BoE to cut rates 25bps; Will Trump announce trade deal with UK?

Good morning

VE Day today, the 80th anniversary of Victory in Europe, marking the formal acceptance of all Germany’s unconditional surrender in 1945.  At 6.30pm churches and cathedrals will ring their bells so if you are near one, or perhaps more churches and hear some bells, you know why.

Fed did keep rates on hold as expected.  Powell did mention that uncertainty on the economic outlook had increased but otherwise there wasn’t really anything new and the Fed were clear they would not look to male pre-emptive moves, preferring to assess incoming data.  The US dollar did push a bit higher through the press conference, perhaps the markets were hoping for something slightly more on the dovish side.  Trump won’t be pleased but as yet I’ve not heard anything from him criticising Powell and his colleagues.

Trump is also unlikely to be pleased with China trade data that is due out overnight and is expected to show a surplus in the region of $94bn for April.  We’re waiting to see if anything positive comes from the US-China trade meeting today but I think this is going to take a while.

Trump did comment overnight that a major trade deal with a ‘big and highly respected country’ will be announced later today.  Initial thoughts were that this could be India or Japan, but rumour has it that it could actually be the UK. 

In currencies, GBPUSD has had a bit of a topsy-turvy time, trading down to 1.3280 after FOMC, then up to 1.3355 overnight on this possible US trade deal, but has slipped back to 1.3275 this morning.  GBPEUR is holding up around 1.1770, just a few points off the overnight highs.   

RON continued to weaken yesterday with EURRON trading up to 5.1250 which amounts to a 3% move since last week as the impact of an incoming anti-EU government starts to hit home.   

Arsenal failed in their attempts to reach the Champions League final, PSG coming out on top as they had in the first leg.  Have to say though that PSG once again had their keeper to thank, he made several astounding saves including one very early in the match which, had Arsenal scored, would have turned the tie on its head. 

The big stuff comes this evening, as Spurs look to maintain their 3-1 advantage over Bodo/Glimt although it will be tough given Bodo have an incredible record at home this season.  They do have an artificial pitch which, for anyone who has ever played football, is very different from playing on a grass pitch and will undoubtedly give the home side an advantage.  Earlier this season Spurs played lowly Tamworth in the FA cup and really struggled on their artificial pitch, only winning the tie in extra time.  Fingers crossed! 

Man Utd will hope their 3-0 advantage from their first leg against Bilbao will be enough to see them through to the final, and while nothing is certain in football, Chelsea will be confident of their chances for getting through to the Europa Conference final.

BoE rate meeting today and a 25bps cut is expected and mostly priced in.  We’re looking at the vote split and I’m expecting to see the dovish Dhingra vote for a 50bps cut, the real question is whether Mann goes dovish again and joins her and makes it a 7-2 vote (7 for 25bps, 2 for 50bps).  

Remember, Morgan Stanley recently told its clients they are looking for five 25bps cuts this year which would take rates down to 3.25%, UBS on the other hand see a cut today and then just two more 25bps cuts to leave rates at 3.75% by year end.  Either way, more cuts are expected.  The UK government could face problems meeting its own fiscal rules according to the NIESR, who say that weak tax receipts on possible lower growth will impact the deficit.

So, BoE is the main event but watch out for some volatility this afternoon on Trump’s trade deal announcement.

Have a great day…

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  13.30 US initial jobless claims

-  15.00 Trump trade deal announcement

-  04.00 China trade balance