FOREX: GBP/AUD Slips on Contrasting PMIs
Jul-24 09:25
- AUD is once again top of G10 FX Thursday, continuing to benefit from the buoyant price action for major equity indices, greater optimism surrounding China and the resumption of dollar weakness this week. Additionally, the July flash composite PMI rose to 53.6 from 51.6 in June, representing the highest reading since April 2022 and offsetting concerns following the weaker-than-expected labour market report last week. RBA Governor Bullock stated in overnight remarks that the labour market has eased only gradually and the rise in the unemployment rate was not a shock for the central bank. She confirmed a measured, gradual approach to policy is appropriate.
- Meanwhile, the weaker-than-expected services PMI in the UK weighs moderately on sterling after the release, prompting a brief test back below 1.3550 for GBPUSD, currently down 0.2% on the session. The renewed dollar weakness this week has allowed cable to recover well from recent pullback lows, negating the prior break below trendline support, drawn from the January lows.
- This keeps more of a focus on EURGBP, which has risen back above 0.8680 and narrows in on a cluster of daily highs across July, just below the 0.8700 handle. A break through here would place the focus on key resistance at 0.8738, the Apr 11 high. A dominant uptrend remains in place for the cross.
- The ECB rate decision takes focus going forward. President Lagarde last month signaled that policy was in a good place after a cut to the mid-point of neutral estimates of 1.75-2.25% - and given there haven't been any significant data surprises in the intervening period and some Governing Council members have talked of a higher bar to cut rates. We expect today’s communication to be as non-committal as possible, maintaining flexibility and buying time for a fresh forecast round in time for the Sep 11 meeting.
- Canadian retail sales, weekly US jobless claims and the prelim US PMI numbers are the data highlights Thursday. The Fed remain inside their pre-meeting media blackout period.
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BOE: Huge number of MPC speakers today (Greene next at 10:30BST)
Jun-24 09:23
There are a huge number of MPC members speaking over the next few days that could shed a little more light on the MPC's thinking following the June meeting - particularly on their individual views on recent labour market developments.
- Megan Greene will speak at 10:30BST today at NIESR in a speech entitled "Monetary policy implications of differences in central bank balance sheet management". The full text will be available here. We don't think that Greene is quite as hawkish as she was previously and think she will be at least looking for quarterly cuts going forward. The balance sheet is growing in focus ahead of the September decision on whether to continue with QT or possibly slow the pace (without a slowing in total QT active gilt sales would accellerate notably). Any comments on her views on this will be watched closely, as will any labour market comments. We will also be watching to see if she uses the word "careful" again in respect of monetary policy.
- Also today we will hear from Deputy Governor Ramsden at the Barclays CEPR Monetary Policy Forum. He is expected to address for the first time the full rationale behind his shift back to being a dovish dissenter in last week's meeting. We have more on our view on Ramsden in our recent BOE Review here. Again, the text will be release here but given he has already dissented and if likely to point to the labour market this shouldn't be too market moving.
- Possibly the most interesting today will be Governor Bailey's oral evidence to the Lords Economic Affairs Committee which is due to being at 15:00BST (similar to the TSC for the Commons). This is very much dependent upon the right questions being asked, however, and there may be more focus on yesterday's letter regarding interest on reserves and the costs of QT than on monetary policy developments.
- Towards the end of the trading day, Pill will participate on a panel on the gold standard and Breeden in a fireside chat at the UK Finance digital innovation summit. Breeden often does not elaborate too much on her monetary policy views but given she now seems like one of the more dovish internal members, if she does speak on monpol this could potentially be market moving as she would almost certainly be needed to move to sequential cuts in September.
BUNDS: German Finance Agency Considering 50-year Bund
Jun-24 09:23
"GERMAN FINANCE AGENCY: 50-YEAR BOND NOT PLANNED FOR THIS YEAR BUT INTERNAL CONDITIONS HAVE BEEN CREATED" Reuters
We had noted the possibility of a 50-year Bund in our preview ahead of today - but thought it was unlikely to be introduced before next year at the earliest.
- This will be factoring into the latest sell-off in Bund futures and steepening of curves.
BUNDS: Largest Volumes of the Day goes through in Bund
Jun-24 09:22
- Largest volume of the Day is going through in Bund in the past 15 minutes, Schatz is now also sold in over 13k.
- Despite the German short 2yr Supply, the longer end lead futures lower, spiking the curves steeper.
- German 2s/30s test its highest level since the 5th June.
- Immediate support in Bund comes at 130.47, but most will be eying the 2.60% level.
Today, reference 130.57:
- 2.60% = 130.07.
