Bond yield woes continue to weight on EUR

Good morning

Not a great deal going on in the major currencies.  The US dollar has kept much of its recent strength helped by decent enough PMI numbers yesterday, GBP and EUR are now 1.3215 and 1.1210, with GBPEUR a touch lower at 1.1790.  USDJPY is back above 158.00 but does seem to face resistance as it gets to the 158.40 area.  GBP is 209.00 against JPY, and against AUD, NZD and CAD it is currently 1.8970, 2.3625 and 1.8865.  NZD is the weaker of that bunch, with AUDNZD back up to 1.2450 despite a decent NZ business confidence number overnight.

The political and fiscal situation in Europe remains difficult.  Spain did call a snap election, due on 29^th November, following protests over housing and rents, France’s education system is in disarray after a week of violent protests over a lack of funding.   German/French and German/Italian bond spreads remain at elevated levels. 

Yemen and Saudi Arabia are reported to have taken back land recently seized by the Houthis.  Oil prices are a touch lower but there are plenty of warnings about the state of global oil inventories, with Saudi Aramco’s boss saying they are at ‘scarily low’ levels. 

I am currently on a course of antibiotics to combat a bit of a chest infection which isn’t unusual for me at this time of year.  However, there are reports out of Russia of a pneumonia-type death in a plague research centre in Siberia, with some suggestions hundreds of people have been under observation since the death.  The mainstream media is playing it down a bit, while the likes of Twitter (X) are far more sensationalist and doom-mongering.  Worth keeping an eye on but hopefully quietly passes by.

It is Amazon’s big deals day today which I always get interested in but there isn’t anything I really need.  I’m sure if I looked hard enough I’d find something so probably best I’d stay away.  I’m never sure if they really are good deals, it does feel a bit like the old carpet or furniture shop sales, but I guess you can get lucky.  Probably a good thing that I’m out and about a bit today so I won’t be tempted. 

England play football again this evening as they take on Czech Republic in the last of this round of Nations League matches.  This comes on the back of England’s impressive 7-0 win over Croatia, whether they can emulate that form remains to be seen.  This match will mark the end of England’s international break, all ready for Premier League action to return on Saturday.   

Not much on the calendar today, it is quite likely we have another quiet session ahead of us.

Have a great day…

-  09.40 BoEs Mann speaks

-  10.00 EU retail sales

-  14.00 ECBs Cipollone, Elderson speaks

-  14.05 Feds Williams speaks

-  15.00 CAD Ivey PMI

-  15.45 Feds Bowman speaks

EU political and fiscal worries send EUR lower

Good morning

US nonfarms on Friday surprised to the downside which took a bit of a shine off the US dollar.  The headline came on at +29k while previous readings were also revised lower.  GBPUSD pushed up 40 pips or so from its lows around 1.3200 to 1.3240, EURUSD saw a similar sized move from 1.1225 to almost 1.1265 while USDJPY dropped 75 pips from 157.70 to 156.95.  Weaker factory orders data later in the afternoon gave another reason to sell the US dollar, GBP and EUR reached 1.3255 and 1.1285.  The data reduced the likelihood of a Fed rate rise this month, which in turn send Nasdaq to record highs.

Since the open last night we have seen the USD sell-off unwind, GBP dipped to below 1.3200 before recovering to 1.3225, EUR has been hit harder, seeing a low so far of 1.1165 which has helped GBPEUR break 1.1800 for the first time in about three months.  So far we have been as high as 1.1823, just a few pips below the July high.  We have to go back to June last year for levels above that.  French fiscal worries and ongoing of fears of contagion in EU government bond markets is leading the EUR decline, but there has been talk of a possible early election in Spain which will only add to political uncertainty in the EU area.

Brazil is facing second round elections after the right wing Bolsonaro secured some 47% of the vote, beating Lula, the current President, who secured only 45%.  Bolsonaro is the son of the former President Jair Bolsonaro who was jailed after trying to start a coup after losing the 2022 election.  The next ro0und will be 25^th October.

In the Middle East, the Yemen government has launched attacks on Houthi positions in attempt to regain control amid the Houthi attacks on Saudi Arabia.  There is some thinking that the US aircraft carrier en route to the Middle East could be utilised to help Saudi Arabia min its efforts against the Houthis, something the US have so far refused.  Meanwhile the US have moved B1 bombers from RAF Fairford, a move that has surprised many but follows the recent security incident and subsequent US criticism of UK’s decision to release suspects on bail.

Close to home, the UK are considering tariffs on China electric vehicles to match EU rules.  EU are concerned that UK could become a gateway for cheap EV’s entering the European market and are demanding the UK take action in order to remain in the ‘Made in Europe’ initiative. 

In other news, England’s footballers put on a stunning performance in their 7-0 demolition of Croatia at the weekend.  Typically, I was out and couldn’t watch the match but I am told that we were quite formidable, particularly in attack. 

I have started watching Traitors.  It’s the first time I have watched the show, I know so many people who talked about how much they enjoyed previous series so we thought we should join the party.  The show’s organisers must have been livid with Richard E Grant for disclosing his ‘Traitor’ status within minutes of the start.  What a buffoon.  Anyway, having caught up on the first two episodes I can see the attraction but it’s all very slow.  I presume it livens up a bit as the game goes on. 

There is plenty going on at the moment that suggests the world is not in a good place.  But one piece of news really caught my attention.  Some areas in the UK are being offered potty training classes for their children in an effort to ensure they are properly prepared for schooling.  Now, we have had three children, none of whom had any issue by the time they went to school, nor did any of their classmates as far as I am aware.  What has happened to parents in the last 20 years that means they now need courses on how to help their kids?  And how much do these courses cost the taxpayer?  It is, for me, another example of how people just assume the state will take care of their responsibilities.  No wonder we’re in a mess.

Have a great day…

-  10.00 ECBs Schnabel speaks

-  11.40 ECBs Escriva speaks

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI

-  22.00 NZ NZIER business confidence

EUR lower as EU bond spreads widen

Good morning

EUR weakness is a current theme in the currency markets, EURUSD saw a low around 1.1215 yesterday while GBPEUR pushed as high as 1.1755.  Widening spreads in EU bonds seemed to be the catalyst, the France/German spread moved to its widest level since 2012, now around 143bps compared to a 2026 low around 55bps after France revealed its latest budget plans.  The spread between Italian and German 10 year bonds has also risen sharply, now around 120bps, double this year’s low.  EURCHF fell sharply from 0.9480 to a low so far around 0.9305.  Meanwhile, German Chancellor Merz has warned that Europe may face severe hybrid attacks from Russia including sabotage, cyber-attacks and destabilising activities.  Merz said desperate Russian actions are evidence of its failures in Ukraine.

GBPUSD traded to a low of 1.3180 yesterday, not far off my key 1.3150 area.  The US dollar strength came despite some slightly dovish comments from Fed officials who seem to suggest they can take time before raising rates again in order to see the impact of the recent rate rise.  A rise in October now seems unlikely which will please Trump who has said it is bad the Fed raised rates but he doesn’t blame Warsh for the move.  There are still some Fed officials who would like to see rates pushed higher again, for example Kashkari has said current rates are not particularly restrictive and he is pleasantly surprised with the resilience of the US economy. 

Overall, it feels like more Fed rate rises could be seen but perhaps not urgent enough to come this year.  US bond yields have dropped in response to money flowing into US treasuries which are regarded as more of a safe haven than other global bonds.  The UK’s 30 year gilt yield pushed briefly above 6% yesterday.

In other crosses, GBP is a touch lower than the previous day, now 1.9035, 2.3525 and 1.8790 against AUD, NZD and CAD.  GBP is also lower against Yen which now trades at 208.30 having seen a low yesterday of 207.60, helped by a bout of Yen buying in the afternoon and then after Japan’s higher inflation numbers released overnight. Japan’s EconMin Kiuchi said extraordinary monetary stimulus in Japan is no longer needed.  Some talk doing the rounds of an early UK general election, possibly as soon as May 2027.  Nothing confirmed on this

Oil prices remain firm as Trump sends a third aircraft carrier and 10,000 more troops to the Middle East, prompting thoughts that US could resume military attacks on Iran.  The feeling is these may come after the US mid-term elections due on 3^rd November.  Trump has admitted that US are facing some ammunition shortages but insists stocks are being replenished. 

EU inflation numbers are due out this morning but focus is more on the US nonfarms this afternoon.  A headline of +60k is expected with risks seemingly to the upside.  A higher reading could well give the US dollar a boost into the weekend.  It’s a lighter economic calendar next week, FOMC and ECB minutes could be of interest but otherwise there is little in the way of major data.

To the weekend and it looks as though we may get a decent bit of sunshine, with temperatures hovering around 20°c.  England footballers take on Croatia in the Nations League, will Tuchel stick with Alexander-Arnold?  The Bahrain F1 grand prix takes place this weekend, delayed from its original date in April due to the US war on Iran.  The race will be held in Malaysia due to ongoing instability in the Middle East but Bahrain retains the naming rights.

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

-  10.00 EU HICP

-  12.30 ECBs Vujcic speaks

-  13.30 US nonfarm payrolls

-  15.00 US factory orders

-  20.35 ECBs Nagel speaks