Trump sends stocks higher, USD lower with talk of an end to Iran war

Good morning

We saw a brief bit of USD weakness creeping in yesterday which took GBPUSD to 1.3265 and EURUSD to 1.1560, US stocks were also higher on some hope that Trump was looking for an early end to the Iran war.  However, late in the afternoon GBP dropped against both USD and EUR, moving back to 1.3175 and 1.1440 respectively as concerns over UK economic conditions and then thoughts of possible BoE rate cuts took hold. 

Added to that, the news that additional British troops would be heading off to the Middle East may have had some impact, as could Trump and his sidekick Hesgeth’s message to UK and other allies that he may leave Iran and leave the Strait of Hormuz for others to sort out.  The IMF’s warning that the economy of large energy importers, particularly those relying on gas-fired power stations such as the UK will be most at risk from higher prices could also be share some responsibility.

The GBPEUR move was all the more interesting given many had been reporting, somewhat prematurely, how well GBP had done against EUR through March, from 1.1380 to 1.1610 only for it to lose 140 pips or so in the last few days of the month.  As it is, the move up from 1.1380 to 1.1440 or so is good but not exactly record breaking and just goes to show how timing is so important when forecasting or reporting on financial markets.

Overnight, equities surged higher, with S&P up almost 3% and Nasdaq up almost 4%, while Japan’s Nikkei jumped over 5% and we’re expecting to see European markets open higher.  These moves followed comments from Trump who said he’ll be out of Iran in two or three weeks, adding that the war can end without a deal being made with Iran.   The US dollar weakened as well, GBPUSD is now higher, up around 1.3285 as I type but remains around 1.1460 against EUR, with EURUSD pushing up to 1.1600 and USDJPY down to 158.30. 

Trump has spent time attacking his allies telling them ‘you’ll have to start learning how to fight for yourselves, the USA won’t be there to help you anymore’.  I do understand he would be annoyed that his NATO allies were reluctant to let US use their military bases which has raised once again the question of whether US will continue it’s NATO membership.  If we had any doubts about how the world has changed, its pretty clear now.  To go into Iran, create a mess in the Strait of Hormuz, and then leave it to others to sort out isn’t exactly ideal.   

Just yesterday I mentioned the potential to see USD weakness should we hear any talk of peace, I guess my timing was pretty good although we’re a long way from any peace right now.  Knowing how Trump blows hot and cold I’m not sure we can rely on this latest piece of news to any great extent and I wouldn’t go chasing it, but we have seen the type of moves we are likely to get should US pull out of Iran.   AUD is also higher, now 1.9155 against GBP and back above 1.2000 against NZD.

In football, no this is unfortunately not an April Fools joke, England suffered a dismal defeat to Japan, not quite the result we were hoping for ahead of the world cup finals in June.  I didn’t see the match but the reports are not good, even though it did seem to be a bit of an experimental formation.  England had a 100% record in the qualifying stages but the opposition were not highly ranked.  England have not beaten a top-20 team in their last three matches, losing to Senegal, Japan and drawing with Uruguay.  I don’t think we need to draw too many conclusions from these friendlies but we have to hope England will achieve greater things in the USA.  Mind you, spare a thought for Italy who have failed to qualify for the third finals in a row, losing on penalties to Bosnia last night

In other football news, Spurs signed up de Zerbi as manager with a ‘long-term’ contract.  For ‘long-term’, I’d read ‘they’ve had to pay a large chunk of money to lure him in for the last seven premier league matches of the season to try to stay up but he may have to stay on and be a manager in the Championship’.  As it is, the BBC have been quick to point out that at his three previous mid-season appointments, de Zerbi has managed five, one and eight points in each.  Not confidence inspiring but we can only hope.  His appointment has disappointed many as a result of comments he made on disgraced English footballer Greenwood, who played under de Zerbi at Marseille.  All will be forgiven if Spurs say up, such is the fickle nature of football fans.

The economic calendar today includes ADP jobs numbers, retail sales and ISM manufacturing PMIs.  Possibly outweighing the data, Trump is reported to be speaking at 9pm NY time, 2am UK time with another important update so worth preparing for overnight volatility.

Have a great day…

-  10.00 EU unemployment

-  11.30 ECBs Cipollone speaks

-  13.15 US ADP employment

-  13.30 US retail sales

-  14.05 Feds Musalem speaks

-  14.10 Feds Barr speaks

-  14.30 CAD S&P manufacturing PMI

-  15.00 US ISM manufacturing PMI

-  01.30 AUS trade balance

-  02.00 Trump speaks