Good morning

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…

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