US and Iran exchange fire for a second day

Good morning

US headline CPI inflation came was bang in line with expectations yesterday at 4.2%, its highest level for three years.  It is now over five years since CPI was at or below target, some see that as a fault of the Fed although to be honest we’re including shocks such as Covid in that time which saw global inflation rates push higher, something the Fed could hardly control.  Even now, inflation is largely driven by energy prices, the core reading that excludes energy ticked up just 0.1% to 2.9%, indeed the month on month figure was actually lower than expected at 0.2%, down from 0.4% last time, something Warsh may point to at his first meeting as Fed Chair next week. 

Bank of Canada left rates unchanged as widely expected.  They see two way risks.  Inflation of course is a worry, but low growth and the threat of further US trade restrictions could well lead to a rate cut even with higher inflation.  Trump has suggested he may not renew the USMCA trade deal with Canada and Mexico.  For now, BoC seem happy to look beyond energy-led inflation.

A second day of military strikes by the US against Iran, plus repots of retaliatory strikes by Iran, makes a mockery of the idea of a ceasefire.  Trump says the strikes are aimed at bringing Iran back to the negotiating table and it has been reported that Iran did call during the US bombardment to ask them to stop.  Not sure what truth there is behind that, it certainly feels more like we are returning to full-scale hostilities putting the reopening of the Strait of Hormuz in doubt. 

One piece of interesting news though was Trump explaining that the US helicopter shot down recently has been on duty escorting oil cargo ships through the Strait, something that has allegedly been going on for a while, until recently unknown to Iran.  Trump said such action had been responsible for helping keep oil prices down.  The latest hostilities have pushed oil prices off their lows but prices this morning are $3-4 lower than overnight highs, perhaps there really is a feeling Iran will sign a deal.

England beat Costa Rica 3-0 yesterday evening, a convincing enough win but one that I think only the most ardent English fans would have bothered to stay up to see the end of.  It kicked off an hour late due to thunderstorms and torrential rain which meant it wouldn’t have finished much before midnight.   Tuchel now has to make his mind up about his starting eleven players ahead of the first group match against Croatia.  The tournament itself begins today with the opening ceremony followed by Mexico v South Africa. 

ECB rate announcement is the main event on the economic calendar today.  A 25bps rise is widely expected and priced in so I wouldn’t expect any fireworks unless Lagarde says anything completely away from the usual.  She is likely to leave the door open for a further rate rise later in the year.  Meanwhile Turkey are expected to keep rates unchanged at a heady 37% at their meeting today.  US PPI comes this afternoon, UK’s GDP will be released early tomorrow morning but this is April data, not the key GDP release, as such could come and go with little attention.

Looks like we’re in for some more heavy rain today but from Friday the forecast is for drier weather, at least for a week or so. 

Have a great day…

-  12.00 CBRT rate announcement

-  13.15 ECB rate announcement

-  13.30 US PPI, initial jobless claims

-  13.45 ECB press conference

-  23.30 NZ business PMI

-  07.00 UK GDP, industrial production

-  07.00 German HICP