BoJ raises rates to highest level since 1995

Good morning

BoJ raised rates 25bps to 1% overnight as widely expected.  1% doesn’t sound like much but it is the highest Japanese rates have been since 1995, pretty much when I started in the FX world.  Additional rate rises are not out of the question but timing and pace of adjustments is unclear but likely to be slow.  We’ve seen little impact in the currency markets with USDJPY 160.30 and GBPJPY 215.00. 

RBA decided to keep rates unchanged at their meeting in the early hours of this morning.  The door remains open for a rate rise in the coming months if appropriate but the bar will be quite high, particularly if we do get the US/Iran peace deal and if oil prices continue to remain subdued.  Again, the event was well telegraphed and as a result market impact was limited.  GBPAUD bang on 1.9000 as I type. 

That US/Iran peace deal remains in the headlines as we wait to see whether it will be signed, and then of course how well both sides adhere to the agreement.  Much hinges on Iran’s nuclear plans and whether it will give up its enriched uranium, if it does there is a decent chance they will unlock a huge $300bn reconstruction fund.  After all the fighting, it would seem the US are buying Iran’s uranium. 

US are still on the attack when it comes to trade with the EU, with Trump threatening a 100% tariff on French wines if Macron keeps the digital tax on US firms.  Meanwhile, EU’s Juncker has said a UK return to the EU is unlikely given the upset and resentment caused by us leaving, plus some unhappiness over our closer ties with the US.  Probably a bit short-sighted.  EU are however starting the membership process for Ukraine.    

I watched a bit of the Spain v Cape Verde world cup match yesterday which ended is a 0-0 draw, disappointing for Spain but wildly exciting for Cape Verde fans who, with a population of just around 500,000 have punched well above their weight.  Belgium only managed a draw against Egypt, while Iran and New Zealand also battled out a 2-2 draw overnight.  France take on Senegal this evening, England will play Croatia tomorrow evening.

A fairly quiet calendar today but tomorrow will be livelier with UK inflation early in the morning, US retail sales in the afternoon and the FOMC rate announcement later in the evening. 

Have a great day…

-  10.00 German ZEW

-  11.55 ECBs Escriva speaks

-  13.15 US ADP 4 week average

-  13.30 US housing starts

-  14.10 ECBs Lane speaks

-  20.05 ECBs Sleijpen speaks

-  00.50 Japan trade

-  07.00 UK CPI, PPI, RPI

Markets bounce on news US/Iran peace deal to be signed Friday

Good morning

Welcome back after what I hope was a terrific weekend.  We had some lovely weather which meant I spent plenty of time topping up my vitamin D levels, a lot of work in the garden after the recent rain helped the grass grow almost right in front of my eyes.  Have to say I’m aching a bit today.  I’ve not caught much of the world cup so far, the match timings haven’t been great but if I’m honest I haven’t yet got particularly excited about the whole thing.  Perhaps that’ll change this week when England play their first match.. 

Still, the Evans household is represented at the world cup this year, my eldest is out in Dallas hoping to catch the England group games although tickets are expensive and difficult to come by,  Mind you, he and his three friends have a fantastic road trip ahead, travelling from Dallas to New York via various US cities so even if they don’t get to any matches they’ll have a superb holiday anyway.  Meanwhile, I’ll just carry on here…

So, the big news over the weekend is that US and Iran have worked out the basis of a peace deal which will apparently be signed in Switzerland on Friday and will see the Strait of Hormuz reopening.  Oil prices have slumped, Brent is now $83.25, WTI $80.25, both down from last week’s highs which came in around $95.50 and $93.65 respectively.  Don’t get too excited though, prices at the pumps are unlikely to drop quickly as bottlenecks in Hormuz and supply in general are likely to have significant impact for some time/  Equities are enjoying the thought of peace, in Asian the Nikkei led the way, rising some 5%, European markets are expected to rise again today after a strong performance Friday. 

In currencies, the US dollar has weakened but moves have been limited.  GBPUSD and EURUSD have seen highs of 1.3460 and 1.1620 this morning although both are currently 10-20 pips off those highs.  UDSJPY opened lower at 159.75 but has since crept back above the 160 area.  The likes of AUD and NZD which had been struggling have made up some ground although are still below recent highs against USD, while agaisnt GBP they are now around 1.9000 and 2.2975.

Iran are claiming a victory, suggesting billions of dollars in sanctioned funds will be released plus allegedly being promised some $300bn in reconstruction aid, while all US forces will move out of the area.  Trump denies this although really the money is one thing, the most important factor will be an agreement over Iran’s nuclear plans.  This could still remain a difficult issue and from what I read is not completely sorted out as yet.  Indeed, Iran suggest there is a 60 day negotiation period after the signing of the deal, so plenty still to be sorted out.  Israel are not pleased with the deal that they say gives them no comfort as they continue attacks on Hezbollah forces.

So no doubt that news of this peace deal will make the headlines this week but there is plenty going on aside from that.  We have several central bank rate announcements this week, the talk of peace could be a deciding factor in whether we see rate rises.  BoJ and RBA will meet overnight, BoJ are expected to raise rates 25bps to 1% despite Ueda missing the meeting having been taken into hospital last week, RBA are likely to keep rates unchanged.   

On Wednesday evening we’ll have Warsh’s first FOMC meeting as Fed chair, he’ll be pleased to see a peace deal as I’m sure he’ll use that to push for no rate change.  SNB and BoE are also expected to keep rates unchanged at their meetings Thursday, as always the voting pattern for BoE will be watched closely.  It’s a busy week for UK economic data with inflation, employment and retail sales numbers all being released, we’ll also get the latest US retail sales and NZ GDP data.

This Thursday we’ll have the Makerfield by-election which could see Andy Burnham, currently Mayor of Greater Manchester, return to Parliament as an MP from where he’ll undoubtedly challenge Starmer for the leadership of the Labour party.  As I type I see Starmer has banned under 16’s from a number of social media sites.  The ban will take effect from spring next year.   

It’s a bit chilly this morning but temperatures are forecast to rise to almost 30° later in the week and we could be lucky enough to see those high numbers last for a couple of weeks. 

Have a great day…

-  08.30 ECBs Lagarde speaks

-  08.50 ECBs Cipollone speaks

-  10.00 EU industrial production

-  13.30 US NY empire state manufacturing index

-  14.15 US industrial production

-  03.00 China retail sales, industrial production

-  03.00 BoJ rate announcement

-  05.30 RBA rate announcement

-  06.30 RBA press conference

-  07.30 BoJ press conference

Once again it's Trump comments that push markets

Good morning

The ECB did raise interest rates 25bps to 2.25% yesterday, a move that was widely expected and priced in.  Lagarde warned of a possible slowdown, citing the Iran war as the primary reason.  She failed to give much of an idea of rate moves going forward but as with most central banks they will have to balance the risk of fighting higher inflation while protecting economic growth. 

As has been the case for a while now, the market is getting pulled around by comments from Trump over the Iran war.  The US dollar was stronger yesterday afternoon on concerns we were no closer to any peace deal, with Trump warning they will again hit Iran hard.  However after the London close we saw the likes of GBPUSD and EURUSD trade from 1.3330 and 1.1505 to highs of 1.3435 and 1.1590. 

The USD sell-off came as Trump said he was calling off strikes because Iran had agreed some of the finer details of the peace plan, which led to equities bouncing and oil prices dropping to levels not seen since the ceasefire was announced in mid-April.  No deal has been signed as yet, Iranian officials haven’t confirmed a deal is pending, but Trump has intimated something could be signed over the coming weekend.

This morning we had some softer than expected UK data, both GDP and Industrial Production disappointed which has seen GBP sold off, GBPUSD now 1.3390 and GBPEUR off a few points to 1.1580, failing once again around the 1.1600 area as it has several times over the past year or so.  Meanwhile, PM Starmer was dealt another blow yesterday as his Defence Secretary John Healey and Armed Forces Minister Al Carns both resigned over a dispute about military spending, saying investment in the military falls well short of what is required.  This brings the total number of ministers to resign in the last month to seven. 

Elon Musks SpaceX has raised $75bn in its IPO, with shares priced at $135, valuing the company at $1.77trn.  Trading will begin today with some forecasters suggesting the price will push up close to $200.

The football world cup has begun with Mexico winning the opening match against South Africa, a game marred by three red cards.  South Korea came from behind to beat Czech Republic.  Several matches over the weekend, the highlight perhaps being Brazil against Morocco although that doesn’t start until 11pm tomorrow evening.  F1 action comes from Barcelona this weekend the race at 2pm Sunday afternoon.

Looking ahead to the weekend, we are in for some drier weather but I see the forecast is showing lower expected temperatures than it did earlier in the week.  It looked like we may be in for another spell of decent weather, up in the mid to high-20’s which is pretty perfect, but now it seems we’ll be lucky to get much over 20°c this weekend, although it still looks hopeful for later in the week.   

We’ve had a pretty quiet week data-wise but next week will be considerably busier in terms of the economic calendar.  We have UK inflation, employment and retail sales, US retail sales and NZ GDP.  We’ll also enjoy interest rate announcements from BoJ, RBA, FOMC, SNB and BoE so plenty to keep us on our toes, even though the majority are likely to keep rates unchanged.

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

-  09.30 UK consumer inflation expectations

-  11.30 ECBs Sleijpen speaks

-  15.00 US Michigan sentiemt survey

-  15.30 ECBs Nagel speaks