Last night, news of stimulus measures in China boosted risk appetite in markets. However, the sad news of the former Japanese PM being shot in Tokyo has dampened risk appetite in markets. Safe haven demand is also adding to the bid for the US dollar.
So not only did the Tories lose confidence in Boris’s ability to lead but so did the markets with the pound enjoying a political relief rally. This won’t be the last time we hear of Boris as currently he will take caretaker leadership of the country until a successor is found – an idea that is being disputed amongst fellow Tories. Current plans are for the Conservative party to whittle their next leader down to two before the summer break later this month before a successor is decided upon in September. Focus now for markets is who will be the next leader and when any changes to fiscal policy can be actioned.
BoE members Mann and Pill spoke yesterday with the former once again commenting on her concerns about the value of the pound – as mentioned before a weak currency imports inflation. She also stated the job market remains tight boosting wages and that front-loading rate hikes key to fighting inflation. Chief economist Pill reiterated his points from the previous day about the Bank’s willingness to act further in their battle against inflation.
An equity market rally also helped the pound on renewed risk sentiment in markets.
In conjunction with the recent weakness in the euro, current GBPEUR rates are at three-week highs.
The release of the minutes from the June ECB meeting revealed that a larger rate rise of 0.5% in September could well still be in the cards. However it’s worth noting that the minutes are from the June meeting and thus the recent rise in gas prices and concerns over how the energy crisis will impact eurozone growth has not been factored in. The minutes also revealed the name of the tool to battle fragmentation, the Transmission Protection Mechanism (TPM) tool. However, there seems to be uncertainty that the new tool will be ready by the next ECB meeting on 21st July and still there are concerns that there are many contention points that are yet to be resolved.
ECB Villeroy spoke yesterday commenting that the monetary policy is the best tool against inflation long term.
Doubts are still there for the eurozone averting a recession considering the threat of Russia shutting off gas supplies and thus whether the ECB will be able to keep up with market expectations of rate hikes. Counter this with the hawkish Fed and chances of parity on EURUSD don’t seem to be eroding. EURUSD made a fresh 20-year low yesterday and should we see a solid job print from the US today, we could well see fresh lows on the pair.
ECB Villeroy and Lagarde will be speaking again today, so we’ll be looking out for mentioning of TPM, the value of the euro and rate hikes – but whether this can significantly support the euro is questionable.
Fed members Waller and Bullard reiterated the Fed’s overall message that a 0.75% rate hike should be appropriate in the July 27th meeting with both members once again suggesting that a US recession is not on the cards.
The dollar remains well supported going into today’s job data and unless we see a big miss on payrolls, the unemployment rate and wage growth, we would expect the dollar demand to persist. Markets are expecting 268,000 jobs added in June, the rate of unemployment to remain at 3.6% and hour earnings to be at 5.2%.
Equals Morning Report- 08th July 2022
Today’s Interbank Rates at 10:17 am against sterling movement.
GBP>EUR – 1.1812
GBP>USD – 1.1941
EUR>USD – 1.0108
GBP>CAD – 1.5546
GBP>AUD – 1.7527
GBP>SEK – 12.645
GBP>AED – 4.3857
GBP>HKD – 9.373
GBP>ZAR – 20.134
GBP>CHF – 1.1682
· EUR ECB’s President Lagarde speech
· USD Nonfarm Payrolls(Jun)
· CAD Net Change in Employment(Jun)
· CAD Unemployment Rate(Jun)