Good morning
So Trump is the next US President, the US dollar pushed higher yesterday but actually by the close it had backed off and this morning we’ve seen further USD weakness. GBPUSD reached 1.2835 yesterday but hit 1.2945 just after the London open, EURUSD hit 1.0685 yesterday and managed to touch 1.0770, both pairs currently just 10 pips or so off those highs. GBPEUR at 1.2015 having been as high as 1.2035 overnight.
Must give US equities a mention as well. They posted strong gains yesterday, S&P500 was up over 2.5%, Nasdaq up almost 3% and DowJones up over 3.5%. Impressive moves that I’m sure Trump will love to see, we’ll certainly hear abuot that in days to come.
While GBP has performed reasonably well against USD and EUR, it has dropped against other currencies such as AUD and NZD, now 1.9485 and 2.1545, down from highs this week of 1.9770 and 2.1770 respectively. AUD strength has come despite talk of Trump introducing large trade tariffs on China, talk of some up to 60%. China President Xi has said he hopes for US/China cooperation from which they can both benefit. China stocks were up 2.5-3% overnight, something of a surprise given the tariff talk. Some mention of possible further stimulus looks partly responsible for higher equity prices.
German coalition government is on the brink of collapse as Chancellor Scholz sacks his finance minister over disagreements on spending and economic reforms. There will be a confidence vote in mid-Jan. A defeat would mean elections in March sometime. Euro unmoved news which I have to say is something of a surprise.
USDJPY hit highs around 154.70 overnight, now back to 154.00 but the yen weakness has certainly caught the eye of Japanese officials, with Mimura saying the moves are one-sided and drastic and he is watching with a sense of urgency. He adds that they are ready to take appropriate action, possibly the strongest words we’ve heard on the subject for some time and certainly a step nearer real intervention. Yen weakness is coming despite ongoing talks of a rate rise as early as December.
Gold is down around US$2,650, over $100 off the highs which many are talking about as an opportunity to get long. UBS have mentioned that renewed buying interest is starting to emerge.
UK BoE rate announcement today, a 25bps is widely expected and priced in. The vote will be of interest, its forecast to be 8-1 with Mann still looking for no move but there are questions as to whether other members will also call for no change. A further cut in December had been expected but those odds have dropped since the budget, the market looking more at quarterly moves by BoE. If more than a couple of members dissent, we can likely take a December cut off the table. Rates higher for long here I think.
FOMC rate announcement later today, a 25bps cut is also priced in, I guess the key question here is to what extent Trump tries to get involved in Fed policy and indeed whether he replaces Powell with his own selection. As with BoE, with a cut almost fully priced in, the attention is more on any forward guidance as to speed and scale of further rate cuts. I think both will talk of incoming data but I’d expect BoE to be the more cautious of the two when it comes to further rate cut talk.
Both Arsenal and Aston Villa lost in the Champions League matches yesterday, meaning Liverpool were the nly successful English team this week. Now attention of course turns to Spurs who look to continue their 100% record in the Europa League this evening against Galatasaray, a very hostile place to go and certainly not an easy match. Spurs will need to be on top form. Man Utd have had three draws in Europe so far, they will be looking for a win against PAOK who have so far managed just one point in the competition.
Meanwhile England’s cricket team lost the deciding ODI to West Indies who chased down the England total of 264 with seven overs and eight wickets to spare. Not as bad as it could have been either, England had been 24-4 at one stage so their total was pretty decent all things considered.
Have a great day
- 08.10 ECBs Schnabel speaks
- 10.00 EU retail sales
- 12.00 BoE rate announcement
- 12.30 BoE press conference
- 13.30 US initial jobless claims
- 13.30 ECBs Lane, Elderson speaks
- 19.00 FOMC rate announcement
- 19.30 FOMC press conference
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