Markets been on the back burner awaiting news and events following the ECB/BoE/PBoC/FED meetings.
Emerging markets have had a better day and the talk is investors have been climbing back into the carry trade (JPY/ZAR) after the SARB raised rates last week by 0.50% to try fend off inflation and fight the current account deficit.
This week sees the ECB and BoE interest rate decision on Wednesday/Thursday (no change) respectively and NFP on Friday (January count was +292k). Analysts expect this week to see a rise of 190k given the recent poor data that we have seen out of the States. Not wanting to repeat myself, but as Pres. Yellen of the FED announced in December, further rate hikes will be (including) DATA DEPENDENT and therefore the latest “disappointing” number will and should delay near term rate hikes (many expecting the next hike in March). If China continues to slow, oil trades at around and below $30pb I personally think the FED must delay the hike. I would be very curious to see how the hike in December has aided the US growth. So far nothing has stood out for me. Hence like some other folk, I think the FED owe it to the global economy to delay hiking.
As far as the BoE decision goes, no change is expected and there is talk that Ian McCafferty could jump back into the no hike camp which if confirmed will add further pressure on the GBP. While the GBP has found its feet and rallied over the past 72 hours, I believe this is merely a temporary phenomenon. Reality is the BoE are concerned and have vocally voiced this concern which has led the the Pounds downfall. I am afraid to say, there is more to come.
Coming back to my comments above on the US economy and FED hikes, a member of the FED (Fischer) commented yesterday that it was too difficult to gauge the impact on the U.S. economy from recent turmoil in financial markets and uncertainty over China, leaving the FED members “uncertain” as to what to do next. He added, “If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States,” Fischer told the Council on Foreign Relations in New York on Monday. “But we have seen similar periods of volatility in recent
years that have left little permanent imprint on the economy.” In other words and in language you and I can understand, he is basically saying LET’S WAIT FOR NOW. Hallelujah – maybe just maybe they are listening.
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