Calm start to the week, central bank officials take up most of the calendar

Good morning

Welcome back, I hope you had a terrific weekend.  Spurs managed to look good this weekend, Marks Leeds beat titles rivals Sheffield Utd, but GB lost the Americas Cup to New Zealand.  Weather was mixed, if you were out at the right time it was sunny and felt positively warm, but at the wrong time you’d have got drenched.  I managed to mow the lawn, it does look good after its freshly cut although its that time of year when you turn around and a new layer of leaves falls just as you’ve finished. 

Scotland had a bit of a storm but I do love the way the press sensationalise things, particularly after we’ve seen the US hit by a couple of hurricanes recently.  The BBC headline says ‘clean-up to begin after high winds’, while showing just a photo of a trampoline straddling a three foot fence.  OK, I’m sure it was worse than that, but let’s not get carried away.

After the initial euphoria stemming from strong UK retail sales on Friday, GBP has called a little, with GBPUSD now 1.3025 and GBPEUR 1.2000, some 70 and 55 pips or so off their respective highs.  EURUSD is currently 1.0850 as Moldova take to the polls to vote whether or not to join the EU.  It is a close run thing, with less than 0.2% in it after 98% of the votes counted.  The current Moldovan president has blamed foreign interference on the narrow result, as the country decides whetehr to align more with the EU or maintain close ties with Moscow.

Elsewhere, you’d have thought comments from RBA DepGov Hauser who said Aussie rates won’t fall as early or as far as other central banks, would support the AUD.  However GBPAUD traded up to 1.9500 this morning, AUDUSD slipped back below 0.6700.  We did have a China rate cut this morning, it had been expected but I’m wondering whether some thought we might see a larger cut, and perhaps AUD has shared some of the disappointment.

It was a busy week last week with plenty of UK data, the ECB rate meeting and various inflation reports.  This week is certainly quieter, the first half of the week is mainly taken up with central bank officials speaking, plenty of Fed officials on the calendar ahead of their blackout period that starts at the end of this week.  We have the BoC rate announcement Wednesday at which a 50bps cut is expected.  The latter part of the week sees a host of EU, UK and US PMI releases,  

Next week we have the UK budget.  Many people I speak to have expressed concern as to what may be announced, we know it’ll have tax raises and I fear these could be harsher than we hope, but fortunately I don’t think we’ll see a repeat of the disastrous Truss/Kwarteng debacle a couple of years ago. Still, I find it difficult to see how GBP can really push higher ahead of next week’s announcement.

Gold prices hit new record highs of $2,733, led by ongoing geopolitical risks and, I presume, some renewed buying out of China.  Israel still haven’t hit back at Iran but that doesn’t mean they won’t, meanwhile they continue to hit Hamas and Hezbollah targets.

That’s about all for today, not the most thrilling of reads I know but there really isn’t much for me to get my teeth into. Have a great day, I’m out again visiting clients and don’t think I’ll be missing much in the office other than admin.

-  13.55 Feds Logan speaks

-  18.00 Feds Kashkari speaks

-  22.05 Feds Schmid speaks

-  22.45 NZ trade balance

-  23.40 Feds Daly speaks

Stronger UK retail sales push GBP higher

Good morning

ECB did indeed cut rates 25bps yesterday to take rates to 3.25% in a unanimous move that had been widely expected.  The cut is notable as it is the first back-to-back rate cut by ECB since 2011 and follows similar sized cuts in June and September.  Lagarde said that recent weaker inflation together with lower than expected economic data helped justify the decision.  Future decisions remain data-dependent, ECB still determined to bring down inflation although Lagrarde did seem to acknowledge the risks now for inflation were more to the downside. 

Euro did weaken through the day, with EURUSD trading down to 1.0810 at one stage, by the London close it was a few pips higher at 1.0835, while GBPEUR finished at 1.2000. 

Yesterday’s US data, including retail sales, Philly fed survey and initial jobless claims all came in stronger than expected which helped push USD higher, explain some of the decline in EURUSD.  GBPUSD traded down to 1.2980 after the US data but closed just around the 1.3000 area.

This morning, much stronger than expected UK retail sales data sent GBP higher, with GBPUSD reaching 1.3070 and GBPEUR to its highest level since April 2022, hitting 1.2055.  Both pairs are a few pips lower as I type.  Other GBP crosses all higher after the numbers, GBPJPY up at almost 196.00, while we are currently 1.9450, 2.1520 and 1.8020 agaisnt AUD, NZD and CAD respectively.

Overnight we had Japan inflation which was marginally in line with expectations.  The numbers had little in the way of market impact, with UDSJPY around the 150.00 area.  We haven’t heard from Japan officials on Yen for a while, obviously since USDJPY pushed below 150.00 but it is little surprise that now we are back up around that area we are hearing the old ‘we are watching yen levels with sense of urgency’, this time from Japan MoF’s Mimura.

China GDP was also on offer in the early hours of this morning, together with retail sales and industrial production.  All were better than expected which has brought a bit of calm to China watchers who are worried about their slowing economy.  AUD, strongly connected to the fortunes of the Chinese economy, found a bit of support from the healthier numbers.

Gold prices have hit new highs, trading up to US$2,714 this morning.  The ongoing unrest in the Middle East is clearly having an impact, Israel have confirmed the death of Hamas leader Sinwar, while Hezbollah has talked talking about an escalation phase of hostilities.  I also wonder whether China have resumed their much publicised gold purchases. Of course we still await Israel’s potential attack on Iran, which is likely to see gold push higher still.

Americas Cup today, GB will be hoping for a repeat of Wednesday with a couple of wins to level the series, while New Zealand could get within one point of overall victory should they win both races. 

In cricket, England had the opportunity to win the latest test match against Pakistan after bowling the hosts out for 221 in their second innings.  I was expecting to see a healthy score from England this morning in their run chase, instead I see a pretty horrific collapse which saw them bowled out for just 144.

To the weekend, and we’re back to domestic football.  I’ll have to mention that Mark’s Leeds play this evening against Sheffield Utd, something of a top of the table clash with Sheffield Utd currently in second place, Leeds just below them in fifth but with the chance to pull level should they win.  Spurs, looking to put the embarrassing loss to Brighton behind them, take on West Ham on Saturday.  The pick of the bunch could well be Liverpool v Chelsea on Sunday. 

Formula One returns after a break of several weeks, with the US Grand Prix.  Will McLaren continue their winning streak or will Red Bull, Ferrari and the others come back from the break with a spring in their step?

And finally in sport, a cheating scandal has erupted at one of the world’s premier sporting events, the World Conker Championship.  The winner, 82 year old David Jakins, who has competed in the event since 1977, has been accused of cheating after a metal conker was found in his pocket.  He insists it was just for a bit of fun, but after he demolished his opponents conker in one hit in the final, an investigation has started as to whether he used it in competition.

I’m out and about today seeing a client and a potential client, fingers crossed for that!  I’m hoping the weather stays dry, makes the drive far more pleasurable.  Its pretty foggy outside, I’m rather hoping that clears before I set off.  We’ve had some surprisingly warm days recently which means the grass has been growing so back on the mower on Saturday, although the forecasts suggests it’ll be quite wet so whether I actually get to cut the grass is dependent on the weather.

Have a great weekend

-  13.30 US housing starts

-  14.30 Feds Bostic speaks

-  15.00 Feds Kashkari speaks

-  17.10 Feds Waller speaks

-  17.30 Feds Bostic speaks

GBP remains under pressure, ECB to cut rates today

Good morning

GBP remains under pressure after yesterdays UK inflation numbers that surprised to the downside.  GBPUSD did get back up to 1.3035 yesterday afternoon but soon lost those gains and slipped back below 1.3000, this morning it has made new lows of 1.2975, although it has held up better against EUR with GBPEUR now 1.1965.

With inflation very much in focus right now, some attention will be placed on this mornings release of EU HICP, however the key will of course be the ECB rate announcement this afternoon, at which they are expected to cut rates 25bps to 3.25%.  This would follow cuts of 25bps in June and September this year, which took rates off their 4% peak.  EURUSD is currently 1.0850, the lowest levels since early August  

We could see some EUR weakness on the back of the rate announcement although the move is widely priced in.  Attention could instead be focussed on Lagarde’s wording at the press conference that follows.  There is thinking that some of the hawkish members will push for a more cautiously worded statement, so Lagarde may continue with the ‘rates are data dependent’ theme rather than hint at further cuts.  If so, EUR losses could be contained. 

Overnight, Aussie employment numbers came in on the strong side with full time employment rising by 64,000, far more than forecast.  The unemployment rate was lower than expected at 4.1%, the previous month rate was also revised lower.  The release was enough to send AUD higher, AUDUSD moved up from 0.6665 to a peak of 0.6710, AUDNZD climbed from 1.1000 to 1.1045 and GBPAUD dropped from 1.9490 to 1.9375. 

AUD has since lost much of those gains following a disappointing China press conference regarding property market stimulus.  However the numbers were probably enough to convince RBA that rates will be kept on hold into year-end and perhaps even into Q2 2025.

It’s a reasonable day for US data today, the key perhaps being retail sales which are expected to show a small uptick from last months pretty dismal number.  Philly fed survey and initial jobless claims are out at the same time.

Overnight we’ll get the latest China GDP readings, then early tomorrow morning we will have UK retail sales.  The y/y numbers are expected to show gains, we’re looking for a headline of 3.2%.  Whether that is enough to offer any support to GBP remains to be seen.

GB won both yesterdays races in the Americas cup to bring them back into contention and ensure racing continues into the weekend, although we are still 4-2 down.  No racing scheduled for today.

Its another exciting test match between England Pakistan.  England saw something of a collapse from 211-3 to 291 all out, following Pakistans first innings total of 366.  They are currently 47-3 in their second innings, a lead of just 122 as I type.  Its going to be an interesting third day.

Have a great day

-  10.00 EU HICP

-  12.00 Turkey rate announcement

-  13.15 ECB rate announcement

-  13.30 US retail sales, philly fed survey, initial jobless claims

-  13.45 ECB press conference

-  14.00 Feds Goolsbee speaks

-  14.15 US industrial production

-  00.30 Japan CPI

-  03.00 China GDP, industrial production, retail sales

-  07.00 UK retail sales