Door open for possible lower US rates after softer US CPI inflation

Good morning

The prospect of lower US rates came a step closer after US CPI inflation came out pretty much in line with expectations, therefore importantly lower than last month, while the m/m headline was 0.3% vs 0.4% expected.  At the same time, a lower than expected retail sales number was released, the latest economic statistic that points to a potentially weakening economy.   USD weakened and US stocks surged higher, many making all-time highs, on hopes that perhaps a rate cut may come at some point in 2024. 

GBPUSD traded up from 1.2620 to a high overnight of 1.2700, EURUSD moved from 1.0825 to almost 1.0900, while USDJPY fell from 156.00 to hit a low overnight of 153.60.  USD is a little off those lows now, at 1.2675, 1.0875 and 154.30, but with possible rates rises off the table and rate cuts back in favour, the potential for further USD weakness is clear.  The move in USDJPY has dragged GBPJPY lower to 195.50, while GBP has made a little ground against EUR, now at 1.1655.

AUD weakened a touch after disappointing Aussie employment numbers overnight. The headline figure of +38.5k looked decent but the drop in full time employment this month, and a downward revision to the previous month, plus as increase in the overall unemployment rate, was enough to see AUD lower.  GBPAUD pushed up from a low of 1.8910 to 1.8995, now 1.8980, while AUDNZD slipped from 1.0940 to 1.0915.  Not a massive move, I have no doubt RBA will be looking at these numbers closely, but it probably won’t be enough to turn them overly dovish..

The headlines are dominated by the news of the attempted assassination of the Slovak PM Robert Fico, who was shot several times.  I must confess my immediate thoughts were ‘it must be the Russians’ but Fico is something of an ally to Putin and rather anti-EU.  He has also been linked to the Italian mafia, according to news reports.  The shooting does seem politically motivated, political opinions in Slovakia are hugely divided between those in favour of the West and the EU, and those seeking closer relations with Russia.   The shooter was detained at the scene so I’m hopeful we will learn more about the motives behind the attack.

A win for Chelsea last night has put them in touching distance of the fifth place, should they win and Spurs lose at the weekend.  Newcastle would have been in the same position had they beaten Man Utd, but in the end it was Man Utd who came away the winners.  It is now all down to the last matches of the season on Sunday.  Elsewhere in the football world, Mark’s Leeds take on Norwich tonight in the second leg of the Championship play-off semi-final.  The winner will face either Southampton or West Bromwich Albion in the final, that tie will be played tomorrow.  Mark could be in a great mood or a terrible mood this time tomorrow.

Following that US inflation number, Fed officials have been quick to rule out early rate cuts, Kashkari has said the economy is still more resilient than had been expected.  We have several Fed officials speaking today, we will be looking for any clues as to their thinking after the latest inflation data.  We do have some US data on the calendar today, not the most important perhaps but any weaker than expected numbers may well add to the notion that those rate cuts could still come in 2024.

Have a great day, it looks like we could get a bit of rain which would be disappointing but we’re well and truly used to it by now. 

-  12.00 BoEs Greene speaks

-  13.30 US philly fed survey, housing starts, initial jobless claims

-  14.15 US industrial production

-  15.00 Feds Barr speaks

-  15.30 Feds Harker speaks

-  17.00 Feds Mester speaks

-  20.50 Feds Bostic speaks

-  23.45 NZ PPI

-  03.00 China retail sales, industrial production

USD direction to be dictated by US CPI inflation numbers this afternoon

Good morning

The markets shrugged off a higher than expected headline US PPI reading yesterday.  On the face of it, it was somewhat surprising that USD lost ground to GBP and EUR, reaching 1.2590 and 1.0825 in the afternoon.  However closer inspection shows the previous months reading were revised lower which took the shine off the most recent months numbers.  As I type we are pretty much at the highs in GBPUSD and EURUSD, now 1.2600 and 1.0830, the slightly softer US dollar also helping to bring USDJPY lower, now at 156.00, GBPJPY remains up in the mid 196’s.

Feds Powell spoke later in the day and talked of a cooling economy, lower wage growth and lower demand for workers.  He referred to the latest PPI data as ‘mixed’ and downplayed the idea that the next Fed rate move would be higher, although he, and a couple of his colleagues, stressed the usual theme that rates will be high for longer, given the reluctance for inflation numbers to move lower.  Feds Mester went so far as to say that progress is curbing inflation had halted although she too drew the line at raising rates further. 

This afternoon brings the latest US CPI inflation numbers, I’m never sure if the likes of Powell see these numbers early, if he did then he certainly didn’t go out of his way to indicate any significant let up in the inflation rate.  The market is looking for a dip in the headline rate from 3.5% to 3.41%, and a drop in core from 3.8% to 3.6%.  Higher energy prices could well have impacted the monthly reading.

We will also have EU GDP this morning, no major market impact expected.  Recent comments from ECB officials have supported the idea of an ECB rate cut in June.  They would clearly like to do more but I think they’ll want to see the impact of any rate cut before pushing for another.  While they say they don’t need to move in unison with the Fed, it is clear they will have an eye on Fed rate expectations and perhaps even the level of EURUSD when looking at rate moves beyond June.

Nothing out of the UK data-wise today but Bernanke will be addressing Parliament following his recent Bank of England review. This is unlikely to impact the markets but it may be interesting to see whether we get more details on his suggestions.  Some thinking a Fed-style dot-plot could be on the agenda.

The US have imposed wide-ranging tariffs on many Chinese imports.  Biden has said he does not want conflict with China, but does want fair competition. At present, the Chinese government is pouring money into Chinese firms allowing them to sell products at unfairly low prices.  China aren’t happy of course.  Yellen said she doesn’t see the tariffs causing meaningful price rises.  Meanwhile China President Xi is set to visit Putin, just as Biden has confirmed US weapons are set to be delivered to Ukraine.  This comes at a time when Russia have been increasing attacks on Ukrainian positions, with some success.  Talks between Xi, hurt by the latest US tariffs, and Putin hurt by the Wests support of Ukraine, will no doubt have a real  anti-West theme.  GCHQ have warned Russia could be planning attacks on the West, both cyber attacks and more physical sabotage. 

Elsewhere, AUD shrugged off a lower than expected wage price index reading overnight, partly due to the previous month number being revised higher.  GBPAUD now 1.8960 having traded up to 1.9030 yesterday.  The latest number will offer some encouragement to RBA but they’ll want to see more data to be sure wage growth is slowing. These revisions to the previous month won’t help.

Spurs lost to Man City yesterday evening and in doing so lost the chance to take fourth spot in the Premier League.  The win for Man City puts them in the driving seat to take the title at the weekend, assuming they beat West Ham in the final match of the season.  A draw for Man City won’t be good enough if Arsenal were to beat Everton in their final match.  This evening sees both Chelsea and Newcastle play, they are the two teams below Spurs and wins for each of them would give them the opportunity to finish the season level on points but with a better goal difference than Spurs.  That would add further disappointment to an already underwhelming end to the season.

Have a great day

-  10.00 EU GDP, industrial production

-  13.30 US CPI, retail sales, Empire state manufacturing survey

-  15.05 Bernanke address UK Parliament

-  17.00 Feds Kashkari speaks

-  20.20 Feds Bowman speaks

-  00.50 Japan GDP

-  02.30 AUS unemployment

Watching Yen as it weakens to post-intervention lows

Good morning

It was another fairly quiet day in the currency markets yesterday.  We saw a slightly weaker USD which took GBPUSD and EURUSD to 1.2570 and 1.0805 respectively.  JPY also weakened, USDJPY broke above that 156.00 level I mentioned yesterday that had capped since the ‘intervention’ in early May, reaching a high this morning of 156.50 which in turn has taken GBPJPY up to 196.55.  Both GBPUSD and EURUSD are just a touch lower than yesterday’s highs, now 1.2555 and 1.0785 respectively. 

UK unemployment this morning was broadly in line with expectations and has had little lasting impact on the markets.  GBPEUR has made something of an attempt at a recovery, now 1.1645 after seeing a low of 1.1600 last week.

After the weaker US employment numbers last week, attention will turn to the release of the US CPI inflation tomorrow.  While this is certainly the key release this week, eyes will also be on today’s PPI numbers out of the US just in case we get something of a surprise either way.

Last night saw Aston Villa stage a decent comeback from 3-1 down to draw 3-3 with Liverpool.  Villa are likely to hold onto fourth spot, although it is mathematical for Spurs to overtake them.  Mind you, Spurs will need to beat a somewhat buoyant Man City side this evening to stand any chance of getting that Champions League spot.  Not sure I fancy their chances with that.  Of course, while the title will not be decided this evening, anything other than a win for Man City will put Arsenal in the driving seat heading into the last match of the season at the weekend.  Everything still to play for.

I’ve been having some painting done around the house, one of the joys of wooden framed windows is they do need fairly regular care and attention.  The last few days have been superb but I fear I’m going to have the decorators doing their stuff inside today as the weather gods have decided we’ve had more than our fair share of sunshine and have chosen instead to provide us with more rain.  Indeed, looking ahead as I do to the forecast over the next couple of weeks, there is a raindrop showing on almost every day until the last week in May.  I have a golf weekend at the very end of May, it’s a difficult enough game when the weather is good, I’m not greedy, I’m not asking for sunshine, just keep it dry!

As you can tell there is very little in the way of important market news so to avoid the risk of me just rambling on about nothing in particular you’ll be pleased to hear that I’m going to leave it there. 

Have a great day.

-  08.30 BoEs Pill speaks

-  10.00 German ZEW

-  13.30 US PPI

-  14.10 Feds Cook speaks

-  15.00 Feds Powell speaks

-  02.30 AUS wage price index