Risk sentiment improves as US halt Iran strikes

Good morning

Welcome back, I hope you had a terrific weekend.  Something remarkable happened here, small drops of water fell from the sky for about five minutes on Sunday.  Yes, we got some rain.  It didn’t last long and had little effect other than make the car even more dusty than it was before.  The grass remains brown interspersed with weeds that look far greener and healthier than the grass which is a bit frustrating but once again shows how some plants can thrive in harsh conditions.

To the markets, and the news over the weekend is that US paused attacks on Iran which has brought a bit of improved risk sentiment to the markets.  Oil price have slipped with WTI and Brent each now $84 and $87, well down from last weeks highs.  The strikes were paused in order to encourage a return to the negotiating table, however I did read that Trump had been warned of possible shortages in missile stocks which could well have impacted his thinking.  Meanwhile Saudi Arabia continue to strike Houthi targets after their recent attacks on shipping in the Red Sea.   It may be a bit early to get optimistic but for now European stocks have taken comfort from the news, opening higher this morning.

The US dollar lost a bit of ground on this improved risk sentiment.  GBPUSD say highs around 1.3360 overnight, up 40 pips or so from Friday’s close, while EURUSD climbed from 1.1370 to 1.1415, GBPEUR off a few pips but still around the 1.1700 area.   In the crosses, GBP starts the week at 1.9050, 2.3000 and 218.05 against AUD, NZD and JPY, the latter off recent highs as USDJPY slipped from 163.85 to 163.35 on the weaker US dollar. 

Plenty on the calendar for the week ahead.  German, EU and US GDP, German, Aussie, EU and Tokyo inflation, and US core PCE are all on the calendar as well as the FOMC, BoE and BoJ rate announcements.  For now the general feeling is that all three will vote to keeps rate unchanged.  BoE has previously suggested it is happy to overlook energy-led inflation for now even if this means a delayed return to target, it seems unlikely this view has changed to any great extent.  The voting pattern will be of interest, I’m thinking it will mirror the 7-2 we had last time, although it is possible we see one more vote for a rate rise.

For FOMC,  hold is also the most probable outcome after the lower US CPI readings a couple of weeks ago as well as the ongoing geopolitical risks.  As with BoE, it is likely one or two members may offer a more hawkish outlook.

We start the week today with german IFO this morning and US durable goods data this afternoon.  We’ll hear from RBA’s Bullock in the early hours of tomorrow morning, just 24 hours or so before Aussie CPI inflation figures that could sway RBA decision makers at their meeting on 11^th August. 

In other news, my Twitter (X) feed seems to be full of cyclists who video car drivers using phones or driving dangerously, and taking great delight in reporting those offences to the police.  Many of these are indeed dangerous or at least thoughtless on the drivers part and I presume regular cyclists probably experience bad driving almost every time they get in the saddle.  But I admit I did chuckle when I read of one cyclist who sent such a recording to his local police force, only to be fined £1,200 himself for riding without due care and attention.  Not every cyclist is right.

Have a great day…

-  09.00 German IFO

-  11.00 German Buba monthly report

-  13.30 US durable goods

-  04.05 RBAs Bullock speaks