Markets remain optimistic as peace talks start

Good morning

Softer US data kept the US dollar on the back foot yesterday but of course most attention remains on the Middle East and the fragile ceasefire that still seems to mean different things to the various countries involved.  Peace talks begin in Pakistan today, the US will push hard for some sort of deal, particularly to reopen the Strait of Hormuz and failure to find any agreement could well see hostilities restart.  Meanwhile Trump’s anger with NATO continues as he looks to punish allies who he thinks are not helping enough, while also threatening once again to take control of Greenland.

The financial markets are overlooking much of the uncertainty on the ceasefire with equity markets holding recent gains and the US dollar still at the lower end of recent ranges against other majors.  GBPUSD and EURUSD are currently 1.3425 and 1.1685, around 60 and 40 pips off the highs respectively but still at elevated levels compared to pre-ceasefire levels.  Yen bucks the weak dollar trend though, USDJPY now back into the 159’s prompting more jawboning from Japan officials in an attempt to slow yen depreciation.  GBPJPY is within a few points of 214, its highest levels since early Feb when we saw 215, in turn the highest levels since 2008.

I see the White House has warned government officials from placing bets on prediction websites after reports of several huge stakes were placed just ahead of the ceasefire announcement.  There has also been reports of massive trades in oil markets ahead of various announcements leading to speculation that some close to Trump have been enriching themselves with insider knowledge.  There seems to be a lot of insider trading in the US, it is common knowledge that a few Senators have made ridiculously well-times stock purchases ahead of major announcements and contract awards. 

US CPI inflation numbers are out today and they are expected to show a large jump due to higher energy prices, with forecasters looking for a monthly rise around 0.9% which would be the largest monthly rise since 2022, and a year on year headline figure of 3.3% from 2.4% last month.  Core CPI, that is without food or energy, is still expected to rise although at a much lower rate.

Hungarian elections take place this weekend and if polls are to be believed it is quite possible the current PM, Orban, could lose his place after 16 years in charge.  Orban is known for his pro-Russia views and the EU would be happy to see the back of him.  His main opponent, Peter Magyar, has promised closer relationships with the EU at the expense of Russia although will still be keen to keep dialogue open with Putin.  It will be interesting to see the results next week.  I presume if Orban wins again there will be plenty of talk of vote-rigging and perhaps Russian interference.

In sport, apologies for my champions league slip-up yesterday, I wrongly said Arsenal could meet Bayern in the semi’s when in fact they will play either Barcelona or Atletico Madrid, assuming of course Arsenal beat Sporting next week.  I also failed to mention Notts Forest and Aston Villa who played in the Europa League quarter finals last night, and Crystal Palace who appeared in the Europa conference league.  Villa and Palace enjoyed good wins, while Forest drew to Porto, helped by a 45-yard own goal by a Porto defender.

Premier League action returns this weekend, Spurs, under another new manager, will hope for much-needed points against Sunderland while also hoping fellow league strugglers fail to earn points.  Arsenal will hope to extend their lead at the top against Bournemouth tomorrow, they will also be hoping Chelsea can derail any Man City recovery on Sunday.

In golf, the US Masters is underway at Augusta with last years winner McIlroy joint top of the leaderboard at five under.  Justin Rose, who lost to McIlroy in a play-off last year, is just three shots behind the leaders on 2 under. 

Next week is light on data, US PPI could be the highlight, Aussie employment data a close second.  We will hear from BoEs Bailey a couple of times which could be interesting given his recent comments that the Middle East conflict could trigger a 2008-style financial crisis. 

Have a great day, and a great weekend as and when it comes.  Sunday is looking good, a bit of rain so we need to stay indoors, Spurs at 2pm, Chelsea v Man City at 4.30pm and the Masters to round things off, what could be better?

-  11.00 ECBs de Guindos speaks

-  13.30 US CPI

-  13.30 CAD employment

-  15.00 US Michigan sentiment survey

-  19.00 US monthly budget statement

Give peace a chance

Good morning

The weather here was wonderful yesterday, sunny, not a cloud in the sky and yes, I did take some time to sit out and enjoy it.  While the weather may have been warm, equities were on fire, the German Dax was up over 5%, the FTSE 100 more matched US stock rises, up around 2.5%.  Majors held much of their gains against the US dollar although are off the highs, GBPUSD and EURUSD had managed to peak around 1.3480 and 1.1720 yesterday afternoon, now 1.3400 and 1.1665 respectively. UDSJPY had hit a low of 157.90 but is now back up to the 158.80 area.

The slight reversal in the weak US dollar comes as Asian equities slipped back overnight, and futures pricing points to a softer opening for Europe this morning.  Clearly concerns over the fragile Iran ceasefire and access to the Strait of Hormuz are appearing after the initial optimism and reports of attacks in Lebanon that could potentially damage the peace deal.  Adding to the uncertainty is Trumps ongoing criticism of NATO and his threats to leave the group or at least withdraw troops from NATO countries who he deemed unhelpful in the Iranian conflict. 

FOMC minutes were out yesterday evening but brought little new, with officials seeing elevated inflation risks as well as elevated risks to employment, leading to a bit of confusion over the direction of rates.  While many are still seeing cuts as possible, those cuts could come later than previously thought and there is certainly a more hawkish tone than I’ve seen for a while.

RBNZs Breman helped talk NZD up a touch as she said RBNZ would act decisively if core inflation were to pick up.  On growth, she said recent rates cut were helping but did expect some weaker data although added that growth could strengthen if the Middle East ceasefire holds.  AUDNZD is down to 1.2055, GBPNZD is currently 1.9045.

In sport, Liverpool lost 2-0 to PSG, hurting their chances of advancing to the semi-finals.  Atletico Madrid boosted their chances by beating Spanish rivals Barcelona 2-0.  Second legs are next week, Arsenal and Bayern remain favourites to lift the trophy, they will meet each other in the semi’s if they get through this round. 

Today bring US Q4 GDP although this is the final reading and isn’t expected to veer far from previous estimates.  Core PCE is normally a major piece of data but this is a delayed reading from February and as such is a bit outdated so it is possible these will come and go with minimum fuss.  Iran news will still dominate the headlines and offer more market impact.

Have a great day…

-  11.45 ECBs Sleijpen speaks

-  13.30 US GDP, Core PCE, initial jobless claims

-  23.30 NZ business PMI

-  02.30 China CPI

-  07.00 German HICP

Iran deadline nears

Good morning

Welcome back after the long weekend.  I hope you missed the strong winds and instead enjoyed the blue skies we had for much of time.  It was mostly sunny if a little on the chilly side, that may change over the next couple of days as temperatures are due to rise to the mid-20’s if we’re lucky.  Those heady temperatures are only here for a couple of days mind you so do our best to make the most of it.

Congratulations to Man City, Chelsea, Southampton and Leeds for making it through to the FA cup semi-finals.  Southampton, now in the Championship, knocked out premier league high flyers Arsenal, who are now left with ‘just’ the domestic league title and champions league trophy to aim for.  They have to win something, surely?  

Friday saw a very strong set of US nonfarm payroll data, with headline at 178K from an expected +60k, and an unemployment rate of 4.3%, down from 4.4%.  Still, average hourly earnings were lower than expected and the previous headline was revised lower.  Market impact was surprisingly muted, perhaps those downside revisions limited the influence of the data, USD did push a few points higher but as I type GBPUSD and EURUSD are pretty much back to pre-release levels, at 1.3235 and 1.1545 respectively.

USDJPY has been up to 159.90 in the early hours of this morning.  I see the Japan FinMin has tried a bit more verbal intervention, this time mentioning potential coordination with G7 to combat volatility that she acknowledges is driven in part by Middle East tensions. I’m still quite surprised how Yen has lost its safe-haven status, not that long ago investors would flood to Yen in times of crisis. 

Of course, tensions in Iran and the surrounding areas are driving sentiment and there are real concerns of lower global growth, inflation led by higher energy prices and higher interest rates, not a great combination.  Trumps deadline for a deal with Iran ends at 1am UK time and I’ve seen little to suggest we could see some sort of peace.  Trump is keeping up his ‘we can demolish Iran in one night if we want to’ tone, but deep down he will surely be bitterly disappointed Iran haven’t backed down.  Escalation, rather than de-escalation, seems most likely unfortunately.  The only glimmer of possible good news was the rescue of the two US airmen who were shot down over Iranian territory.  I’ve not read too much of it as yet but it did sound pretty daring, no doubt we’ll have a film about that in a year or two.

In other news, the crew of Artemis II orbited around the far side of the moon, in doing so travelled further than any humans have ever done before and in doing so saw the far side of the moon, again something never before seen with human eyes although of course satellites have send pictures back in the past.  Pretty amazing stuff although I’m already looking forward to Artemis IV which should be the next moon landing mission some time on 2028 if all goes to plan.

It’s a limited economic calendar today.  We will have the latest RBNZ interest rate decision in the early hours of tomorrow morning, no change is expected but it will be interesting to see what guidance they offer, particularly in respect of possible energy-driven inflation, at the press conference.  RBI rate announcement follows, a little later, I don’t always put that on the calendar but after the RBI action last week I thought its worth highlighting.

The rest of the week brings EU retail sales but the main events, Middle East aside, will surely be US core PCE on Thursday and US CPI inflation Friday.

Arsenal try to put their FA cup defeat behind them as they take on Sporting in the first leg of the Champions League quarter finals this evening.  We’ll also be treated to Real Madrid v Bayern Munich.  Tomorrow we’ll have Barcelona v Atletico Madrid and PSG v Liverpool, the latter having been dumped out of the FA cup at the weekend by a ram[ant Man City.  Could be some great matches among those.

Have a great day…

-  13.15 US ADP employment 4 week average

-  13.30 US durable goods

-  15.00 CAD Ivey PMI

-  17.35 Feds Goolsbee speaks

-  22.50 Feds Jefferson speaks

-  03.00 RBNZ rate announcement

-  04.00 RBNZ press conference

-  05.30 RBI rate announcement