US employment data pushed USD higher, Middle East action shakes markets

Good morning

I hope you had a tremendous weekend.  Sports fans will be pleased to see England beating New Zealand in both football and cricket.  Football was a warm-up game ahead of the World Cup, acclimatising players to the heat.  The intensity of the football wasn’t what we’d hope to see, that could be either the temperature or the reluctance to be too energetic and avoid injury before the tournament begins.  Still, it was a win I suppose.  England play again on Wednesday, their opponents this time are Costa Rica. 

In the cricket, well it wasn’t exactly the most memorable test match but again, it’s a win.  With England managing just 140 and 226 in their innings you’d think New Zealand would have half a chance but their totals of 113 and 138 fell far short of the figure required for victory.  The Lords wicket has faced some criticism for its part in a test match that, weather depending, could have been all over in two days. 

The US nonfarm payrolls headline on Friday came out much stronger than expected at +172k, with an unchanged unemployment rate of 4.3%.  The data seems to underline the resilience of the US labour market and potentially opens the door for a Fed rate rise to counter Iran war-led inflation, something I am sure incoming Fed chair Warsh had not expected when his nomination was announced.  

US bond yields rallied, the US dollar surged higher, GBPUSD and EURUSD traded from 1.3480 and 1.1640 to 1.3330 and 1.1520 respectively, and USDJPY traded up to 160.40, just 30 pips or so off the highs we saw at the end of April which triggered large-scale intervention by the Japanese authorities.  US equities fell sharply, the Nasdaq closed over 4% lower, wiping out June gains made so far in June although at 29,218 the index remains well above April lows of 22,800.

News over the weekend that Iran had fired missiles at Israel in retaliation for Israeli airstrikes on Beirut on Sunday sent markets into a bit of panic.  Asian markets fell overnight, oil prices rallied on the open, WTI and Brent now some $4-5 higher than Fridays close.  The US dollar made small gains initially but that move was short-lived, with GBPUSD and EURUSD now back to 1.3330 and 1.1520.  European equities have opened lower although futures pricing suggests US equities could regain some of Fridays losses.  The US-Iran ceasefire is fragile but there is some hope that both Israel and Iran will refrain from further attacks, with Trump expressing some anger at Israel’s actions and urging Iran to not let those attacks derail US/Iran peace talks, which are still at a stalemate.

In Ukraine, Putin has firmly rejected Zelensky’s suggestion of peace talks, saying the tone of the request was rude which would make negotiations impossible.  Putin is in no mood for peace and NATO are looking at a new EUR70bn military aid package for Ukraine as it seeks to defend itself from further Russian attacks.

Today’s economic calendar is pretty much empty.  The highlights this week are likely to be US CPI inflation numbers and then ECB and BoC rate announcements.  BoC are expected to remain unchanged but ECB should raise rates 25bps to 2.25%.  The world cup finals begin on Thursday, I’m looking forward to the tournament but with many matches kicking off late due to the time difference I’m not sure I’m going to be watching as many of the 103 matches as I’d like. 

Have a great day…

-  00.01 UK BRC retail sales

-  01.30 AUS Westpac consumer confidence

-  04.00 China trade balance