Good morning
GBP has clawed its way back up to the 1.26s and 1.17s against USD and EUR respectively, those now trade at 1.2625 and 1.1725. GBPUSD was helped by a weaker USD, also reflected in EURUSD which is now up at 1.0770, GBP has made the bigger gains but it had also lost the most ground post-nonfarms last week. The rise in GBP comes despite comments from BoEs Dinghra that she feels the downside risks for the UK economy are being underplayed. Remember though Dinghra is a well-known dove, the member who voted for a rate cut at the BoE meeting last week.
The change of fortune in the US dollar came as something of a surprise to many, particularly given those strong employment numbers and Powell’s push back on early rate cuts. We have several Fed officials speaking today, just as well or the calendar would look very sparse indeed. I’d imagine they will follow a similar theme to Powell. To prove the point, Feds Mester said yesterday that the economy is in a good place and that while three rate cuts this year look appropriate, it would be a mistake to cut too early, while Kashkari said that good progress has been made on inflation, but the job is not done yet. Pretty much what Powell said the other day.
We will have the latest RBI rate announcement early tomorrow morning. They are expected to keep rates unchanged at 6.5%. Bloomberg reports that the likes of Goldman Sachs and Morgan Stanley are looking at India as the next big area for investment, as money is being pulled from China while their economy seems to be on a downward trajectory. China have been working hard to introduce measures to stop equity prices falling there, indeed it seemed to have worked overnight with China shares all the in the black but the major indices remain lower than they were one month ago, and considerably lower than they were one year ago.
To add to China’s woes, heavy snowfall and bitterly cold weather looks like it could affect the upcoming holiday season. It is thought some 450-600 million journeys will be made by workers returning home for the new year holidays. That’s a massive number. Talk of roads being closed, trains and flights cancelled. Holidays officially start on 10th Feb and last for one week, although many manufacturing plants have already slowed down or even closed ahead of the official holidays.
I mentioned NY Community Bancorp stocks last week, at that point they had pretty much halved at that point, here we are a few days later and they are lower again as Moodys cut their rating to junk status. As we know, once the rot starts and confidence wanes it is very difficult to recover, although Yellen insists that the regulators have the commercial real estate issues well under control. We’ve heard that before!
NZD had a boost overnight on better than expected employment data. NZDUSD has traded up from the lows earlier this week around 0.6040 to 0.6110, although this is also on the back of a weaker USD. AUDNZD, perhaps a better guide of relative NZD strength, is trading below 1.0700, just hitting the lowest levels we’ve seen since Dec 2023. We have found support around 1.0700 since the start of 2024 so we’re watching this move closely.
In sport, Mark will get cross if I don’t mention Leeds victory over Plymouth in extra time to put them through to the next round of the FA cup. Their opponents in the next round will be decided this evening when Aston Villa take on Chelsea. I saw Chelsea play Wolves at the weekend, it really isn’t going well for them at the moment, Villa must fancy their chances.
Have a great day
- 13.30 US trade balance
- 16.00 Feds Kugler speaks
- 17.30 Feds Barkin speaks
- 18.30 BoC sumnmary of deliberations
- 19.00 Feds Bowman speaks
- 01.30 China CPI, PPI
- 02.00 NZ inflation expectations
- 04.30 RBI rate announcement
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