Good morning

Quiet start to the shortened week as the euphoria surrounding the FED rate hike settles into the market. Stocks in the US have been disappointing while the USD has failed to rally following the FED’s rhetoric. What is now clear is rates in the US are heading higher given the superior economic growth, albeit at a slower pace and once again DATA DEPENDENT. The FED will be keeping a close eye on CPI, wage growth and NFP data over the coming months in making their decisions on when next to raise rates. The 0.25% hike is unlikely to have a marked impact on the US economy short term, with the USD likely to find support as a result. All eye’s now on the path of the US rates hikes and how quickly (or not) the FED believe the US economy can sustain and absorb these further rate hikes. As long as the data is positive and growing the FED will remain confident that they are doing right by the economy and further hikes can be made. One thing is for certain though, as long as the data is positive and growing, the USD will tend towards PARITY and beyond. The US economy continues to outshine both the EU and UK and this superiority is what the FED want to maintain. The FED will be keeping close tabs on whether the Chinese economy can grow back above 7% (psychological level) – a strong world economy is good for the US for obvious reasons. Over the coming couple of weeks I have cautiously optimistic about the USD and look for further gains as we approach year end. 2016 no doubt (if things stay on course) will be all about the USD (to the detriment of EM) and I fully expect us to be trading well below PARITY (EUR/USD).

Talking about Emerging Markets (EM) countries like S.Africa, Turkey, Malaysia, Mexico, Brazil (etc.) who run large current account deficits will however suffer most as a result of the continued USD strength. The ZAR had a shocking week last week with the firing/hiring of 3 Finance Ministers over 4 days and while the ZAR has recovered (and then some) most of the losses following these crazy days, the future remains bleak to say the least. As an exporter the S.African authorities will certainly not be sad to see the ZAR depreciate in the face of falling commodity prices. Reducing imports and expanding exports is the antidote to improve and expand the SA economy.

Data wise, tomorrow sees the publication of US GDP numbers (Q3). The market expects circa 1.9% from 2.1% last quarter. Following this, on Wednesday we will have the UK’s GDP numbers with 2.3% (YoY) and 0.50% (MoM) expected. I for one cannot get excited about the Pound’s near term prospects as fiscal tightening and the upcoming EU referendum (risk) continue to take their toll. I am not alone in thinking over the coming months the GBP will come under renewed pressure heading towards 1.45ish (short term) before consolidating and then heading lower again. Interest rate hikes are on the burner for now therefore GBP spot traders will be looking to short the GBP.

Have a good week

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