US dollar remains weak as cost of borrowing comes under the spotlight

Good morning

US debt reaches $40trn, doubling in a decade which explains why the cost of borrowing is such an issue.  Their debt to GDP ratio of 121% is now above that of Greece and third behind Singapore at 162% and Japan at 207% according to quick internet search. The question I suppose is how much can the US actually borrow before markets start getting spooked?  The US dollar remains weak, GBPUSD hit 1.3660 yesterday, just breaking the May high by a couple of pips and in doing so hit the highest it’s been for six months.   UK retail sales this morning were disappointing, not only coming in lower than expected but seeing revisions to previous readings as well.  Reaction in GBP has been almost non-existent.  EURUSD broke a few pips above 1.1700, but USDJPY has bucked the weaker USD trend and trades back up at 159.00, Yen ignoring the higher Japan inflation data released overnight. 

US 30 year yields remain below the Tuesday highs we saw before Bessent announced his plans but have ticked up from the lows seen over the past couple of days.  Bessent has quite a lot on his plate at the moment.  On Monday it is reported he will give details of economic sanctions to be placed on Iran, a plan that Trump says will collapse the regime.  Obviously there is doubt over this thinking.  Trump has tried rallying allies as well as China in order to help with his ideas but there is plenty of talk that Russia and China will help Iran and in doing so force the US to potentially back down.  Oil prices remain elevated, unsurprising given the tensions that exist already and the threat by Iran that they may retaliate with strikes on US assets and oil terminals in the Gulf.

Data overnight from Australia and New Zealand came in softer than hoped, Aussie PMI’s were lower and NZ trade showed a deficit once again plus a revision to last month’s total year or year deficit with now sits at NZD5.2bn. Year on year exports did increase particularly to China and the US, imports also rose, no surprise this stemmed largely from petroleum products.  AUDNZD once again tested support in the 1.1950 area but its held so far and the pair now sit at 1.1975.  GBP is 1.9090 and 2.2865 against AUD and NZD.

Canada trade talks continue and there are reports that US businesses are starting to oppose Trump’s hard line tactics as concerns mount over the economic costs of worsening trade and investment ties.  Canadian retail sales are out this afternoon, I would not be at all surprised if these come out below expectations.  USDCAD is 1.3765, GBPCAD 1.8775.

In the UK some bits of news has got my attention.  First is the instructions the government has produced for people coming into the UK which at a first glance seems to be full of things we absolutely take for granted and therefore should be second nature to everyone.  Clearly not the case, but we only need to look closer to home to find unusual behaviour.  Take the example of one chap who thought it reasonable to phone 999 to report the cans of gin and tonic he purchased turned out to be zero alcohol.  Now, while I may share his frustration, this is an absurd waste of police resources.  He can’t even use the excuse that he was inebriated. 

Premier league action begins this evening with reigning champions Arsenal taking on Coventry, a tough start for the newly-promoted team.  Spurs start their campaign with a very different looking squad compared to last year having spent over £300m on players in an effort to avoid another 17^th place finish.  This promises to be an entertaining season and one that is quite difficult to call.  Arsenal are firm favourites to regain their title and it’s possible some of the big teams could struggle. Man City are an unknown now with a new manager and having sold arguably their most effective player.   Chelsea and Spurs have no European football to bother with this year, something that certainly helped Man Utd last season.  At the other end, the teams that have come up are all favourites to go down but I’m watching Newcastle who I think are much weaker than they were.  Odds for relegation are around 10-1.   

In other sport over the weekend we have the Dutch F1 grand prix from Zandvoort after a break of almost one month over the summer, and Test cricket is taking place with England in a commanding position over Pakistan as we enter the third day.

We’ve had a bit of rain over the last day or so, the first for what seems like an eternity.  Other than the wet ground, it was really the smell of rain the surprised me, which according to the BBC actually has a name, Petrichor.   The smell is caused by rain hitting the ground and disturbing molecules that then ping up into the air.  Look out for that question in your local pub quiz in the coming weeks. Anyway, after a bout of rain it looks as though the weekend will be drier and sunnier, with rain not returning until later next week.

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

-  09.00 EU manufacturing, services PMI

-  09.30 UK S&P manufacturing, services PMI

-  13.30 CAD retail sales

-  14.45 US S&P manufacturing, services PMI

-  15.00 EU consumer confidence