Emerging market “enjoyed” some respite yesterday (and today’s open) on the back of calm international markets brought about mainly after the PBoC “fixed” the CNY again at around 6.5650
This respite though (in my opinion) is going to be short lived. The cause has not gone away, and while the antibiotics have eased the pain (for now) a major operation is needed to fix the problem once and for all. Having said this we are in for a very difficult year as oil, commodity and Chinese growth continue to fall and falter. While the PBoC are doing what they can to stabilise the markets and the Yuan, I really believe they will have no other option but to let the CNY rip. A weaker Yuan should go some way to help exports and in so doing prop up the economy. However the Chinese also need foreign demand for their products to maintain and support output and the manufacturing sectors.
For the past few days I have been saying the FED will simply HAVE to wait longer to raise rates than (they) hoped for. Seems I have an ally who thinks the same – Jeffrey Gundlach co-founder of Los Angeles-based DoubleLine Capital has said the (US) economy is too shaky for interest rate increases. Mr Gundlach further commented that Global growth might slow to 1.9 percent this year with U.S. manufacturing already in a recession, putting the odds of a recession at about 50 percent if the services sector falls more. “We could be looking at a really ugly situation during the first quarter of 2016,” he said. “It’s particularly more likely to happen if the Fed keeps banging this drum of raising interest rates against falling inflation.”
To add fuel to the fire, Oil dropped below $30 a barrel in New York for the first time in 12 years on concern that turmoil in China’s markets will curb fuel demand. According to Morgan Stanley a rapid appreciation of the USD may send Brent oil to as low as $20 a barrel. As things stand and with OPEC not about to cut production, this is fast becoming a reality. Given what I have said above about delaying the FED rate hikes, coupled with falling oil and non existent inflation, the EUR (USD) might find some unfamiliar support. Truth be told, a rally in the USD to and through PARITY is really the last thing we need right now.
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