Good morning

So let’s quickly recap, Japan is back in a recession, PM David Cameron at the G20 meeting announces the world is facing the potential of yet another recession (Global conflict and Ebola – See our blog 20141015 where we discussed these and other reasons), CPI at 6 year lows, France and Germany narrowly escape recession, China data dreadful and a slowdown is plain to see, global corporate’s announcing profit warnings and England still has not beaten the Springboks since 2006 are just some of the events taking place around our beautiful globe.

So imagine you are a student studying economics, your lecturer is looking through the history books and the lecturer says events like these have led to investors flying out of stocks and into “safe haven” investments. I am afraid to say you might as well throw the books out the window and look at the reality of what’s happening. Big deal the Nikkei dropped 2.9% yesterday after GDP numbers were published, it rebounded back today as if yesterday was a dream. Japan’s Pm Shinzo Abe is holding a press conference at 10h10 GMT to potentially announce what they have decided with regard to (1) putting off another increase in sales tax till 2017 (scheduled to happen next year) and holding a snap election. USDJPY hover at 116.75 as I write this and another crack at 117.00 is looking likely not to mention 120.00 target short-medium term.

Basically my friend, global events have to a large degree been ignored. Given the all time lows in interest rates, bond yields are rubbish which leaves 2 avenues for investors to flock to (1) stocks, (2) property & (3) USD. I have tried to convince myself time and time again that stocks are overvalued and each time I get slapped in the face. The FTSE is trading just shy of 6700 while the S&P is 2041 and holding onto gains. No doubt October was an anomaly and can for the most part be ignored as a blip. A bloody frustrating one at that!! With the FED hike likely to happen in June/July 2015, investors are becoming more and more confident that equities will continue to perform well (especially in the US). Low inflation, falling unemployment are all giving stocks a lift. Global events therefore are irrelevant. It is all about the numbers right now and cheap money is driving investors to pile in to stocks. On a normal day this would scare the living daylights out of me (1999 crash). Then again today is just another day.

ECB Pres. Draghi announced that an expanded ECB purchase programme could include govt. bonds gave another lift to EU bourses. German Economic Sentiment due out at 10H00 GMT is pretty important as it will give us further evidence of the state of the EU’s largest economy and what potentially lies ahead.

At 09H30 this morning UK inflation numbers are published. Last month saw inflation drop to 1.20% and a poll of economists forecast 1.20% again. GBPUSD dropped below 1.5600 on Friday are US numbers boosted the USD. While we have seen GBPUSD rebound to 1.5720 in Asia Monday morning, the “Loony” has fallen back trading around 1.5655 as I write this. We are likely to see days when the GBP rallies back against the USD, but if I am perfectly honest, the writing is on the wall and given that the UK is now likely to hike rates AFTER the US, the GBP I am afraid to say is heading for the exit. It is strange (somewhat) because the UK economy is performing ok (better than EU, Japan, but slightly worse off than US) and so I expected GBP weakness but not at this rate. The GBP has even lost vs the EUR trading up from 0.7825 to 0.7975 as I write this.

So to sum up….BUY USD’s , BUY STOCK’S and bye bye fundamentals.

Have a good day and good luck