Good morning

High Low High Low
EUR/USD 1.0817 1.0754 USD/ZAR 14.3300 14.2600
GBP/USD 1.5236 1.5198 GBP/ZAR 21.82 21.69
EUR/GBP 0.7104 0.7060 USD/RUB 67.71 65.30
GBP/EUR 1.4164 1.4077 USD/ILS 3.9000 3.8700
USD/JPY 122.79 122.49 S&P 500 2050 2042
GBP/CHF 1.5299 1.5224 Oil (Brent) 45.84 45.00
GBP/AUD 2.1398 2.1305 Gold 1085.0 1080.0

Commodity, precious metals, stocks have all faced renewed threats after last week’s NFP (+271k) number which indicated the FED are lining up a rate hike in December. While the number was reassuring and the FED are satisfied the ECB and PBoC are doing everything they can to boost their economies, we cannot take for granted the FED will indeed act. The past 5 months have not been kind to the markets and data has been disappointing to say the least, so one positive NFP doesn’t suddenly mean everything is back to normal and a hike is a done deal. The coming 5 or so weeks will be watched closely by the FED and the NFP number in December (4th) will go along way to cement the FED’s decision as to whether the timing is indeed right. Let us not get ahead of ourselves here and wait for more economic data to be better prepared. Fed funds are currently at a 70% chance of a rate hike. Strange that before the NFP number last week just about everyone was saying the FED will wait until March 2016….so you can see how fickle the market is.

FED’s Fisher said “while the dollar’s appreciation and foreign
weakness have been a sizable shock, the U.S. economy appears
to be weathering them reasonably well. Monetary policy has
played a key role in achieving these outcomes through deferring
lift-off relative to what was expected a little over a year ago. October FOMC signalled December rate rise may be
appropriate”. Interesting comments concerning the USD given that the USD’s strength has played havoc with US exporter earnings – perhaps Mr Fisher “is talking his book”. No doubt the comments we will be reading about over the coming weeks will be trying to talk up the FED at the December meeting so as not to jolt or panic the market when the announcement is made. If they do hike, I would think the USD will sell off (buy the rumour sell the fact) as traders take profit on the long USD positions. ParityFX noted we will/should see PARITY EURUSD on the 31st December….let’s wait and see if our prediction is CORRECT for the 2nd year running!!!

Regarding the USD strength and impact on US corporate earnings abroad, Cisco Systems forecast adjusted profit and revenue growth for the second quarter below analysts’ estimates, citing a slowdown in order growth and weakness in its enterprise business outside the
US and a strong USD. Cisco shares fell 5% to $26.41 in extended trading on Thursday as a result. Like I said above, nothing is certain yet and the FED need to time the rate hike to perfection in order to ensure they don’t head back into deflation (and unwind the rate hike in early 2016).

BoE’s Haldane said “the case for raising interest rates is
still some way from being made. A rate rise would increase
unnecessarily the chances of the economy falling below critical
velocity, thereby extending the period inflation remains below
target”. This is playing into the GBP bears hands and as I have noted previously we think the coming months could see the GBP fall heavily towards the 1.45 handle ….


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