Good morning

High Low High Low
EUR/USD 1.1443 1.1393 USD/ZAR 11.7600 11.6970
GBP/USD 1.5420 1.5379 GBP/ZAR 18.12 18.00
EUR/GBP 0.7429 0.7403 USD/RUB 65.80 64.30
USD/JPY 119.17 118.40 USD/NGN 207.1 202.6
GBP/CHF 1.4330 1.4270 S&P 500 2090 2084
USD/ILS 3.8904 3.8673 Oil (Brent) 60.41 59.05

Finally some good news overnight. First out the blocks was the announcement of a cease-fire in the Russia-Ukraine conflict. The IMF also reached an agreement with Ukraine over a new 4-year assistance programme. Whilst this is indeed good news, let’s not forget how the last cease-fire ended up, under fire!!! We can only hope that this time it will be long lasting and normality will return to the region. This was followed by the news that Germany is prepared to relax its fierce opposition to the easing of the bailout demands faced by Greece. While no new deal is on the table, there are at least some olive branches being offered which if accepted by Syriza, could lead to an agreement on the terms of the austerity package. Previously the major stumbling block was Germany relaxing its demands. Angela Merkel said, “Europe always has been geared towards finding compromises. Compromises are agreed when the advantages outweigh the disadvantages. Germany is ready for this.” As we have said many times in this commentary, while Ms. Merkel has been the key cheerleader for austerity, she feared that any relaxation of the €240bn bailout’s terms would send a signal to other heavily indebted nations that they could divert from reforms. It was confirmed on Thursday that technical discussions had begun ahead of another meeting of EU finance ministers on Monday. Greece’s PM Tsipras expressed his hope that a “mutually acceptable” debt deal can be secured next week. He said: “The Greek delegation will take part in these meetings with crystal clear proposals and we will try and convince, not blackmail, our partners about our proposals. Our program will respect European rules …. we will keep balanced budget, respect the fiscal rules of the EU. We don’t want to go back to era of deficits.” All in all these are positive signs and the markets scooped it up taking the EURUSD above 1.1400 (1.1430 as I write this). Like I wrote recently, GREXIT is not an option and the mere thought sends shivers down the financial markets spine.

Interesting comments from Gov. Carney of the BOE yesterday. He actually intimated that if inflation continues to fall, they have the means to rectify this. What this all means in simple terms is they CAN (if they choose) CUT (yet I didn’t mistype) interest rates. After all looking at other western countries (Sweden, Swiss, EU) there is no reason why they can’t. Will they do it, I don’t think so. The reason is Oil prices remain low ($60p.b), food prices are falling and wage growth is trickling higher. All this is adding to the UK’s prospects for healthy GDP numbers (2.7% target). Gov. Carney emphasised the downside risks to near-term inflation and the MPC’s view that the risk of low spot inflation becomes embedded in lower inflation expectations, the Bank only pushed higher its GDP forecasts reflecting the positive effects of stabilising real wages and lower oil prices on economic activity. The upward move in short rate expectations that has seen the market move from pricing the first rate hike from Q4 16 to Q1 16 largely occurred after the US January Employment Report. However, the MPC, with the added complexity of a closely fought election campaign, may be grateful for the support that the oil price decline has provided in terms of easing rate tightening expectations. Governor Carney did little to disabuse the market of its current expectation of tightening in Q1 16 and intriguingly, raised the possibility of a cut in the Bank Rate should inflation surprise to the downside. With other European central banks easing via conventional and unconventional means, the “floor” in UK rates at 50bp is no longer in place. This leaves the front end possibly well-support over the next few months as the inflationary picture develops. The report gave GBP a boost sending the currency through the 1.5400 handle though it has eased off to 1.5385 as I write this. EURGBP was a clear winner, taking us to  LOW OF 0.7385 – 1.3540, though this has fallen back somewhat at the open to trade at 0.7430 – 1.3450 as I write this.

The Riksbank (Sweden) joined other small European economies by easing monetary policy further via negative rates and QE. In particular, the bank cut its policy rate to -0.1% (from 0.00%) and announced that it will soon buy government bonds for SEK10bn. EURSEK rallied more than 1% following the news.

Nigeria’s NGN remains on the back foot falling to a low of 207.10 before recovering back to 205.50….the market is still very nervous and liquidity is scarce as you can imagine.


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