USD lower after Moody's US downgrade

Good morning

I hope you had a great weekend.  Mine was pretty full and I must admit to having over-indulged on more than one occasion so feeling mildly under the weather this morning.  All self-inflicted so I don’t expect any sympathy of course.

Congratulations to Crystal Palace who beat Man City in the FA Cup final over the weekend.  Fair to say that Man City have a right to feel aggrieved after the Palace keeper somehow avoided a red card that to most people looked like a certainty.  That he then went on to save a penalty just made matters worse for City fans. 

It is only Monday morning but it feels like we’ve already had quite a bit of news.  The US was downgraded by Moodys on Friday, they cited the huge government debt figure of some $37 trillion as a key reason and said that despite the strength of the US economy and financial standing, these are no longer enough to offer full confidence.  Moodys now join Fitch and S&P in having the US below the coveted AAA rating.  Trust in the US is waning.

We’ve seen a weaker US dollar since the open, GBPUSD opened around 1.3270 but has now pushed up to 1.3355, EURUSD opened around 1.1180 and is now 1.1230. 

Plenty of talk of UK looking to seek some sort of deal with the EU which could include defence, fishing rights and visas for young people.  Travellers will be keen to hear that there is some discussions over whether to allow UK passport holder to use EU e-gates.  Some suggestions that this is the UK backing down after the Brexit vote but I’m hopeful there will something good to come from the talks for everyone.  GBP is holding recent gains against EUR, with GBPEUR just a few pips under 1.1900.

Trump is due to be speaking to Putin this afternoon, a day after the biggest Russian drone attack since the invasion started.  I’d love to be a fly on the wall there.  I’m still very doubtful of Putin’s desire for peace but while there are talks I guess anything is possible.  Trump meanwhile is more damning of Fed’s Powell than he is of Putin, saying the Fed should cut rates sooner or later, and that everyone knows it except for Powell. 

Romanian elections over the weekend has seen pro-EU Nicusor Dan take 54% of the vote, defeating the Eurosceptic Simion who had done so well in the first round, sending RON lower.  EURRON had been trading around 4.9750 before the first round election, Simion’s win took the pair up to around 5.1500 or so, now it is back around the 5.03 area. 

Portugal also held elections, the slightly-right Democratic Alliance came out on top but fell short of a majority, meaning more political unrest for Portugal. 

Today sees mostly Fed officials speaking although I’ll be watching for any news coming from Trump’s phone call with Putin.  China rate announcement overnight, no change expected, then we have the RBA rate announcement in the early hours of tomorrow morning, where a cut of 25bps to 3.85 is expected, with a very outside chance of a 50bps cut.    

In addition to the rate announcements, the week ahead brings UK inflation and retail sales data, inflation from Canada and Japan and EU, UK and US PMI’s,  Some other major events this week include the Europa League final between Spurs and Man Utd, and the release of the latest Mission Impossible film.   Plenty to look forward to!

Have a great day…

-  10.00 EU HICP

-  13.30 Feds Bostic speaks

-  13.45 Feds Jefferson, Williams speak

-  14.00 Trump/Putin speak

-  18.15 Feds Logan speaks

-  18.30 Feds Kashkari speaks

-  02.15 PBoC rate announcement

-  05.30 RBA rate announcement

-  06.30 RBA press conference

USD up as US talks of cutting China tariffs

Good morning

Well that was a pretty scorching weekend.  I have to say if we had those temperatures for the whole year I’d be pretty pleased.  Anything in low to mid 20’s is fine for me.  I must confess I do have a very slightly red neck despite my best efforts, the cooling breeze hid the full extent of the suns power but fortunately its not too bad.  I’m sure there will be plenty of others who are far worse.  

This spell of decent weather is supposed to be with us for a while now, but don’t be fooled by the sunny conditions this morning, we’re forecast an interlude of some hefty thunderstorms this afternoon, but if we do I’m hoping it’ll all be relatively short-lived and we’ll be back to sun and warmth by this time tomorrow. 

An interesting weekend in sport, no I’m not talking about the fact that Spurs are now languishing in 17th place in the league after yet another loss, nor about how exciting the race for Champions League places is progressing.  This time its boxing and my youngest son, who incidentally turns 18 today, had his first proper boxing match on Friday.  He’s been training for over a year but this was his first bout against an opponent from another club. 

He came second in the end, experience really won the day for the other lad, but although he was disappointed he is already looking forward to the next fight as and when that comes along.  It’s not easy for him to find suitable opposition, they try to grade them not only in weight but also in experience and most 18 year olds have been boxing for many years.  

Anyway, to the markets and a load of positive news over the weekend.  India and Pakistan agreed a full ceasefire over the weekend.   US and China seem to reach some initial agreement on trade and tariffs, Hamas to release some more hostages and some suggestion that Ukraine and Russia may start peace talks on 15th May despite Russia dismissing the latest calls for a ceasefire.  Let’s be honest, there is a long way to go before we can be confident of anything really positive coming from any of the above but perhaps we are starting to head in the right direction. 

European exchanges are following Asian markets with a positive open.  Currency markets had been pretty stable but as I type we’ve had a serious spell of USD buying that has taken GBPUSD to 1.3190 and EURUSD to 1.1120, both pairs dropping 100 pips or so from their overnight levels.  It comes as some reports do the rounds that US are slashing China tariffs.  Interesting this comes after Trump said over the weekend ‘now is a good time to buy stocks’.  The last time he said that, markets bounced soon after as he made some tariff reduction announcement.  Insider trading at its finest?  Anyway, more to come on this latest news I’m sure.

Calendar today full of central bank speakers including BoEs Mann, I’ll be keen to hear what she has to say about the latest rate decision.  Early tomorrow morning its UK unemployment, and then US inflation tomorrow afternoon.  So unless we get some more tariff news I’m hoping today could now be reasonably calm after the excitement so far.  I hope so anyway, I’m out for a lunch with my 18 year old!  Crikey, I’m getting really old…

Have a great day…

-  09.00 BoEs Lombardelli speaks

-  11.30 BoEs Greene speaks

-  13.50 BoEs Mann speaks

-  15.25 Feds Kugler speaks

-  17.00 BoEs Taylor speaks

-  19.00 US monthly budget statement

-  00.01 UK BRC retail sales

-  01.30 AUS Westpac consumer confidence

-  07.00 UK unemployment

BoE cuts 25bps to 4.25% as expected but decision not unanimous

Good morning

BoE did indeed cut rates 25bps to 4.25% yesterday as had been expected but the voting was something of a surprise.  Two members voted for a 50bps, that’s what I’d suggested yesterday morning, but two members voted for no change which was certainly a hawkish surprise and has led to some scaling back their forecasts of further rate cuts.  GBP whipsawed after the announcement, slipping to 1.3240 against USD before rallying to 1.3340, but then through the afternoon turned once again hitting a low overnight around 1.3210, now 1.3250.  GBP had also dropped against EUR after the announcement, falling to 1.1730 before recovering to 1.1820, now 1.1785. 

The Trump trade deal announcement that we’d been waiting for was indeed with the UK.  Details are sparse, there is no deal on paper, nor is there any real firm commitment but there seems to be something in the pipeline which involves UK buying US energy, beef and Boeing aircraft, while US will allow 100,000 UK cars in at a 10% tariff rate.  The US equity markets liked it, they closed up yesterday although the UK’s FTSE 100 was down 0.3% at the close. 

Trump expressed disappointment that Powell hadn’t cut rates, particularly as other central banks were cutting, with both China and UK cutting rates this week.  He said talking to Powell was like talking to a wall, while Vance said Powell is ‘wrong about everything’.  Not quite as aggressive as some of their recent comments but they are clearly not Powell’s biggest fan.  However Trump did add that the US economy was still doing well despite the lack of rate cut from the Fed. 

Trump will also be rather dismayed to see China’s trade surplus at $96bn for April.  That’s not all with the US but even so Trump will look at that as being hugely unfair.  Still, there is some talk that US are planning to reverse the tariffs on China to 50% as early as next week, and cut tariffs on other Asian countries to 25%.  Is that another u-turn, or US backing down?  Probably, but Trump certainly wouldn’t admit that.  US and China officials are said to be meeting this weekend to talk trade, there is a small chance therefore of a volatile market open on Sunday night should we get any news from those talks.

Bitcoin caught a bid yesterday, trading up from around $97,000 to $104,000, the first time we’ve been over $100,000 for three months.  Now just off those highs, I’ve seen nothing to explain the 7% rally but then the whole crypto world remains a mystery to me anyway.

Ukraine’s Zelensky has called for a 30 day ceasefire and the US has said they are in agreement.  Trump added that if a ceasefire is not respected, further sanctions will be imposed.  Meanwhile the Ukraine parliament has ratified the US minerals deal.

There is a new Pope and Trump will be pleased to see he is American.  Indeed I’m just waiting for Trump to say that he had arranged the appointment, though for now he has been rather reserved and has said just that it is a great honour to have a US Pope.  Pope Leo XIV will be holding his first mass in the glorious Sistine Chapel this morning.    

In sport, Spurs and Man Utd will face each other in the Europa League final after both teams extended their first leg leads with wins yesterday evening.  Man Utd are slight favourites at the bookies and I can’t really argue with that.  Still quite interesting that both teams are languishing near the bottom of the Premier League but one will be in the Champions League next season.  Wednesday 21st is the big day. 

Chelsea also won last night to set up a final against Real Betis on 28th May for the Europa Conference League.  Chelsea are firm favourites, as they have been for a while now.

Premier League action this weekend sees Arsenal take on Liverpool, a tough match given the number of teams breathing down Arsenal’s neck for those Champions League places.  Newcastle v Chelsea could be a good match, while at the other end of the table Man Utd play West Ham and Spurs take on Crystal Palace, those results will leave either Man Utd, Spurs or West Ham in the lowly 17th spot just above the relegation zone.

 The economic calendar today is made up mostly of central bank officials, starting with BoEs Bailey this morning.  Let’s see if he offers any further insight into those two ‘no change’ votes yesterday.   Next week we’ll have US CPI and PPI inflation, UK and EU Q1 GDP releases and UK unemployment.  We’ll also be looking out for any more US trade/tariff talk.

Looks like it’ll be getting a bit warmer over the weekend and into next week which will be most welcome given the rather cool week we’ve had. 

Have a great day, and a splendid weekend as and when it arrives.

-  09.40 BoEs Bailey speaks

-  11.15 Feds Williams speaks

-  11.45 Feds Barr speaks

-  13.30 CAD unemployment

-  13.30 Feds Kugler speaks

-  15.00 Feds Goolsbee speaks

-  15.45 ECBs Schnabel speaks

-  16.30 Feds Waller, Williams speak

-  23.45 Feds Cook speaks