Currency markets drifting towards Jackson Hole

Good morning

As expected yesterday was another pretty uneventful day in the currency markets with GBP and EUR trading pretty much within a twenty pip range against USD, and each other, for much of the session.  Even USDJPY offered little in the way of excitement although at 159.00 is now a touch lower than yesterday’s highs, Yen possibly helped again by a bit of September rate rise talk. GBPUSD and EURUSD are now 1.3635 and 1.1670, putting GBPEUR 1.1685.  Indeed the sad news of the passing of Dolly Parton is gaining more attention than the markets right now.

Canada announced tariffs on $20bn of US goods in retaliation to the US imposition of tariffs on Canadian goods, effectively matching the US tariffs.  The trade war will do neither side a great deal of good, Canada for example sells almost 70% of its goods to the US so really stand to lose a great deal.  But Canada’s Carney seems to be taking a leaf out of Iran’s book in refusing to back down, perhaps in the hope Trump capitulates as we have seen him do several times before.  USDCAD is 1.3860, GBPCAD 1.8900, all but unchanged from this time yesterday.

I’ve said before that some of the policies Trump has tried to introduce do actually have some merit, the way he has gone about them is somewhat more questionable.  We know much of the world is against Trump and his policies, but what do the US public think.  The US midterms in November may give us an insight into their current support for Trump.  But I get the growing feeling everyone will eventually just sit and wait out the next couple of years, accepting whatever they may bring, in the knowledge that Trump will have to be replaced, unless of course he finds a way of changing the US Constitution.  I reckon he’ll try.

Aussie CPI inflation came in higher than expected overnight which only increases the chances of an RBA rate rise next month.  RBA commentary has been pretty hawkish recently, and the RBA minutes yesterday  showed clear resolution to act if needed.  AUD has pushed higher, AUDUSD reached 0.7185, it’s highest level since the beginning of June, AUDNZD jumped to 1.2070 and GBPAUD dropped to two month lows at 1.8995.

There are some positive sounds coming from talks between Iran and Oman over opening s a corridor in the Strait of Hormuz which has triggered a drop in oil prices.  WTI and Brent are now $80 and $85 respectively, their lowest for a couple of weeks.  The move in oil has shifted Fed rate rise expectations, US yields have also dropped despite Fed’s Barkin saying the decision to keep rates unchanged was a close call and he is open to a rate rise at the next meeting.   He added that there will eventually have to be a day of reckoning if US debt continues to rise. 

Head of the CIA has made an unannounced trip to Moscow which is an unusual development.  It comes after the UK gave away blueprints to Ukraine for the highly accurate long-range Storm Shadow missile.  Russia have warned NATO against supplying such weapons to Ukraine and there is a fear that Russia will widen it’s military action to other NATO countries, in addition it is likely Russia will step up cyber attacks in the West.  We donl;t know why the CIA head is in Moscow but surely it’s either going to be about the Ukraine war, alternatively the US could be pressuring Russia to adhere to new Iran sanctions.

In sport, Spurs have continued to try to spend their way  out of the relegation zone with another purchase, this time its Man City’s Savinho, although now he’s at Spurs he’d like to be called Savio for some reason.  Spurs may not be done yet either, with talk of a couple more potential purchases.  Quite how that works with financial fair play rules I don’t know, perhaps they get special treatment for having spent a lot of money in the past on absolute dross.  Meanwhile teams like Brighton, Brentford and Bournemouth all seem to be able to retain their form despite selling their best players.  

US data dominates today’s calendar, core PCE being the main event.  Jackson Hole begins tomorrow which may give us some insight as to how many Fed officials are on the same page as Barkin, and it will be interesting to see what Warsh himself has to say.  Until then we may have more rangebound trading in the majors unless the PCE this afternoon springs any surprises.

Have a great day…

-  11.10 ECBs Cipollone speaks

-  13.30 US core PCE, GDP, durable goods