Currency markets quiet ahead of key US employment data

Good morning

Well here we are, the start of June, it’s a sunny morning but according to the forecasts we’re on for some cooler and wetter weather than we’ve become used to.  I guess we could do with some rain, the grass needs it and the farmers will no doubt need it too.  But I’d become quite used to not having to worry about taking a coat of umbrella, or even a jumper anywhere.  Ah well, it is the UK. 

I survived my golf weekend where I did manage to play some golf and occasionally hit the ball quite well.  I blamed a lot of my poor shots on my recently replaced shoulder but on reflection I made those same shots well before the operation so perhaps I’m just back to where I started.  Mind you given I hadn’t played for pretty much one year I can excuse myself for some of the ridiculous errors I made, certainly in the short game. 

So, to the markets and a quick glance at currency levels suggests I didn’t miss much on Friday other than some late afternoon USD weakness that took GBPUSD and EURUSD up to 1.3485 and 1.1685, and USDJPY down to 159.10.  Reports this morning of US attacks on Iranian missile sites, and Iranian attacks in response, saw a bit of USD buying but so far only enough to take us 20-30 pips off Fridays highs.

Questions still remain over when, or indeed if, a deal will be struck with Iran and then what the impact is on oil prices and inflation in general.  There is a strong feeling that even if a peace agreemnt was struck today, there would be a lasting impact on energy prices for a considerable time. ECB rates are liekly to be raised this month and if US employment data due out this week shows ongoing resilience in the labour market there is a decent chance Fed will look at higher rates as well.  Mind you, new Fed Chair Warsh has made it clear he’d prefer to use alternative inflaiton measures such as timmed-mean data as they tend to filter out short term shocks.  There are plenty of reasons for and agaisnt this.  For now BoE don’t seem to be quite as eager to raise rates but at some point they’ll be forced to act if inflation remains elevated.

US ISM manufacturing PMI is the highlight of the calendar today.  We’ll have the latest inflaiton numbers out of EU tomorrow morning, but the main event will be the US nonfarm payroll release on Friday.

Ah, and commiserations to Arsenal for losing to PSG in the Champions League final on Saturday.  They came so close to holding onto their 1-0 lead but PSG finally broke down the Arsenal defence, taking the game to extra time and penalties.  Never a good way to lose.

Have a great day…

-  10.00 EU unemployment

-  14.30 CAD S&P manufacturing PMI

-  15.00 US ISM manufacturing PMI

-  02.30 AUS building permits

Still waiting for that peace deal

Good morning

It may only be a brief report this morning as I’m heading off on a golf weekend shortly.  This will be my first golf since I had my right shoulder replaced back in February.  I’m still not certain I’ll be playing, I haven’t even swung a club for almost a year, but I’ll probably give it a go and see what happens.  And of course I wouldn’t miss the weekend anyway, its one we do each year with some good friends from my old football team, some of whom I really only see at this event these days.  Looks like the weather will be good and a bit cooler than we’ve had it recently which is something of a blessing. 

To the markets and once again it is talk of a possible Iran deal to extend the ceasefire and reopen the Strait of Hormuz that seems to be moving the markets more than anything.  European markets closed down yesterday but US markets hit record highs and Asian markets had a strong session overnight.  Oil prices are trading near the lowest we’ve seen since the US/Iran ceasefire was announced despite the boss of Chevron warning oil prices could jump in the coming months due to reduced supply.  

Markets are brushing off the reported Russian drone strike on a residential building in Romania.  This is most likely an accident but marks a serious issue facing countries closer to Ukraine, particularly after reports earlier in the week suggesting Putin may look to spread the war to other European countries.  Meanwhile Armenia, who have historically had close economic and military ties with Russia, are facing parliamentary elections next weekend, a win for the pro-Western PM Pashinyan is likely to see Armenia seek EU membership.

I do find it interesting that the US dollar has not weakened more on this mildly positive development , it is almost as though the currency markets don’t quite believe the hype.  Perhaps the more hawkish tone taken by Fed officials recently is having an impact on the US dollar.  GBPUSD is 1.3430, EURUSD 1.1650, leaving GBPEUR 1.1530.  USDJPY remains in the 159s although is off yesterdays highs with traders still wary of further intervention on approaches to 160.  Both AUD and NZD have both benefitted from this latest boost to risk sentiment, now at 1.8750 and 2.2530 against GBP respectively.  AUD has continued to lose ground to NZD though, AUDNZD now around 1.2020 which is good news for the buyers of the AUDNZD puts I mentioned yesterday.  RBNZs Breman reiterated NZ rate could rise sooner and higher than previously thought.

I must say I feel very bad for not mentioning Crystal Palace’s Europa Conference league final win in yesterday’s report.  Their win means English teams have now won the Europa League and conference league, can Arsenal complete the treble by beating PSG in the Champions League final on Saturday? 

Today’s calendar sees several central bank speakers but otherwise its fairly limited although it is always interesting to hear what BoEs Bailey has to say, he speaks later this morning.  Next week is June, where does the time go?  We have EU retail sales and inflation, Aussie GDP and a raft of US employment data culminating in the nonfarm payrolls on Friday.  A strong reading here could persuade Fed officials that the labour market is resilient enough to handle a rate increase.  BoEs Bailey will be speaking several times next week as well.   

To the weekend then and we have Champions League final to enjoy on Saturday afternoon, a 5pm kick off is perfectly timed to coincide with us finishing our Saturday rounds of golf.  As a Spurs fan I shouldn’t really be cheering for Arsenal so perhaps I’ll brush up on my French for the match, ‘Allez PSG’, that sort of thing although now Spurs have survived the relegation battle I’m happy enough to not care one way or the other and part of me would like to see England win all three European trophies.  Once this weekend is out of the way attention will surely turn to the World Cup finals which start on 11^th June.  Plenty of football transfer news doing the rounds in the meantime I guess.

Have a great day, and a great weekend as and when it comes…

-  09.30 BoEs Bailey speaks

-  11.50 Feds Schmid speaks

-  13.00 German HICP

-  13.30 CAD GDP

-  14.10 Feds Bowman speaks

-  14.15 Feds Paulson speaks

-  14.45 US Chicago PMI

-  18.40 Feds Daly speaks

Reports of military action in Iran spooks markets

Good morning

I am get more than a little frustrated at the on/off nature of peace talks with Iran.  One minute we hear a deal is pretty much ready to be signed, the next we hear of renewed hostilities with attacks reported by both US and Iran.  US equities managed to close higher but most Asian markets were lower overnight and European indices are also lower this morning.  The US dollar has pushed higher with GBPUSD and EURUSD trading to lows around 1.3370 and 1.1585 in the early hours of this morning, USDJPY rallied to 159.65 at the same time.  Oil prices pushed higher overnight as well but have lost around 50% of those gains, Brent is now around $94.50 and WTI $91.00. 

Since then we’ve seen USD lose some of those gains, levels now for those pairs are 1.3400, 1.1610 and 159.50, no sign of intervention as yet from Japan.  GBPEUR is broadly unchanged around 1.1540.  I’ve seen some talk of France suggesting UK built EVs should qualify for EU subsidies and tax breaks, highly unusual for France to be on our side, does this possibly signal a change in stance from our EU cousins? 

On the subject of EV’s, a friend wrote in his daily column yesterday about the new Ferrari EV that has been unveiled, the Luce.  It is fast, very fast, and looks more practical than other Ferrari’s, with room on board for five people and a range of some 330 miles.  The interior has been designed with something of a retro feel and I think it really works.  If it were in my price range I’d consider it for sure, but at almost £500,000 I’m a long way from its target market.  The car’s release did not sit well with investors, a drop in Ferrari shares from 350 to 330 or so must have hurt, but I have a feeling Ferrari could be onto something, if there are enough buyers with that sort of money.  I remember Porsche being laughed at when the Cayenne was released, that car is now talked about as being Porsche’s saviour. 

AUD has lost a bit of ground, partly down to lower risk sentiment but also helped by that lower CPI number yesterday which puts a question mark over further RBA rate rises.  GBPAUD is 1.8820, not so different to yesterday given GBP’s decline as well, but AUD is notably lower against NZD, that pair now just below 1.2100 with some banks considering lower levels still, looking for potential unwinds of the long AUDNZD positions that have been put on in recent weeks.  With a more hawkish RBNZ it could be worth looking at some downside, maybe a 2 month (30 July) 1.1900 for around 40 nzd pips or even a 1.2000 strike for 70 nzd pips. 

We’ve heard from several central bank officials in recent days, ECB members seem to be pointing towards a rate rise and Fed officials also sound more hawkish.  Feds Cook, Jefferson and Kashkari all yesterday warned of higher inflation and seem prepared to raise rates if need be.  Kashkari also mentioned the relatively stable labour market, next weeks nonfarms could be more important than ever ahead of June’s FOMC meeting.  Trump wouldn’t be happy if Warsh’s first meeting as Fed chair leads to a rate rise.

Meanwhile BoE have not sounded quite as hawkish.  The last meeting saw one member vote for a rate rise, I’m not sure we’ve seen enough yet to turn that around significantly and with some generally weaker UK economic data I think they’ll more likely remain unchanged at their meeting next month.  Is there room for GBP downside?  For now, its really more about whether we get peace in Iran or not.  As we’ve seen several times, USD weakens on news of a peace deal and rallies on talk of military escalation. 

So, how much GBPUSD do I need to sell to earn me the £500,000 for the Ferrari?

Have a great day…

-  09.30 ECBs Cipollone speaks

-  10.00 EU consumer confidence

-  12.30 ECB minutes

-  13.30 US core PCE, GDP, durable goods, initial jobless claims

-  13.55 Feds Williams speaks

-  15.00 US new home sales

-  15.15 Feds Musalem speaks

-  16.40 BoEs Breeden speaks

-  16.45 ECBs Schnabel speaks

-  18.10 Feds Musalem speaks

-  00.30 Japan Tokyo CPI

-  00.50 Japan retail trade