Emerging market currencies are simply getting obliterated. How else can or could I have said it. S.African ZAR hit a new low vs the USD after falling 1.20%, while vs GBP it broke 22!!! For all your lovers of SA wine and beer, a Windhoek Lager costs £0.80 while a steak at the Butchers Grill will set you back a mere £4.00 which for those of you who have been there will know they serve a mean lean piece of meat!!! In fact a 5* hotel room will cost you £100 – it is no wonder BA and Virgin rate Cape Town in the top 3 destinations. What the SARB were thinking last week when they raised interest rates is beyond me. What they were trying to achieve has and will backfire. You CANNOT and SHOULD NOT raise interest rates at a time when the economy is faltering and your currency is in freefall. Stocks have been battered, the current account has widened further and talk is they will have to import 4m tonnes of maize after successive droughts dented their export capabilities. Trust me when I say there is still more to come.
USDNGN (Nigeria, and Africa’s biggest economy) has seen the currency fall from 232 to 252 in just 2 weeks – a near 8% drop. With President Buhari instituting fiscal change since he came to power, the NGN has been sold off in spectacular form. Demand for USD has risen, but supply has been cut to stave off speculators. Needless to say, the speculators might have taken a break but the corporate demand from importers and travellers remains steady.
With oil producing nations continuing to pump the black stuff out the ground, and demand mostly unchanged, prices have collapsed. I have not as yet seen my petrol price come off but hopefully that should filter through soon enough. The fall in oil prices is not really a surprise to many. The combination of tepid demand and growing surplus has plagued the oil industry since the OPEC opted to defend market shares over prices a year ago. You cannot have your cake and eat it. Over-pumping will simply send oil even lower and with it risk the livelihood of millions of workers (perhaps SNP leader Sturgeon should give this A LOT OF THOUGHT when she calls for another Scottish independence referendum, given that over 400,000 Scottish people work in the oil industry, not to mention their dependents).
With just a week to go before what is quite possibly the most eagerly awaited FED meeting, there are still some doubters who think it is too early to raise US interest rates. Jeffrey Gundlach said the Federal Reserve may come to regret raising U.S. interest rates amid signs of a fragile economy and a crumbling credit market. The Fed is likely to find itself in a “conundrum” in a year or two if it raises rates amid economic trouble. The central bankers appear “hell-bent” on lifting rates despite weak economic signals such as gross domestic product, he said. “We’re looking at some real carnage in the junk-bond market,” Gundlach said. “This is a little bit disconcerting that we’re talking about raising interest rates with the credit markets in corporate credit absolutely tanking. They’re falling apart.” The debate over whether to raise or not will continue for the next week ….if you asked me what I THINK (my opinion personally) I think it is too early to raise rates (while Ossie thinks it is time to raise rates). The majority agree with Ossie, it is time and they will raise 0.25% (which in truth is neither here nor there but shows intent). Time will tell
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