Peace or no peace, that is the question

Good morning

It was another scorcher yesterday with temperatures here up to 35°c according to my car in the afternoon.  We didn’t get any of the thunderstorms we’d been warned about but temperatures are likely to be lower for the next few days, still in the high-20’s mind you. 

Peace in Iran is still up in the air as Iran accuses US of breaking the ceasefire with its recent military strikes on Iranian boats and missile sites.  This didn’t stop US equities from making new highs, oil prices have also slipped back, although the USD dollar is not as weak as I’d have thought if a peace deal really was on the agenda.  Reports are that Iran has said it will sign a deal if some $24bn of frozen assets are released.  GBPUSD is currently 1.3450, a touch lower than this time yesterday although EURUSD is a smidge higher at 1.1645, leaving GBPEUR off its recent highs at 1.1550. 

Some are already likening Trump’s attempts in Iran to Putin’s invasion of Ukraine, both leaders seemingly underestimating their opponents, unable to secure a quick and decisive victory.  There are concerns that Putin will expand the war beyond Ukraine, with Baltic states at risk.  Meanwhile, our own GCHQ boss has warned Russia are increasing their ‘attacks’ on infrastructure and democracy across Europe, looking to spread disruption and instability.

Overnight RBNZ kept rates unchanged at 2.25% as had been widely expected.  I’d warned yesterday that RBNZ may strike a more hawkish tone and this has proved to be the case, with three out of six members voting for a rate rise this time, leaving the deciding vote to Breman.   While she did choose to leave rates alone this time, the accompanying statement made it clear that all members felt interest rates would need to increase to counter inflation, it was more just a matter of timing, ie this meeting or the next.  Rates increases are likely to be sooner and larger than expected in February.  NZD pushed higher as you’d expect, GBPNZD dropped from 2.3050 to 2.2900,

AUDNZD dropped from 1.2280 to 1.2160 led by the RBNZ comments but also with a help from Aussie inflation which came in surprisingly softer overnight.  GBPAUD has gained alomsot 100 pips from overnight lows, now around 1.8830.

Feds Kashkari has said that a prolonged war with Iran could lead to a series of US rate rises, a view echoed by may central bankers although I still believe there are those who would be happy to overlook higher energy price inflation if it did not filter into price rises elsewhere.  Still, BoJs Ueda has warned that overlooking oil prices is a dangerous game as it does tend to have an secondary impact on inflation across the board.  On the subject of BoJ, well learn on Friday the size of intervention through late April and May which took USDJPY from 160.70 to 155.00.  It was decisive action but had a relatively short-term impact, with USDJPY currently around 159.35, its highest level since that intervention.

It’s a very sparse economic calendar today which suits as I’m out and about this afternoon.  Can’t quite come to terms with the fact we’re nearly at the end of May already, indeed many of our currency programs that facilitate option transactions expire today for settlement at month end.  We’ve seen quite a range since May positions were introduced as far back as November last year, for example GBPUSD has seen a low around 1.3100 and a high around 1.3860 in that time.  Still, for most of that time we’ve had a tighter range, more like 1.32-1.36ish.  We’ll know our finals rates at expiry time this afternoon.

Have a great day…

-  13.15 US ADP 4 week average

-  20.55 Feds Cook speaks

-  01.00 ECBs Lane speaks

-  01.00 Feds Jefferson speaks

-  03.25 BoEs Lombardelli speaks

-  03.25 Feds Goolsbee speaks

Possible Iran deal sends oil prices lower

Good morning

Welcome back after the long weekend.  Its been an absolute scorcher here, temperatures well above 30°c.  I know lots of places have been warm and sunny over the bank holiday but it seems we’ve had it hotter than many.    Could be as high as 33°c here today and then looks like it will cool down a little. 

Main event over the weekend of course is that Spurs managed to survive the threat of relegation with a slender 1-0 win over Everton which kept them in 17^th place, just above the relegation zone.  A valiant 3-0 for West Ham wasn’t enough to keep them in the Premier League, they’ll be in the Championship next year.  Credit to Sunderland who came up last season and made it to the Europa league places.  Chelsea had a woeful end to the season, finishing in tenth place.  Arsenal were the only London club in the top eight. 

Over the weekend we got some differing opinions on the potential for a peace deal in Iran.  At one stage it seemed as though a deal would be struck, oil prices duly plummeted, equity futures rallied and the US dollar dropped.  News of US strikes on Iranian boats and missile sites suggests a peace deal is far from close but markets still seems to hold out hope for an agreement.  The suggestion is the attacks were limited in nature and don’t point to a move away from the ceasefire that has been in place since early April.  An agreement seems to hinge around the treatment of Iran’s enriched uranium. 

Brent crude is currently $96.40, WTI at $92.60, off their lows but still well below levels seen last week around $112.50 and $105 respectively.  European equites are generally lower this morning expect UKs FTSE which is currently up nearly 1%, helped in no small part by lower gilt yields this morning.  GBPUSD saw a high of 1.3510 yesterday, its back to 1.3475 as I type.  GBPEUR managed to briefly regain 1.1600 yesterday, its highest level for two months after a pretty volatile May which saw a low in the mid-1.14’s.  EURUSD is 1.1635, plenty of talk about a 25bps rate rise at the next ECB meeting.   

Not a great deal on the economic calendar today, mo9st of the action will be overnight when we’ll have the latest Aussie inflation numbers and the latest interest rate decision from RBNZ.  They are widely expected to keep rates unchanged at 2.25% but I wouldn’t be at all surprised if they strike a mildly hawkish tone given Breman’s previous comments that RBNZ would take decisive action if core inflation were to pick up.  GBPNZD is 2.3050, AUDNZD 1.2250.

Another case of politicians doing absurd things that are unbelievably stupid came to light over the weekend as for Scottish National Party chief executive Peter Murrell admitted embezzling some £400,000 of party funds.  His wife at the time, Nicola Sturgeon, former First Minister of Scotland, has insisted she had no idea Murrell was stealing money from the party to pay for luxury goods.  OK, so maybe if it was just a watch or a pen he bought perhaps it could be kept secret, but he bought, among other things, a couple of cars and a £125,000 motorhome.  How can she not have noticed that sitting on the driveway?

Looking ahead this week, the main event will certainly be US GDP and core PCE on Thursday, we do have Japan Tokyo CPI and German HICP later in the week but I wouldn’t be surprised to see these come and go with little fuss.  Several central bank officials speaking this week, watch for any more hawkish talk from ECB members.  Feds Warsh has been officially sworn in as Fed chair to replace Powell.  Warsh, who we think would really like lower rates, is arriving at a tough time as many Fed officials are sounding more hawkish.  

Have a great day…

-  14.00 US housing starts

-  14.00 ECBs Sleijpen speaks

-  15.00 US consumer confidence

-  01.00 BoJs Ueda speaks

-  02.30 AUS CPI

-  03.00 RBNZ rate announcement

-  04.00 RBNZ press conference

Optimism over a peace deal with Iran drives markets

Good morning

Apologies to those readers who did not receive yesterday’s daily, the internet police stopped my email from sending due to an unspecified word combination that a computer didn’t like somewhere.  I’ve been through it and still can’t see what the problem could be.  Here’s hoping it was just a glitch and this report reaches you.

To be fair, there wasn’t much content in yesterday’s report given the lack of meaningful news, the main event being Aston Villa winning the Europa League final.  Unai Emery, the Villa manager, has now won the Europa Cup with three different teams, all of which contain the word ‘Villa’ (Villareal, Sevilla and Aston Villa).  One for the quiz goers perhaps.

The main headlines at the moment are about a possible peace plan with Iran.  Trump has gone from saying he’s lining up further attacks on Iran to making noises that a deal is imminent.  Trump is coming under pressure to get the Strait of Hormuz open before the world falls into a recession. All was going well, oil prices dipped on the more positive news but has recovered some of those losses on tensions over Iranian uranium enrichment, with Iran President reportedly saying he will not back down.  Still, there is hope a deal will be reached, even if it is an interim measure. 

European and US equities ended higher yesterday, Asian markets followed suit with Nikkei up 2.7%, helped in part by a lower than expected Japanese inflation release overnight. USDJPY is still stuck around the 159 area as it has been for much of the week, a rare bit of calm for Yen.  Perhaps Japan will take advantage of the low liquidity over the long weekend and intervene again.  UK retail sales this morning came in even worse than the already shoddy expectations, GBP dropped on the release but moves were limited.  GBPUSD is now 1.3420, GBPEUR 1.1565.

Not a great deal on the calendar today so barring any news from Iran there is a good chance we get a quiet end to the week ahead of the long weekend.  Temperatures here are expected to reach 31°c over the weekend and continue in the high 20’s for the remainder of next week.  I’m looking forward to a good bit of sunshine, I wonder how long before we are complaining it is too hot!

While we enjoy the sunshine next week, I guess we’ll have to keep half an eye on the economic data due out, the highlights being RBNZ rate announcement, Aussie, Tokyo and German inflation, and the main event, the US core PCE.   

To the weekend sport, we have the Canadian F1 grand prix which includes a sprint race as well as the full race.  But of course the bigger news is the final matches of the Premier League season on Sunday.  Arsenal are already champions and the European places are almost decided.  The action of course is at the other end of the table, where we’ll find out whether Spurs or West Ham are relegated.  West Ham take on a Leeds side who have had a terrific end to the season but may not be anywhere near full strength, while Spurs face an out of form Everton side who have just three points from their last six matches.  Spurs are better placed, needing just a point to secure survival, but points are hard to come by this season.  I’m not looking forward to it, let’s just hope we have a weekend with no VAR controversy.

Have a great day, and a great long weekend as and when it comes. 

-  09.00 German IFO

-  13.30 CAD retail sales

-  15.00 US Michigan inflation, confidence expectations