20160129 – DAILY UPDATE

PRICES

Just when the Federal Reserve had taken a step towards monetary orthodoxy the Bank of Japan reminded us of the quandary in which the global economy resides. Last night the Japanese central bank cut rates to -0.1%. You’re not reading that incorrectly, negative zero point one percent! Some of the European central banks have toyed with negative interest rates, short term sovereign debt in the Eurozone trades in negative territory, but here we have, for the first time, a major Asian economy crossing the zero bound. Is this even ZIRP (zero interest rate policy) anymore? Perhaps a new phrase will be coined for this new frontier. Stock markets and the commodities complex reacted positively to the news, and not surprisingly the Japanese yen fell significantly. No one should be in any doubt that the point of this exercise was to weaken the yen, and so far the Bank of Japan has been successful. Whether that lasts for long will depend to a certain extent on how other central banks react, and more pertinently how the Peoples Bank of China responds. This is what people mean when they talk about currency wars. I’ve never been a fan of ZIRP and quantitative easing, I feel the corporates who made bad decisions have been given a free option and are being bailed out while the poorer percentiles of society are left to carry the load. But the implications of the Bank of Japan’s actions could have deeper more malignant consequences than anything we’ve seen before. I’ll start off by saying that if a small South American economy was doing this there would be a far more critical response than what we’re likely to see. I say this because already the Japanese authorities own a substantial proportion of their own debt, whereas the QE in the United States and the Eurozone has involved the vast majority of government debt remaining in private hands. We really don’t know what could happen if this proves to be an error, but one of the worst case scenarios is certainly hyper-inflation. Perhaps it doesn’t happen because of the debt super-cycle and the consequential deflationary tendencies in the global economy, but I can’t help but feel a great deal of discomfort at some of the policies institutions we should trust and respect are coming up with.

 

In Nigeria the President has come out in support of the central bank (CBN). A few days ago they maintained their official peg for the naira to the US dollar despite the parallel market rate seeing a greater than 50% widening from the peg level. I think the endgame here is a little bit more predictable. It’s hard to see how further devaluations can be avoided in the next year or two. As things stand the naira has continued to weaken in the parallel market, and it’s hard to see this ending anytime soon. Worse still the market is becoming comfortable with trading at the 300 level, so it could be here to stay. One of my traders was telling me just this morning that they missed out on a deal to sell NGN at 310, so you can bet that a deal was concluded above that level in the last couple of hours!

 

In Southern Africa, the central bank (SARB) has taken a more orthodox approach and raised rates 0.5%. The second hike in the last few months. The rand rallied on the news, and is still trading in positive territory today. Not before time the SARB has recognised that there will be an inflationary price to pay from the recent falls in the rand. While I recognise the seeming irrationality of tightening policy when the economy is already stuttering, it’s always the poor that suffer when inflation runs out of control – there are a lot of poor voters in South Africa. It should not be up to monetary policy to provide solutions to a country’s economic ills. That is after all what governments should be about in a functioning democracy. Over to you President Zuma.

 

Apart from against the Japanese yen, the greenback has been in retreat against a broad range of currencies. It’s not clear to me that this situation will last for much longer. Indeed both GBP/USD and oil look to be completing corrective bounces and I would expect to see the bearish trend regaining strength in the next few days. Later on today we’ll get some GDP data, consumer spending and wages data in the United States. I think that both the consumer spending and wages data will be worth noting. That’s exactly the sort of stuff the Federal Reserve will want to use to defend their relatively hawkish stance in a world of unorthodoxy policies.

 

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

20160128 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.0908 1.0869   USD/ZAR 16.4964 16.2838
GBP/USD 1.4280 1.4232 GBP/ZAR 23.50 23.23
EUR/GBP 0.7659 0.7615 USD/RUB 78.62 76.57
GBP/EUR 1.3132 1.3057 USD/ILS 3.9884 3.9515
USD/JPY 118.94 118.40 S&P 500 1902 1873
GBP/CHF 1.4523 1.4441 Oil (Brent) 34.11 33.34
GBP/AUD 2.0334 2.0154 Gold 1126.0 1117.0

The big news overnight was the FOMC.  As we expected, the FOMC kept FED rates unchanged given the slow(er) growth in Q4 and the spillover effects from the increased volatility in the financial markets. We all kinda knew this would happen and in fact all eyes are on the March meeting. Any further deterioration in the data or financial markets SHOULD prompt a delay in rate hikes. Of course should China start to make a comeback and US data improves that will give the FED the push to raise rates again. However, while many market participants expect a rate hike in March, I for one think they will be forced to hold again. Can you honestly see China suddenly reporting in excess of 7% GDP growth in Q1, will the US economy suddenly reverse poor data and flourish like no tomorrow. These things take time and so I fully expect Pres. Yellen to realise March is “too soon”.

In the report the FED committee downgrade their assessment of growth saying that economic activity in Q4 slowed while household spending and business investment only grew moderately. The committee added they were “closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook”. The committee concluded that it was too early to assess the effects of international developments on the US.

Separately overnight the RBNZ kept NZ rates unchanged at 2.50%, after cutting rates 0.25% in December and a total of 1.00% in 2015. The RBNZ’s rhetoric took a dovish tone, opening the door to further easing.  The committee noted “some further policy easing may be required over the coming year,” replacing “we expect to [return inflation to the 2% target] at current interest rate settings, although the bank will reduce rates if circumstances warrant.” Obviously the weaker global economic conditions and a weaker domestic inflation trajectory, as well as a slower NZD depreciation has failed to provide the RBNZ the comfort they desire.

SARB (S.Africa) rate decision at 1.30pm (Ldn) – market expecting a 0.25% rate HIKE. Unreal. Honestly given what I have written above from the FED and RBNZ (and PBoC recently) how and why the SARB feel the need to hike rates is beyond me. It goes against everything I believe in. The hike certainly won’t help the currency and the increased rates will make the already struggling SA economy even more perilous as money becomes more expensive making it harder for corporates to expand. I really don’t understand their thinking. While the SARB is trying to combat inflation (5.3% in December) the number is still within their range of 3-6%. Granted it’s closer to 6 than 3 but surely as is the case in the rest of the world (lower oil and food prices) there are external factors that are in play that aid lower inflation. Best the SARB start looking at what other means they can utilise to help combat inflation. Rely more on exports and reduce imports (weak ZAR = higher cost of “foreign” products sold locally = higher inflation).

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

20160127 – DAILY UPDATE

PRICES

Crude oil looks to be starting the 2nd upswing of its recent recovery, what we Elliott Wave practitioners would call wave ‘c’ of an ‘ABC’ correction (see illustration below). The obvious target for this correction could be just shy of the $36 level, but this bounce is unlikely to be more than a temporary respite for the commodities complex. After all, Chinese demand still looks tepid, and producers are putting an increasing amount of supply into the market. Hardly grounds for short term optimism.

a_b_c

In fact looking across assets there do seem to be recoveries happening everywhere, whether you look at GBP/USD or the S&P 500 index. It’s been a very bearish start to the year and days like this are bound to happen. This is a chance for emotion to be taken out of the equation and more fundamental reasons can try to assert themselves as drivers for market prices.

 

Later on today we get the first FOMC announcement of the year. There have been increasingly strident voices calling December’s rate hike a mistake. There’s no doubt that some of the uninspiring US domestic data could justifiably be used to challenge the wisdom of the Federal Reserve’s attempt to draw a line in the sand on the zero interest rate policy (ZIRP) era, but it was only a 25bps hike. What could be at risk is the Chairwoman Yellen’s statement that more rate rises are likely in 2016. This is what I believe we should be on the lookout for. I very much doubt that there’ll be much of a retreat in this meeting. Sure we’ve had a bit of a market wobble, but growth is still positive and no one seriously believes the United States is going to dip back into recession. There is no reason whatsoever for the Federal Reserve to risk its reputation by a very public and embarrassing reversal. What there could be is some sort of concession hidden deep in the wording that officials use and that’s what everyone will be on the waiting for. If that were to happen it could halt the bullish dollar trend and create more market volatility. Personally I’m not expecting much excitement at all.

 

Elsewhere the central bank of Nigeria kept rates unchanged yesterday, and reiterated its commitment to the current fixed exchange rate band of N197/$ (+/-). The parallel market has widened away substantially from that level and is currently slightly weaker than N300/$. How sustainable this stance is by the central bank is open to question. Many things are open to question! The most obvious parallel to the FX policy we’re seeing in Nigeria at the moment is in Venezuela, if that doesn’t give anyone pause for thought nothing will. We can only hope that economic and market realities win the day at some point in 2016, but the argument that a weaker currency is harmful to businesses really doesn’t wash. What possible incentive does any business have to focus on its core competence if they are able to roundtrip FX and generate superior returns to anything their core business could achieve? A discussion for another day perhaps.

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

20160126 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.0874 1.0840   USD/ZAR 16.6700 16.4500
GBP/USD 1.4256 1.4172 GBP/ZAR 23.68 23.44
EUR/GBP 0.7665 0.7608 USD/RUB 82.44 79.05
GBP/EUR 1.3144 1.3046 USD/ILS 3.9833 3.9530
USD/JPY 118.36 117.64 S&P 500 1880 1858
GBP/CHF 1.4443 1.4353 Oil (Brent) 31.23 29.95
GBP/AUD 2.0542 2.0388 Gold 1117.0 1106.0

STOCKS in free fall again. OIL in free fall again. Deja vu

Oil seems to be the catalyst that is all bad right now. Fresh worries that the introduction of Iran’s supply coupled with a continued supply from the Saudi’s will leave the market with a glut of oil. I guess even at $30p.b it is money in the bank. It is no wonder then the Saudi’s are pressing ahead and not taking their foot off the accelerator. While this all bodes well for you and I (and the airlines) at the pumps, the market does not like it.

GBP opens weaker this morning ahead of Gov Carney’s speech at 10.45am. Not sure what else he can add to what he already said last week regarding interest rates and the state of the union. We know now the BoE are likely to hold back raising rates, we know the dire state of the Chinese economy is having a severe knock on effect globally and we will probably know later this evening when Pres. Yellen (FOMC) speaks that the FED too are concerned. And so they should be. Plunging oil prices, plunging stocks, a Chinese economy in disarray and not so good US economic data will see the FED leave rates unchanged and in all probability stay unchanged for the time being. It’s no wonder the USD (vs EUR) has remained range bound since December. No new event risk has left EURUSD with no place to go.

Emerging currencies remain under pressure. This week (Thursday) the SARB announce their interest rate decision and the locals are expecting a 0.25% hike. I am not quite sure how this will aid the local economy which is already under pressure. The carry trade is dead in the water and the chances of the Japanese (who got out remember 2 weeks ago) are unlikely to jump back in. There is just too much risk for the now. I just don’t see how the S.African economy can withstand yet another rate hike. Nigeria’s naira (NGN) traded weaker on the open while stocks gained for the fourth day as domestic investors snapped up banking and oil shares in anticipation of the central bank’s decision on rates and any word on forex controls. The Central Bank of Nigeria (CBN) will keep its policy rate on hold at 11 percent on Tuesday but investors are hoping to see a relaxation of tight foreign exchange controls and a weaker naira currency.

Be prepared for FURTHER stock losses, oil prices, and GBP!!! The tarot cards are all showing signs of continued volatility.

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

20160125 – DAILY UPDATE

PRICES

From an Elliott wave perspective the recent low in the S&P 500 and other equity markets could mark the conclusion of the recent market turbulence. Interestingly the peak to trough move is an almost exact match for the late summer China turbulence the caused so much panic in August and September. In Elliott Wave speak we describe the move as an ABC, where A=C (I refer you to the illustration of the S&P 500 in the 20th January blog I posted). I bring this up, for a couple of reasons, (i) we are now monitoring the recent low as a key level, a move below could open the way for more worrying losses, but (ii) risk sentiment may just be about to recover and that will certainly have an impact on currency markets as well.

 

Those who argued against the December Fed rate hike are going on the attack now. With all the gloom and doom surrounding China and the global economy in general, the poor manufacturing indicators in the United States etc., more and more people are coming out to say that the Federal Reserve was premature in hiking. Maybe, maybe not. As I’ve often said I really don’t see a 25bps hike doing too much harm. But what matters in markets is expectations, and the big question now is whether markets will start seriously pricing in a reversal of the Federal Reserve move. If that happens that could be damaging for the dollar. There are arguments on both sides, but there’s not much point in my re-hashing what I’ve said in favour of normalising rates and exiting this long period of extraordinary monetary policy, you can find those musings in many of the blogs I’ve written over the last half year. The case in favour of a reassessment of Federal Reserve policy is the weakness in global growth, the lack of wage inflation, market turbulence and the disinflationary threat of a weakening Chinese currency (as the renminbi weakens the cost of imported Chinese goods is lower and thus puts downward pressure on US consumer prices). But here’s the thing.. most economists when pushed will agree that the risk of a US recession is very low, but the markets are pricing is an almost 50% chance of one, if the market re-assesses that we could get a rally of some sort. As long as economists maintain a positive outlook for the US economy it’s unlikely that we’ll get a retreat from the Federal Reserve, and this is only right. When you also add in the fact that there would be a huge knock to credibility and indeed corporate pride at the Federal Reserve it becomes clear that something really really bad would have to happen for a cut in interest rates to happen. Obviously that’s not going to stop markets from pining after the era of central bank largesse, but it’s important to maintain a firm grasp on reality.

 

Elsewhere, the price of oil has jumped by over 10% over the last week. Trends never move in a straight line and clearly the market became a tad oversold and we are now seeing a recovery of some sort. I have real doubts about how long that lasts though, as fundamentally market oversupply and weak demand will cap any rally in this market and it will take a substantial period of reduced investment in production capacity for a solid bullish case for oil to develop. That could take years.

 

There was a rather disturbing article published in the Financial Times about the level of stressed emerging market debt having grown larger than the previous peak at the height of the Global Financial Crisis. This for me is the main systemic risk facing the global economy in 2016. It’s so hard to predict where the danger spots are until after they become public knowledge. Panics are always greater when trouble comes unexpectedly. This raises another point about the collateral damage that could occur in the global economy in the months ahead. With emerging market economies weakening, and more importantly their currencies weakening, there will be much lower demand to recycle export earnings into US treasuries, indeed if the renminbi continues to weaken at its current pace we could see substantial amounts of US treasuries being sold. If this is the case the Federal Reserve won’t have to tighten further, the market will do it automatically. This is another reason why there is a risk of a retreat in Fed tightening policy. The bottom line is that it is not clear that there is much of a case for the greenback to continue strengthening aggressively at this point. Please note however that that is a far cry from presenting a case for the dollar to weaken. As my thoughts evolve I will be sure to let you know…

 

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

 

20160122 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.0877 1.0812   USD/ZAR 16.6500 16.4700
GBP/USD 1.4307 1.4203 GBP/ZAR 23.69 23.42
EUR/GBP 0.7650 0.7584 USD/RUB 83.55 74.36
GBP/EUR 1.3186 1.3072 USD/ILS 3.9933 3.9613
USD/JPY 118.32 117.53 S&P 500 1899 1862
GBP/CHF 1.4436 1.4308 Oil (Brent) 31.37 29.52
GBP/AUD 2.0405 2.0220 Gold 1104.9 1094.0

 

Asian equities finally had some joy (following on from European stocks) buoyed by the comments from the ECB. In his press conference, ECB president Draghi hinted at potential further stimulus. The Nikkei  rallied +5.5%, Hang Seng +2.5% and Kospi +1.9%. The Nikkei’s outperformance was helped by reports that the BoJ is mulling further easing. The Shanghai Composite was an underperformer, falling 0.3% during trading hours, after Vice President Li Yuanchao, speaking in Davos, denied any intent to “weaken” the CNY. Of course we are not expecting the PBoC or VP to come out and openly admit they are prepared to devalue the CNY. As we have seen in the past, they merely “let it go”. There is no upside letting the cat out the bag (before the event) as that reduces the impact when it happens. I have no doubts in my mind that further stimulus and CNY devaluation is coming. It is not a matter of if, but WHEN.

Oil inched higher to trade over $30p.b on the back of the ECB’s comments. Oil was further lifted by news (DOE Inventory Report) that showed a smaller stockpile that previously thought (-0.7mb difference). I guess you could say every barrel helps.

Regarding the ECB the market is anticipating  a  0.10% deposit rate cut and/or additional QE. However it is important to bear in mind that the ECB can only do so much and therefore they will enlist the help of the FED, BoE and PBoC so as to co-ordinate their actions to ensure maximum returns. Welcome back 2008 financial crisis.

Emerging currencies had a “day off” from being pummeled. As we have seen in recent weeks the likes of ZAR, BRL, NGN, MXN, INR amongst others have been sold off as investors flee for safer havens. Do NOT forget next Wednesday 27th, is the first FOMC meeting of 2016 and all eyes will be on Pres. Yellen and her comments. No doubt the current financial/economic downturn will play a large part in her rhetoric and give us an indication as to whether and how many hikes we can expect this year.

Quite a scathing report in the Financial Times about Nigeria’s FX policy yesterday (Nigeria ‘sliding towards Venezuela-style FX regime’) Here’s the first sentence… “Copying Venezuela’s exchange rate policy and China’s failed equity market strategy might seem the height of foolishness”. Wow! Further into the report, Charles Robertson, chief global economist at Renaissance Capital estimates fair value for USD/NGN at N305/$, or roughly where the parallel market is at the moment. The part of the piece which really captures my attention, and indeed has been my rationale for arguing that the CBN must step away from trying to control the FX rate is the fact that because of the government’s reluctance to allow the currency to find its own level Nigerians are feeling the falling dollar price of oil more keenly than other oil exporters. Whereas the current $28 price of oil feels like $35 oil to Nigerians, the Russia “feel” current prices to be at about $65. That’s what a weakening currency does. And what’s worse is that there remains an implicit subsidy for firms and individuals who have access to the CBN’s official rate, while the rest of us have to scramble to find dollars in the parallel market. Just as with the continuation of fuel subsidies in Nigeria, it’s hard to square these terrible injustices with the anti-corruption fighter President Buhari purports to be. We can only hope he pushes for more market sensitive changes in time and realises that current policies only make patronage more entrenched. It’s not been a great start so far…

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

20160121 – DAILY UPDATE

PRICES

I think it was Warren Buffet who said “be fearful when others are greedy, and greedy when others are fearful”. In retrospect yesterday seemed like a good day for greed. That’s not to say I’m calling a bottom on the recent market turbulence, but it does illustrate the wisdom of Mr Buffet’s mantra. As I pointed out yesterday, this feels like a correction within the context of a longer term equity market bull trend. At the end of the day, what’s the latest thing to hammer the oil price? The Iranians are back in the market, a potentially huge economy that has been shunned for a decade will be able to participate fully in the global economy, I’m not sure that’s a bad thing at all. Falling energy prices will be harmful for the energy sector and there will of course be derivative spill overs (lost jobs in sectors that benefit from the energy sector etc.), but surely this will not match the positives from consumers with deeper pockets? That’s not to say that there aren’t concerns regarding the global economy, there are. In particular China. But consider this, the US economy is chugging along reasonably well, Europe is slowly recovering, consumers everywhere are about to get a massive boost to their income from lower energy costs, and does anyone really believe the Chinese aren’t going to work to counter the slowdown? So yes things look grim, and there are a host of negatives that one could reel off, but it just doesn’t feel like disaster yet to me.

 

The front page of the Financial Times (at least the online edition anyway!), talks about ECB resistance to further stimulus at the moment. The European central bank would at least like to wait until the spring to make a decision about the impact of the current volatility. This seems sensible to me, after all a 10% rally from here and the central bank would end up looking a bit reactive and silly. We’ll get a better sense about exactly what they’re thinking in today’s ECB press conference. Across the world in Japan, similar questions are being asked of the Bank of Japan, the currency has appreciated significantly against both the renminbi and dollar in recent months, and on top of that the Nikkei has dropped 20% from its summer peak. I wonder if the BoJ will do anything, given the fact that Japan is a huge commodities importer, they are surely benefitting from the current weakness, and the reality is that short of risking hyperinflation they are doing a lot already to boost inflation. I suspect the answer will be dependent on how much the Japanese yen continues to appreciate.

 

The falling oil price continues to devastate oil producers, it isn’t an exaggeration to say that the Russian rouble is in freefall at the moment. The Nigerian naira is also under severe pressure. Here is a representation of the parallel market rate in recent times…

USDNGN

It’s tough to say when this ends, but you can see that the naira is at record lows versus the dollar. There’s no immediate reason to think that it gets better, particularly as crude oil continues to fall.

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

20160120 – DAILY UPDATE

PRICES

The list of equity indices entering bear market territory grows with Nigeria and more importantly Japan some of the latest entrants – the official definition of a bear market is generally taken to mean a greater than 20% decline in an index. The culprit, at least according to the papers seems to be investor concerns about falling oil prices. If that’s the reason for this decline, then this represents a fantastic opportunity to buy consumer stocks which will benefit from the higher disposable incomes consumers will have due to lower energy bills. There’s a silver lining in all things if you only look hard enough. Fundamentals aren’t my strength, but when I look at the charts this seems like an inevitable correction within the context of the great bull market we have seen since the lows of March 2009.

20160120_spx

As you can see from the chart above we are approaching a bigger picture trend line and we remain well within the bounds of a longer term bullish trend. But obviously that’s just my take on it.

 

According to the Financial Times yesterday, leading economists at the World Economic Forum in Davos are concerned about the state of the global economy at the moment. The confluence of (i) falling commodity prices, (ii) decelerating growth in China and (iii) excessive dollar denominated debt in developing countries means that another leg of the global financial crisis could occur. It’s a definite possibility, but let’s not kid ourselves all three of those situations are pretty much tied together. Slowing growth in China is largely responsible for declining commodities prices and Chinese corporates are as guilty as anyone for over leveraging in dollar debt. Even so, it doesn’t make the risk less valid, and it does mean that Chinese authorities will need to tread carefully as there’s only so much they can allow the renminbi to weaken. Too much and they could exacerbate the pressure of dollar debt on Chinese companies. You’ll recall, I hope, that I have been writing about the indebtedness of emerging market corporates as a potential problem over the last half year.

 

It appears the governor of the Bank of England shares the pessimism of the Davos economists because he has buried any chance of rate rises in the UK any time soon. In the middle of last year, when the UK was basking in the sunshine of a Tory election victory, unemployment was falling and Britain was near the top of the list for developed economy growth statistics he observed that early 2016 would likely be a time when the MPC would have to seriously consider initiating a process of rate normalisation. Well… here we are in early 2016 and his economic outlook is definitely chillier and it’s not because of the sub-zero temperatures we’re suffering here in South Eastern England. Wage growth, like in the United States, has failed to pick up in the UK; the current account is in deficit and doesn’t look healthy at all; and then we have the bad news in China and negative risk sentiment globally. It’s not difficult to understand Mr Carney’s reasoning. The pound sterling continues to plumb new multi-year lows and as I mentioned recently sub-1.40 GBP/USD looks a near certainty now. Sometimes you can devalue and not even look like you’re doing it. I bet Mario Draghi is jealous right now!

 

I continue to believe that emerging market currencies will remain under pressure as weaker commodities prices will inevitably translate into tougher policy choices for governments and discoveries that emerging market corporates have over extended themselves. It’s just a matter of time. I will however note that the euro has remained fairly stable against the dollar while the Japanese yen has unquestionably been strengthening in recent weeks. The pound is doing its own special thing and there’s no reason for that to stop any time soon. It seems likely that current trends will persist at least until equity markets find their support levels. For my part I’m not ready to see this as a crisis, but if I see the S&P spend a decent amount of time through my bigger picture trend-lines then I’m ready to be persuaded. By the way that would require more than a 5% fall from here, it’s not that far away but somehow I struggle to be concerned right now. January’s always seems to give us this type of excitement before calmer heads prevail…

 

 

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

20160119 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.0905 1.0859   USD/ZAR 16.9000 16.6100
GBP/USD 1.4297 1.4237 GBP/ZAR 24.10 23.72
EUR/GBP 0.7658 0.7597 USD/RUB 80.17 78.18
GBP/EUR 1.3163 1.3058 USD/ILS 3.9619 3.9413
USD/JPY 118.00 117.22 S&P 500 1912 1877
GBP/CHF 1.4415 1.4305 Oil (Brent) 29.75 28.82
GBP/AUD 2.0831 2.0617 Gold 1091.0 1085.0

This morning’s news that China’s GDP for both Q4 and YoY fell was no big surprise. Q4 came in at 6.8%, while YoY ended at 6.90% compared to 7.30% YoY for 2014. We knew it was coming given the weaker real activity in recent months. The hope now is the PBoC will have the support of FED, BoE and ECB to do what is needed to get that GDP number back above the psychological 7% barrier. Don’t you find it strange that even at 6.90-7.00% the PBoC are not happy. Compare that with the US, EU and UK (2.50-3.50%) and you think at 6.90% the latter economies would bite the hand off for those GDP numbers. However when you are accustomed to GDP of 9-15% you can see why the PBoC are simply not satisfied. In their defence, there are factors which are weighing heavily against them and thus driving GDP lower, factors which were not around when they recorded in excess of 13% GDP in the 2004/2007 period, and even 9-11% in the 2008/2013 period. The world is a different place today with oil sub $30pb. While we are likely to see further losses in oil over the coming months, I think the market will  begin to stabilize and start rising again (as inflation hopefully starts to bite). That’s the hope at least.

Today we get the UK inflation numbers and as you can see from the table below, it looks like things are not going anywhere fast. The number on the right was previous, while the number to the left is the forecast. Suffice to say you can expect another 0.00-0.10% CPI number.

09:30   GBP CPI (YoY) (Dec) 0.1% 0.1%
09:30   GBP CPI (MoM) (Dec) 0.1% 0.0%

BoE’s Vlieghe said in a speech at the LSE that conditions aren’t yet in place to raise key interest rate. He sees no “convincing evidence” of upward momentum in pay pressures. “With growth still slowing, and inflation pressures either easing outright or disappointing relative to forecasts, I do not believe the conditions are in place to warrant a rise in bank rate”. Before raising rate, Vlieghe wants evidence that “growth is not slowing further, and that a broad range of indicators related to inflation are generally on an upward trajectory”. Structural changes in economy mean that “for a given level of growth, real interest rates may remain significantly lower than in the past”. “The possibility of this scenario makes me more patient,
other things equal, before raising rates, because we may not have to raise rates very much once we start”.

S.Africa’s ZAR firmed as intervention by the PBoC in the yuan helped ease global investor aversion toward emerging market assets. Nigeria’s share index fell to its lowest point since July 2012 yesterday, down 4.1% on the day with fund managers jittery over the CB’s inability to provide USD’s for investors exiting the market. In recent weeks we have seen the NGN fall from 265 to 305 on the back of these fears and the inability of local Nigerians to use their credit cards abroad or even pay for foreign school fees. Furthermore, the CB stopped selling USD to BDC’s. This story still has legs and we have not seen the bottom of the NGN.

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc

 

20160118 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.0942 1.0874   USD/ZAR 17.0200 16.6000
GBP/USD 1.4300 1.4247 GBP/ZAR 24.22 23.64
EUR/GBP 0.7678 0.7610 USD/RUB 79.41 77.04
GBP/EUR 1.3141 1.3024 USD/ILS 3.9914 3.9275
USD/JPY 117.33 116.55 S&P 500 1892 1867
GBP/CHF 1.4387 1.4242 Oil (Brent) 29.39 27.85
GBP/AUD 2.0886 2.0610 Gold 1093.0 1087.0

OIL – its a slippery slope downwards. Iran sanctions lifted, billions of USD’s freed up and talk of an additional 500k bpd to flood the market sent prices tumbling through $30 (as you can see from the table above). No respite for oil right now and as a consequence the USD is on the back foot unable to rally. EURUSD seems to have found some traction and rallied to 1.0942 before profit taking set in. Currently trading at 1.0885 it is hard to see a sustained USD rally setting in. Very different though vs the GBP, with the latter getting BATTERED and BRUISED. Hope you been reading our daily comment as spot hit our “short term” target of 1.4250  (low 1.4247) and has since bounced back to 1.43 handle as I write this. Unfortunately vs the EUR, the GBP has been quite simply obliterated. Over the past 2 weeks the GBP has fallen from 0.7050 (1.4185) to 0.7610 (1.3140). 2 simple reasons; (1) EU referendum taking its toll (weekend report the NO (leave) camp opened a 7 point lead over the YES (stay in) camp, and (2) No rate hike due anytime soon given the economic situation. Don’t be fooled by the pull back – the GBP is on a slippery slope and further losses are expected.

Emerging currencies such as ZAR, TRY, ILS, NGN and INR continue to be plagued by investor flight to safety. 2016 promises to be a horrible year for EM especially as the “carry trade” has now all but disappeared. Too much volatility and uncertainty makes investors edgy. Not to mention of course the local economies which have been plagued by the slowdown in China and (decreased) demand for local goods.

(From a friend at a large Swiss Bank): According to Bloomberg the PBoC will impose required reserve ratios on yuan (CNY) deposits of offshore participant banks in the mainland in a bid to stabilize the currency. The move will take effect from Jan. 25, according to four people familiar with the matter, who declined to be identified because the information isn’t public. The reserve ratio was previously at zero percent on offshore banks’ yuan deposits in the mainland. The deposits will now attract the same ratio as applicable to Chinese banks.

I guess by now you know VOLATILITY is firmly with us. Prepare yourself for wild swings over the coming months.

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

Follow us on LinkedIn ParityFX Plc