just a few points short of 39,100, breaking the all-time high that has held since 1989, the year I started working in the City. 

We had some decent moves yesterday, GBPUSD traded up to 1.2710 before dropping back to 1.2610, EURUSD saw similar moves trading up to 1.0890 before slipping to 1.0800.  For the record GBPUSD is now 1.2670, EURUSD 1.0825 which leaves GBPEUR at 1.1700.  USDJPY is brushing off the weaker USD, now up at 150.65. 

Several Fed officials were speaking yesterday, Cook, Harker and Waller.  They all followed a similar theme, that is there is no rush to cut rates. Preferring to wait for a couple more months of data to be sure inflation is on track to reach its 2% target.  Harker said May was possible for a rate cut but they are making it clear this is highly data-dependent.   

We do hear from a couple of ECB officials today, it will be interesting to get their take on rates.  I would not be surprised if they were more dovish than the Fed, and pointed to earlier rate cuts, particularly given the poor performance of the German economy recently.   

Elsewhere, I see an American firm has become the first commercial entity to land a spacecraft on the moon.  After a few nervy minutes of lost signal, contact was finally made with the craft.   I still find it amazing that we seem to be making trips to the moon far more difficult than they used to be. 

I mentioned British Gas offering lower fixed contracts earlier in the week.  This morning I read that the new price cap will see bills fall in April, although I do note that the standing charge, a real bug-bear of mine, may actually increase.  Why?  British Gas made £750mn last year.  We do not need higher standing charges and with LNG at low levels these energy prices are still too high in my humble opinion. 

Looking ahead to the weekend, we have a load of sport to enjoy.  Well, I say ‘enjoy’, England are currently 198-5 in the fourth test against India, better than the 112-5 they were at one stage but still struggling.  England rugby team will take on Scotland tomorrow in the Six Nations, neither team are a patch on what they have been so this will be a tough contest.  Scotland are favourites to win at the bookies. 

In football, the premier league has several fixtures although Spurs aren’t playing, while on Sunday we will have the EFL cup final between Chelsea and Liverpool. 

That’s about all from me.  Enjoy the day and have a terrific weekend as and when it arrives.  The sun is currently shining in through the window, a vast improvement on yesterday that’s for sure, although I’m not sure how long it will last.  Fingers crossed……

-  09.00 German IFO

-  10.00 ECBs Nagel speaks

-  13.00 ECBs Schnabel speaks

Watching GBPEUR as it hovers around support levels

Good morning

Lower than expected CAD inflation yesterday sent USDCAD higher from 1.3475 to 1.3530, not a huge move and its actually 10 pips or so off those highs now.  This supports BoCs most recent rate meeting where they removed the guidance of potential rate rises and said they see inflation slipping lower.  Canada’s Trudeau has since added that he is optimistic rates will come lower this year, sooner rather than later in his opinion.

 While the move higher in USWDCAD doesn’t look so big, it did come on a day where USD lost ground on other major currencies, so CAD weakness was actually more pronounced than it looked.  With GBPUSD and EURUSD rising to 1.2665 and 1.0835, GBPCAD pushed up from 1.6980 to 1.7130, EURCAD from 1.4555 to 1.4645.

I’ve not seen a satisfactory explanation for the mild USD weakness we witnessed yesterday, some are suggesting it is a sign of improving risk sentiment, pointing at the rally in China equities overnight, although the move came before that and US equities actually ended the day slightly lower.  Even USDJPY lost some ground yesterday, trading to 149.70 although as I type we have broken back above 150.00.  FOMC minutes later this evening could perhaps offer latest Fed thinking although we’ve already heard from many Fed officials since that meeting, mostly singing the same tune, so the chance of a surprise is limited. 

GBP has slipped back against EUR, now around the support we’ve seen since late Jan around 1.1670.  BoEs Bailey spoke yesterday and sounded pleased with progress made on inflation so far, suggesting BoE could begin cutting rates even before the 2% target is reached.  BoEs Dhingra was typically dovish yesterday, warning of the downside risks to growth, we hear from her once again today.   

This morning we got the latest government borrowing numbers, the UK actually saw a large surplus of some £17bn.  A surplus in January is not unusual due to receipts from self-assessment tax returns, although the surplus was larger than expected.  This has led to some speculation that we may see some tax cuts at next months budget, but I’m not holding my breath.  The countries finances cannot be in a good positon. 

In other news, Putin has suggested Russian forces will push further into Ukraine after they finally took Avdiiivka, with Ukrainian hopes really relying on a potential influx of Western weaponry, without which Ukraine are going to struggle.  Meanwhile, UK’s nuclear force of Trident missiles looks worryingly impotent after a missile launch test failed for the second time.   Not much of a deterrent!

There will be no report tomorrow morning as I’m out and about this afternoon and tomorrow.  I’ve added Thursdays calendar, its looking pretty full with UK, EU and US PMIs the main events.  We do have a Turkish rate announcement, seems they are expected to keep rates unchanged at 45%.  Today is more about central bank speakers but I’m not looking for any surprises there.

-  10.00 ECBs Nagel speaks

-  13.00 Feds Bostic speaks

-  14.00 BoEs Dhingra speaks

-  15.00 EU consumer confidence

-  18.00 Feds Bowman speaks

-  19.00 FOMC minutes

-  21.45 NZ trade balance

Thursday

-  09.00 EU services, manufacturing PMI

-  09.30 UK S&P services, manufacturing PMI

-  10.00 EU HICP

-  11.00 CBRT rate announcement

-  12.30 ECB minutes

-  13.30 US initial jobless claims

-  13.30 CAD retail sales

-  14.45 US S&P services, manufacturing PMI

-  15.00 US existing home sales

-  15.00 Feds Jefferson speaks

-  20.15 Feds Harker speaks

-  21.45 NZ retail sales

-  22.00 Feds Kashkari, Cook speak

-  00.01 UK GfK consimer confidence

-  00.35 Feds Waller speaks