20151111 – DAILY UPDATE

High Low High Low
EUR/USD 1.0774 1.0717 USD/ZAR 14.2880 14.1609
GBP/USD 1.5187 1.5114 GBP/ZAR 21.66 21.48
EUR/GBP 0.7100 0.7077 USD/RUB 64.90 63.38
GBP/EUR 1.4130 1.4085 USD/ILS 3.9288 3.8933
USD/JPY 123.23 122.74 S&P 500 2088 2080
GBP/CHF 1.5253 1.5205 Oil (Brent) 48.19 47.60
GBP/AUD 2.1531 2.1434 Gold 1094.3 1088.5


The IMF seems to believe that there are greater risks to an “early” interest rate hike than waiting longer. You can probably sense from the inverted commas what I think of that! When you consider that US corporates have increased debt levels since the global financial crisis, primarily for share buybacks, and when you also consider that there is absolutely no reason for them to stop that strategy right now, I would question how much more risky it is to raise rates earlier rather than later. Just my opinion…


Talking about accumulated debt since the global financial crisis, the Institute of International Finance (IIF) has just published a report which (using data from the Bank for International Settlements {BIS}) states that total debt levels in the 18 large emerging market economies have risen from 150% of aggregate GDP to 195%. I’ve said it before, and I’ll say it again.. when you take a step back and look at the post crisis policy solutions, making it cheaper to borrow when you have a debt crisis is one of the most bizarre remedies. But then, perhaps common sense only has a tenuous relationship with economics!


Slightly (very slightly) weaker than expected industrial production numbers published overnight in China, but this is balanced by ever so slightly better than expected retail sales numbers. It seems to be a pattern in recent months that retail sales are outperforming industrial production. This is of course the direction that is needed for the much mooted China rebalance from a manufacturing to more consumption based economic structure. Let’s hope it continues.


Later on this morning we’ll get UK unemployment data. The anecdotal evidence is that activity in the UK is fairly robust at the moment, and you only have to recall the report I mentioned yesterday about office shortages in London to get a sense of the lay of the land. You could take this one of two ways, either the UK economy is actually doing well and the pound should strengthen, or despite the UK economy performing strongly the Bank of England wants to ensure that sterling weakens. You picks you chooses, as they say.


Also in the UK, the Takeover Panel will make its decision about whether to approve INBEV’s takeover of SABMiller. This is a £68bn deal, although a huge portion of that will be transacted in equity there will still be a substantial amount of GBP moving around because of the deal. Obviously those involved haven’t been sitting on their hands waiting for approval before mitigating any sterling risk. Far more likely would be a “buy the rumour, sell the fact” type effect, with the deal requiring the purchase of GBP versus EUR. So don’t be surprised if you see the opposite happen.


I would still characterise the dollar to be in a corrective sequence after the recent impulsive appreciation. This could go on for a few days yet before, I would expect, another larger bout of strengthening of the greenback. I think 1.05 in EUR/USD and sub 1.50 are easily within reach over the next few weeks.




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