Good morning

Finally some volatility. As we have been saying here over the past month (and beyond) the PBoC reacted as expected and cut both interest rates (-0.25%) and RRR (-0.50%) on Friday. Furthermore they removed the deposit rate ceiling to further liberalise interest rates. Now to complete our predictions we are just waiting for the PBoC to DEVALUE the currency once more (currently 6.3500 mid). While Q3 GDP recorded a rise of 6.90% (better than expected) the PBoC are still disappointed to be below the 7% psychological barrier and therefore more is needed to stimulate the Chinese economy. The AUD(USD) & NZD(USD) rallied on the back of the rate cuts given their economies are so dependant and intertwined with China.  The news boosted the stocks as it once again reinforces China’s determination to re-build their economy.

The good news unfortunately was overshadowed by news from the ECB (Draghi) that MORE QE is coming in December and furthermore, the door is open to a DEPOSIT RATE CUT (further into negative territory). The EUR got rightly slapped and tickled collapsing at one stage to sub 1.10. In solidarity the GBP dropped like a stone too despite the incredible Retail Sales numbers on Thursday (+1.90%) when the GBP rallied to 1.5513 before falling back and then getting sold off in style.

This week sees the FOMC meeting on Wednesday, New Zealand Thursday and Japan (BoJ) Friday. There is a chance the latter could ease further given the disappointing economic data and weak corporate inflation numbers. Nothing new then from Japan.

BOE’s Governor Carney said that “while there’s been a lot of progress paying down debt, there’s still a substantial proportion of British households carrying a lot of debt”.  “On top of that, the fact is that real wages have not come back to their level before the crisis. If we think there is a prospect, a possibility – that’s a possibility, not a certainty –of rate rises, then that is far, far better to let the British people know so they can prepare.” I think this is something we knew already. UK rates are not ready to go higher despite the decent economic data of late (Wage growth and Retail Sales vs disappointing CPI). For this reason and coupled with the overall desire to hold USD, my views remain the same and I continue to call for the fall in GBP(USD) sub 1.50 handle over the coming weeks.

The ZAR (S.Africa) had a torrid few days, with the student protests against hikes in university fees starting to bite. Then on Friday the EUR got sold off and considering the EU is SA’s biggest trading partner the ZAR fell further (5%). Corruption and nepotism remains rife in SA and despite the ANC’s promise to eradicate poverty and improve living conditions amongst the poor, this has just not happened. It will be interesting to see how the government react to this latest issue (cast your mind back to the mining protest that turned deadly). At the end of the day the government have their work cut out and change HAS to happen but that unfortunately is not something I would expect anytime soon. ZAR will thus continue to trade heavily.

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