Good morning

OI VEI – Emerging Markets! In freefall. Yesterday S.African ZAR, today Nigerian NGN.

Nigeria’s naira currency was quoted at a record low of 282 per dollar on the unofficial market on Monday (285-290 Tuesday) after the central bank said it would stop dollar sales to retail bureaux de change (BDC) operators, one trader said. Nigeria’s central bank is halting dollar sales to non-bank foreign exchange operators and letting commercial banks accept dollar deposits with immediate effect, its governor said on Monday, in an effort to shore up dwindling foreign reserves. DISASTER!!

ZAR: since January 2015 the ZAR has fallen from 11.56 to a low of 18.0617 – a fall of 36% (mouth watering). While the ZAR has recovered over the past 24 hours, to trade at 16.86 the damage has been done. FX vols have exploded as a result trading mid 18’s (1m) on the 31st December it is now being quoted mid 32 (1m) and 22 (6m). The carry trade is dead – RIP.

CNY: After falling sharply last Monday and Wednesday following the stocks sell off, USDCNY has appreciated “sharply” with the PBoC fixing the rate at 6.5628. China is continuing to instil a degree of stability by announcing stable to firmer fixings. More stable fixings may be a sign that the NEER has reached a level (100) that the authorities are comfortable with. Both the FED and PBoC have remained largely “quiet” on the comments front (actions speak louder than words). The global economy needs a strong China and for this reason major Central Banks are standing back and allowing the PBoC to do whatever it takes to shore up the economy. Forget trade wars, currency wars, this is a time when unity and collaboration is needed.

As I have been saying over the previous week, the FED will no doubt be thinking they simply cannot raise US rates in the short term as the oil price continues to fall (-2.30% this today), 0.00% wage growth and stagnant CPI (despite impressive NFP numbers +292k last Friday). As Ms. Yellen commented in December, while the decision to raise rates will be data dependent it will also be dependent on external factors (China). So for now rates stay at 0.25%…

GBP: continues to trade heavily. After bouncing above 1.46 in late European trading, the currency has been beaten again and is now trading SUB 1.45 in early European trading. The EU referendum and state of the UK economy (no rate hike expected anytime soon) has meant the GBP is less attractive to hold.

Good luck and let’s be extra careful out there

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