As I have been saying over the past few weeks, expect more and more market volatility and that’s exactly what we got yesterday. The bulls lost to the bears as a deterioration in market sentiment sent shares lower across the pond. Bond markets were in play as yields on US Treasuries fell, and equities closing sharply weaker. Additionally the oil price came under renewed pressure once again, in line with the changing sentiment. These moves were compounded by disappointing data out of both China and Japan sending Asian equities weaker overnight. Chinese inflation data showed a higher than expected CPI to 2.0% (1.8% expected) but the concern is that the PPI fell to -5.9% which was much weaker than -5.5% that had been expected. The PPI is a concern as it shows the deflationary forces on the corporate sector and a concern for the continuing slowdown in China. European stocks fell at the open with most markets down on average 0.50% at the time of writing. You have to keep in mind these moves will happen daily, especially leading up to the FOMC meeting next Thursday and more importantly the tipsy turvy data that’s coming out of China. I am still of the opinion that with time, the PBoC stimulus package will bring the Chinese economy back to the levels they are looking for. Time is something we have, so patience is something we need to work on.
At noon today, the BoE publish their interest rate decision and minutes (including the vote). There is no change (to rates and voting numbers) expected but the minutes could contain some interesting clues. An 8:1 split on holding rates is expected with nobody expected to join Ian McCafferty in voting for a 0.25% rate hike. Disappointing data out of the UK still persists and therefore Gov. Carney and the MPC are in no rush to hike rates and ruin all the good hard work that has been done over the past 6 years. The economy is finally on a strong growth path and that needs to be kept in check. The MPC must take care not to upset the apple cart by raising rates too early. There is still work to be done. As such I am still of the opinion that the GBPUSD will weaken (towards 1.50) as a result of a stronger USD, low inflation, and disappointing data.
The big news out of Africa yesterday reported that JPMorgan Chase & Co. has excluded Nigeria from its local-currency emerging-market bond indexes tracked by more than $200 billion of funds, after restrictions on foreign- exchange transactions prompted investor concerns about a shortage of liquidity. The first phase of removing Africa’s biggest economy from the Government Bond Index-Emerging Markets, or GBI-EM, will take place at the end this month followed by a full exit by the end of October, the New York-based lender said in a statement sent to Bloomberg on Tuesday by spokesman Patrick Burton. Nigeria’s central bank under Governor Godwin Emefiele introduced several foreign-exchange trading restrictions from December to stem the drop of the naira amid weaker oil prices. The country is Africa’s largest producer of crude, which accounts for about 90 percent of exports and two-thirds of government revenue. JPMorgan placed Nigeria on index watch in January, saying the foreign-exchange measures made it more difficult for foreign investors to replicate the gauges. The Naira in reply has remained static trading on the secondary market between 230-233 …..
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