High	Low			High	Low
EUR/USD	1.1332	1.1302		USD/ZAR	11.7743	11.6568
GBP/USD	1.5278	1.5232		GBP/ZAR	17.97	17.78
EUR/GBP	0.7429	0.7409		USD/RUB	66.67	64.85
USD/JPY	119.80	119.28		USD/NGN	200.2	196.3
GBP/CHF	1.4173	1.4118		S&P 500	2068.31	2062.96
USD/ILS	3.8882	3.8602		Oil (Brent)	58.42	57.16

The UK economy continues to deliver shaky numbers that point towards a softening in the robust growth we’ve seen in recent quarters. Yesterday’s year on year to December industrial production number was +0.5% versus +0.7% forecast, and much weaker than the 1.1% to November. Sterling posted a low after the numbers, but recovered into the days close. I am uncertain if the corrective wave is complete, before the bearish GBP/USD trend continues, but for now the level to watch is 1.5353. I would suggest that 1.1499 is the equivalent level for EUR/USD. Incidentally, we may be getting close to the limits of sterling’s outperformance over the euro in the short term, I’m monitoring the chart, and there seems to be the potential for some positive divergence there.

 

Apart from some bond auctions in Europe and the US today, and Brazilian retail sales, I don’t see much macro data to write home about. That’s not to say that there isn’t much on the macro front to concern us. We all know what the issues are, but it’s worth revisiting every now and then:

• Debt negotiations between Greece and its Eurozone partners – I hope you don’t have shares in Greek banks. I could show you the charts, but its early morning, way before the watershed. Children might be watching. Fear dominates the Greek markets in anticipation of another emergency meeting between the Greek finance minister and his Eurozone counterparts. The gap between the two parties is wide, and given the Eurozone side feels that Greece has more to lose (I’m not so sure about that!) it is entirely possible we see more of that classic Eurozone brinkmanship before any agreements are made. There really could be trouble ahead.
• Imminent QE programme from the ECB – bond purchases will commence in March (sans Greece), and all across Europe a new monetary experiment has commenced with euro denominated Nestle corporate bonds yielding in negative territory. The zero bound was always considered a barrier, but perhaps the Swiss and the Danes will teach us all something. Lessons as memorable as those of the Weimar republic’s dance with hyper-inflation no doubt! Core Eurozone equity markets continue to trade well, even if they appear to be in a flag pattern at the moment, but further highs look likely.
• Oil prices recovering as rig counts fall in the United States – I’ve mentioned this a few times, but it appears the damage done by lower oil prices is having an impact on the shale oil industry. The rig count (number of rigs drilling oil in the U.S) continues to decline, even though production remains at the highs. This tells me that a lot of productive wells are likely to be depleted faster than might be expected. We might see the evil genius of the OPEC (Saudi?) decision to maintain production levels sooner than we expect. I would be bullish oil prices from here if demand wasn’t as much of a concern as supply, as things stand I am increasing confident that we have probably seen the lows, or at the very least the final lows are not that far from what was recorded in mid-January. We are currently trading 25% above the lows of last month, but we are miles away from levels that would be of comfort to the likes of Russia, Venezuela and Nigeria, it’s important to remember that.
• Impact of last week’s stunning employment report in the United States – the Federal Reserve has lots to ponder with not just employment growth accelerating, but hourly earnings numbers far stronger than forecast. That, as I’ve suggested in the past, is likely to be a key point of focus for U.S central bank officials because it is the most likely trigger to push inflation rates higher in the U.S. Let’s see what happens with oil prices from here. If we’ve based, then no one will talk about the deflationary (or disinflationary?) impact of energy prices in the near future!

 

What has been the case at local Nigerian bureau de changes (or Malams, if truth be told!), is finally feeding through to the far more competitive and transparent inter-bank markets as USD/NGN has finally traded above 200. Worse still the forward markets tell us that the naira will be trading above NGN 260 in a year’s time!! If even half of this comes true times will be very tough in Nigeria over the coming year. Presiding over a recovery process regardless of who wins the now delayed elections will be a daunting task.

 

I’ll leave you with this observation… the S&P 500 trades at the top of the range that’s been in force since the beginning of the year. Do we break higher? Or is the range important? We shall see…

 

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