Should we expect lower energy prices?

Good morning

As expected the markets were on the quiet side yesterday due to the US holiday.  GBP did soften a little through the day, losing ground against both USD and EUR, now 1.2585 and 1.1685 respectively, in a move not fully explained.  EURUSD on the other hand held around the 1.0775 area.  We hear from BoEs Bailey and a couple of his colleagues today including Dhingra who was the only member to vote for a rate at the last meeting.  After the dismal GDP numbers last week, Dhingra could push the idea that rate cuts are needed. it will be interesting to hear what Bailey has to say.  I’d imagine he’ll reiterate his previous comments that a recession will be shallow and things are already beginning to perk up a bit.

Overnight there was a little more action as China’s PBoC surprised with a 25bps cut in its 5 year Loan Prime Rate to 3.95%, the first reduction since June last year.  Some had thought a cut was possible, but not as large as 25bps, others thought  that the weakness in CNY would deter PBoC from rate cuts.  China stocks did edge slightly higher but if anything the cut only seems to have served to remind markets that all is not well in China right now.  There was only very limited impact on USDCNY as well, that trades just below the 7.2000 level, despite the official fixing coming in down at 7.1068. 

USDJPY is trading a touch higher, now 150.35, prompting the usual ‘we are watching FX moves closely’ comments from FinMin Suzuki but as we know it is sharp moves that they tend to try to smooth rather than turning the steady yen depreciation.  Still, I can’t help feeling they must have a line in the sand somewhere.  Question of course is where that may be?

RBA minutes overnight didn’t tell us too much other than RBA mulled over a rate rise but the case for holding steady was stronger.  RBA though, like RBNZ recently, still keep the door clearly open for rate rises if inflation doesn’t subside.  Market still looks for eventual rate cuts later in the year.

Other than the usual area of headlines there is little that erally catches thde eye, although I did read about a guy in America who is suing a lottery firm after they published his numbers online suggesting he had won $340 million, only to take the numbers down three days later and claim it was part of a system test.  I wouldn’t be happy.  He has signed up a lawyer who must be pretty exceptional.  His name?  Richard Evans!

Finally, I got a message from British Gas that its time to submit meter readings again.  This follows the news that British Gaqs made profits of £751m last year.  Now, I am all for everyone making money but there is surely something wrong when we’re paying hugely inflated energy prices that only seem to be lining the pockets of the energy firms. 

I have asked why the standing charge for energy remains so high, I understand the price of the product may fluctuate but I don’t see why a doubling or so of the standing charge is necessary.  With natural gas prices now well off last years lows, I don’t know why my gas prices are not collapsing.  Mind you, BG did offer me the chance to fix my energy bill at lower prices.  I presume they’d only do this if they thought prices would be falling.

-  10.15 BoEs Bailey speaks

-  13.30 CAD CPI

-  21.45 NZ PPI

-  23.50 Japan trade

-  00.30 AUS wage price index

-  07.00 UK PSNB

US holiday likely to lead to quiet markets

Good morning

I’m going to keep things brief this morning for two reasons.  First, its US holiday which is likely to make the day rather quiet, particularly with the lack of any economic data from UK or EU to contend with.  And second, I overslept so am running late.  Doesn’t happen very often, you’d think they extra sleep would make you feel brighter but it actually seems like the contrary is true.

Anyway, looking back to Friday, higher than expected PPI numbers from the US served to keep USD near its highs, GBPUSD was down in the mid-125s while EURUSD dipped to 1.0735.  A softer than expected Michigan sentiment survey however seemed to be the catalyst for some USD selling, sending both pairs higher, and as I type GBPUSD is at 1.2620, EURUSD 1.0780, GBPEUR 1.0705. 

USDJPY is holding around the 150.00 area, having tested up to 150.65 post-PPI and then reversing after the Michigan data.  There has been something of a lack of verbal intervention and no sign of yen buying despite this idea of higher rates at some point.  Elsewhere in Asia, China reopened after the new year holidays, their equity markets finished around 1-1.5% higher

In Ukraine, this week marks the second anniversary of the Russian invasion.  Things may not have gone Russia’s way initially, all credit to Ukraine for that, although for now Russian forces seem to have the upper hand, having finally taken Avdiiivka from weary and under-armed Ukrainians.  No sign of peace here unfortunately.  In Gaza, no sign of peace either, Israel have issued a deadline of 10th March by which all remaining hostages must be released or they will begin a full offensive against Rafah.  I’m not sure if it is a coincidence that 10th March marks the start of Ramadan.

Turning to sport over the weekend, anyone hoping to get up and watch an exciting morning of test cricket will be disappointed.  England lost by 434 runs after having scored just 122 all out in their second innings.  Spurs lost just to add to the disappointment, and Harry Kane is finding that moving to a dominant team isn’t necessarily going to bring trophies, his team Bayern Munich lost to mid-table Bochum yesterday leaving Bayern 8 points adrfit from leaders Bayer Leverkusen.

I’ll leave it there for now.  Have a great start to the week, could be quiet today but should pick up as the week goes on. 

-  11.00 Buba montly report

-  00.30 RBA minutes

UK retail sales surprise to the upside

Good morning

US retail sales yesterday came in worse than expected at -0.8% for January against an expected -0.2%, while the December reading was revised lower to add to the misery.  A better Philadelphia Fed manufacturing survey and mildly better initial jobless claims were not enough to stop a bout of USD selling which saw GBPUSD trade from 1.2545 to 1.2595, and EURUSD from mid to high 1.07’s. 

Overnight we saw GBPUSD test the 1.2600 area, breaking above briefly by a few pips before settling bback, and this morning a quite astonishingly decent set of UK retail sales numbers sent GBPUSD again to the 1.2605 area.  Once again, the move was short-lived and as I type we are back to the 1.2580 area, and with EURUSD at 1.0760 it leaves GBPEUR 1.1690.   

GBP has shrugged off the widely reported recession, perhaps the comments from both BoEs Mann and Greene yesterday, both erring on the hawkish side, reminded markets that regardless of the general economic conditions, inflation is still too high and has a long way to go before either will be comfortable with lower rates.

USDJPY spiked lower following the US retail sales number, reaching 149.50 but it soon regained the 150.00 area and now sits 150.20.  Japan’s Nikkei 225 traded close to its all-time highs from way back in 1989, boosted by Ueda sounding a little less certain of an early move away from negative rates and also by the notion that even if BoJ do lift rates a touch, we’re still looking at extremely accommodative monetary policy thereafter.

So, given we’ve had a week of data that has surprised both to the upside and downside, we’re not really far removed from levels seen at the start of the week.  USD is currently a touch stronger than it was on Monday, the higher inflation readings being responsible for that, but we are not talking about huge moves.  I would not be at all surprised to see a relatively quiet market now until the next FOMC meeting, the results of which will be seen on 20th March where the updated dot plot will be released. 

In other news, India managed a total of 445 in their first innings, a pretty decent total given the three early wickets.  England are 31-0 at the time of writing, they’ll be hoping for a better fist innings than they have managed in the two previous tests.  In football it’s a full weekend of action in the Premier League, Spurs will be hoping to cement their fourth place with a win over Wolves.  The late Saturday match of Man City v Chelsea could be the pick of the bunch.

Finally, I have to express my disappointment that the FA cup will only be shown on TNT from the 2025-26 season.  The final will still be free-to-air, but I’d always thought there were some sporting events that were really always going to be safe from the wallets of TV companies.  Not so.  The world moves on I guess, one day perhaps we’ll even see the FA cup final itself on pay to view rather than BBC, ITV and the like. 

Have a great weekend as and when it arrives.  We might even get lucky and stay dry for a day or two.  The garden has been neglected in recent weeks due to the weather, it could be time to get back out there…

-  13.30 US PPI, housing starts, building permits

-  14.10 Feds Barr speaks

-  15.00 US Michigan sentiment

-  17.10 Feds Daly speaks

-  19.40 BoEs Pill speaks