Good morning
Option expiry times and US economic releases are back to normal following US clock change at the weekend.
US employment numbers on Friday were weaker than expected on all fronts. The headline was +150k against a forecast around +200k, while the unemployment rate ticked up to 3.9% from 3.8%. The previous months strong headline reading of +336k was revised lower to +297k. This will allow Fed to move very cautiously and puts further Fed rate rises less likely. US equities finished the day around 1% higher. The US dollar had been weakening already going into the release after some softer PMI data last week, and the nonfarm numbers sent USD lower still, with GBPUSD reaching 1.2385 and EURUSD up to 1.0745. This morning has seen further USD weakness, GBPUSD is currently 1.2410, EURUSD 1.0750.
GBP has certainly benefitted more than EUR, with GBPEUR now 1.1545, up from a pre-release of around 1.1485 and a low last week around 1.1425. Quite why GBP has made so much ground against EUR is a bit of a mystery to me. As always with GBP, there is a question of whether GBP can hold onto these gains. Mind you, out of Fed, ECB and BoE, it is BoE who are still more likely to push rates higher, this is probably where support for GBP is coming from.
USDJPY also moved with the lower USD, hitting 149.20 Friday, it has tested the 149.80 area a couple of times since but failed to break higher, now 149.40. The downside USDJPY option I looked at last week is currently in the money and buyers of that option can buy spot against it to lock in a small 20 pips profit. Does sound like much but it’s a return of 50% of the 40 pips we paid. Alternatively, buy spot in half the amount of notional to recoup most of the premium paid and leave the rest to run to expiry this afternoon.
AUD has pushed higher against USD ahead of the RBA rate announcement early tomorrow morning. AUDUSD has hit 0.6515 this morning, up from 0.6445. Indeed GBPAUD fell after Fridays US data, trading from 1.8960 to 1.8910, however the stronger GBP since has wiped out those Aussie gains and more, with GBPAUD now 1.9050. There is a decent chance of a 25bps rate rise from RBA. We had some higher Aussie inflation numbers in late October, while RBA’s new Governor Bullock has made some pretty hawkish comments recently. In case they do raise rates, an overnight 0.6550 AUDUSD call costs just 10 pips.
Asian equites markets were stronger overnight, driven by the general idea that rate rises could be coming to an end, but also helped by a a ban of short-selling by Korean regulators which saw the key Korean equity index, KOSPI, move up over 5% this morning which means it is now above 2500, up some 10% from the end-Oct lows around 2275.
Running late today as you’d probably guessed so I’ll have to draw to a close. England cricket team failed to beat Australia which means whatever chance we had to hold onto our world championship has gone. Spurs lost their place at the top of the table as Man City crept above them after beating Bournemouth. Still, Arsenal and Liverpool failed to win which helps. Spurs take on Chelsea this evening which could see us retake the top spot although i’m never confident against Chelsea regardless of how poor they have been playing. It would be typical for Spurs to lose their first match of the season against their old manager.
Have a great day
- 09.00 EU composite PMI
- 09.30 UK construction PMI
- 15.00 CAD Ivey PMI
- 17.00 BoEs Pill speaks
- 18.00 ECBs Nagel speaks
- 00.01 UK BRC retail sales
- 03.00 China trade balance
- 03.30 RBA rate announcement
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