GBP brushes off soft retail sales numbers

Good morning

UK retail sales came out weaker than expected this morning, sending GBPUSD down from 1.2415 to 1.2375 although we’ve seen no follow through and as I type the pair is back up to 1.2395. GBP also dropped against EUR, from 1.1440 to 1.1420 but that too has recovered half of those losses. So overall, a pretty muted reaction to a weak set of data.

BoJs Ueda made it clear he still thinks ultra-easy monetary policy is the way forward for Japan, saying a weak yen had positives and negatives. Deputy FinMin Azakawa said that intervention is not used to stop yen depreciation but to slow excess volatility. This suggests it is unlikely they would intervene to stop yen from weakening if it were a slow and steady move. One would think this opens the door for USDJPY to push higher but as I type USDJPY has moved below 150.00, down from the 150.70 area to reach almost 149.50. I’ve found nothing that properly explains this move as yet.

Various Fed officials were speaking yesterday, most suggest it is a bit too early to claim victory on inflation while some are warning of signs that a slowdown is coming, which is very much in line with the forecasts of rate cuts I mentioned earlier in the week.

The US government has avoided a shutdown after an agreement was once again reached late in the day. I still don’t see how the government of the largest economy in the world can get itself into such a mess, it happens on a fairly regular basis and they never seem to be able to get themselves more organised. Other countries don’t seem to have the same problem.

Biden’s meeting with Xi came and went all very much as expected with Biden assuring China they were not looking to de-couple but at the same time making it clear US would continue to strengthen ties with other countries in Asia. EU’s von der Leyen has warned the EU it should start separating from China, saying China’s strategy is to reduce its dependence on the world while at the same time increase the worlds dependence on China. She’s not wrong. She also warns that a slower Chinese economy could place greater strains on EU-China relations.

EU inflation is on the calendar today but this is the second reading and is not expected to be revised from the initial data. We have some US housing data but ultimately the calendar is light. We have US thanksgiving on Thursday next week, usually worth writing off both the Thursday and Friday, so it could be a rather short week although there are various bits of economic data to get through such as CAD inflation Tuesday, UK and EU PMIs Thursday and US PMIs Friday.

Congratulations to Australia who made it to the cricket world cup final by beating south Africa. The final against India is on Sunday, could be a good match. Englands footballers take on the not-so-mighty Malta this evening and then play North Macedonia on Monday to finish the group off. Players will likely use the opportunity to push for their places at next years tournament.

Elsewhere, Las Vegas hosts an F1 race although some problems with the track have stopped practice sessions, I understand a drain cover got loose and damaged one of the cars. I’m sure all will be sorted in time for qualifying. Have to say, I’d love to be in Vegas for this race. If I’m not mistaken, the race is early Sunday morning., it should be finished just in time for the cricket. That’s my Sunday morning sorted! The leaves can wait.

Have a great weekend…

- 10.00 EU HICP

- 13.10 BoEs Ramsden speaks

- 13.30 US building permits, housing starts

GBP lower on suggestion of earlier rate cuts

Good morning

US retail sales come out better than expected yesterday, USD did gain on the release with GBPUSD trading down to 1.2405 and EURUSD down to 1.0830, while USDJPY pushed up to 151.20. GBP continued to lose ground against USD overnight, hitting a low of 1.2380, pretty much where we are as I type. In contrast, EURUSD has held its ground and sits now at 1.0845, of course this means GBP has dipped against EUR, GBPEUR now 1.1415, the lowest level since May 2023. USDJPY is higher at 151.40.

GBP weakness is perhaps helped by an article in the Times that suggests we could see rate cuts in the UK as early as spring, much earlier than had been previously expected, given the dip in inflation. This is perhaps a little premature given we are still well above target but would be welcomed by many people for sure. I’d mentioned yesterday the potential for USD to not weaken if they started cutting rates as it is all relative to other currencies. This is a good example of that.

Aussie unemployment numbers overnight were pretty good AUD initially pushed higher with GBPAUD trading down to 1.9060 but that move soon reversed and the pair climbed to 1.9175 over the next couple of hours. Since then it has slipped slowly back to 1.9100. AUDUSD had similar fortunes, hitting 0.6515 after the data but now sots around 0.6475. The AUD weakness seems to have come more from a general softer tone in risk sentiment, plus some more weak housing data out of China overnight.

Biden met China President Xi yesterday, I could probably have written the result of the meeting which seemed to go something along the lines of ‘China is not a threat to US, China doesn’t want to challenge US, plenty of room for cooperation, US should not interfere with China internal affairs.’ The latter comment refers to Taiwan,, Xi made it clear peaceful reunification was their aim, although wouldn’t rule out force if need be. Some of the good work may have been undone when it was reported Biden had called Xi a dictator at an ‘off-camera’ moment after his press conference.

UK’s Rwanda deal for asylum seekers has been dealt a blow as the Supreme Court ruled the plan unlawful. I always presumed we wouldn’t really be shipping people to Rwanda, rather than it would act more as a deterrent to those who think we have become an easy place to obtain free benefits as well as freedom. The risk that people sent to Rwanda could be shipped back to their home country seemed to be the key reason for the plan being turned down. Talking of being sent overseas, I see David Cameron has been sent off the Ukraine for his first official visit. Cameron promised ongoing moral, economic and military support.

I went to see Passenger last night at Union Chapel in Islington. I have to say it was a pretty incredible event. Firstly, the venue was stunning, small enough to have that intimate feel with just a few hundred people in the audience. The music was as good, if not better, than I’d have hoped. It was capped off superbly when he dragged none other than Ed Sheeran on stage to duet ‘Let Her Go’. Wife was suitably impressed.

Meetings in London today mean I’ve got to wrap this up quick. Have a good day, not a major day in terms of economic data today, although we will have UK retail sales early tomorrow morning. Havre a great day, do look up ‘Let Her Go’ on YouTube for the Passenger/Sheeran version, and take a look at some pictures of Union Chapel which I’m sure won’t do the place justice but might give you an idea of what I’m talking about.

- 13.30 US philly fed survey, initial jobless claims

- 14.15 US industrial production

- 16.45 BoEs Ramsden speaks

- 22.45 NZ PPI

- 07.00 UK retail sales

US shoots lower on softer US CPI, lower UK inflation take GBP off its highs

Good morning

Softer US inflation numbers yesterday sent USD lower as the market started to discount the chance of rate rises. The quarterly and the annual rates were 0.1% lower than expected, including the core readings. I’d said just yesterday that USD might not weaken in the event of possible lower US rates. Got that wrong, can’t be right all the time I suppose! GBPUSD rallied from 1.2300 to hit a high of 1.2505, EURUSD followed suit moving up from 1.0700 to 1.0885 and even Yen managed to makes gains against the Dollar, USDJPY trading down from 151.75 to 150.15.

In the crosses, GBP came out on top, with GBPEUR up to 1.1505 at one point, while GBPJPY surged over 200 points higher from 186.20 to 188.25, EURJPY managed a 150 point rise to 163.90, the highest level since the pre-2008 GFC highs when it was up near 170.00. The high before then was 164.50 in 1998, just before the Russian banking crisis and the collapse of LTCM. The high before that was in 1992, just before the UK’s ERM debacle. I’m absolutely not suggesting we are primed for another collapse in EURJPY and yen crosses, just notable highs over the past 30 years or so.

Since 1992 GBPJPY has traded as high as the 250 area a couple of times, again pre-ERM and pre-GFC in 2008. Incredibly GBPJPY dropped from above 251 in July 2007 to around 119.00 by Jan 2009. We were working on the desk of a rather large financial institution in those days, you can imagine how crazy those days were.

UK inflation this morning has come out softer than expected, with the headline falling from 6.7% to 4.6%, the lowest level for two years, even the core reading slipped from 6.1% last time around to 5.7%, 0.1% lower than expected. GBP is off its highs, GBPUSD now 1.2470 and GBPEUR 1.1465. GBPAUD hit 1.9250 overnight but has fallen back is currently around 100 points lower, AUD getting a bit of support from higher than expected wage prices and talk that China may ease trade barriers for Aussie beef exports.

JPM’s Dimon has warned we should not get carried away with the inflation news, warning that the Fed may still need to push rates higher should inflation start rearing its head again although there are those who feel the Fed have actually done more than necessary and will need to cut rates quickly. A good example of just how much uncertainty there is right now as to US rates. I have mentioned recently a few major banks looking for rate cuts next year, BoA have now changed their forecast, they no longer see another US rate rise.

US retail sales data due out today and if this happens to come out weaker than expected we could see further USD losses. Its already quite a low expectation though at -0.3% from 0.7% last month. Do have to remember that everything is relative. A slower US economy and lower US inflation could lead to a lower US dollar, but if other countries face a similar situation then USD could still remain in demand. Perhaps not quite the time to chase the short dollar trade.

Biden meets China President Xi in San Francisco today, they certainly won’t see eye to eye on many things but the fact that they are meeting is a step in the right direction. The sceptic in me thinks China are now struggling a bit and as such it’s a good time to be friendly, but regardless, we’d all prefer the two powers to be on talking terms.

I’m off to see Passenger this evening. For those not sure of Passenger, it’s the guy who sung ‘Let Her Go’ back in 2012, one of my kids liked it so we bought the album (yes, still bought albums back then). The album, All The Little Lights, probably wasn’t a major hit, I don’t know anyone else who bought it, but I liked it. Now some ten years later he’s doing a few 10th anniversary gigs. I’m heading to Union Chapel in Islington which holds only 900 people, I did well to get tickets. My only hope is he plays songs from that album rather than from any of his other albums as I don’t know them. He’s done a few collaborations with Ed Sheeran over the years, indeed there is a new one on YouTube with both Passenger and Sheeran singing Let Her Go, worth a watch for sure. My wife is hoping Sheeran makes a surprise appearance this evening! That’s would be something.

In completely unrelated news, but something I thought I’d share, I only discovered yesterday that 5⁵ x 4⁴ x 3³ x 2² x 1ⁱ equals 86,400,000. 86,400,000 milliseconds is 86,400 seconds. Which happens to be exactly the number of seconds in one day. I’m not sure if this is coincidence or if there is some mathematical reason why this works, but for anyone who, like me, can be a bit intrigued by numbers, it’s a pretty interesting fact.

Cricket world cup semi-final today between India and New Zealand, tomorrow sees South Africa take on Australia. India are favourites for today and indeed for the tournament, while Australia are slight favourites to beat South Africa. As I type, India are going well at 70-0 after eight overs.

- 09.30 UK BoE monetary policy report

- 10.00 EU industrial production

- 13.30 US retail sales, PPI, NY empire state manufacturing index,

- 23.50 Japan trade balance

- 00.00 AUS consumer inflation expectation

- 00.30 AUS unemployment