I told you so!!
Seriously I really did. The big news President Yellen’s (FED Chairwoman) confirmed what we have been saying for weeks now that the FED are on hold (and hinted she/they, the FED members) might have jumped the gun too early by hiking rates in December. As things stand you can pretty much rule out a March hike, with attention now focused on June/December. Having said that, be rest assured, if the markets continue to fall, NFP and US data continues to show 0 growth (including flat CPI) and China shows no sign of bouncing from the lows, the FED will skip June and perhaps wait till September before re-evaluating whether the time is right for a hike. I can tell you one thing, just like the BoE recently (hinted) that rates could FALL to stimulate the economy (in the UK), the FED would and could do the same and revert back to 0.00-0.25% range. Cast you mind back a few years, the ECB hiked rates by a 0.25% to 1.25% and at their next meeting having realised they jumped the gun too early cut rates immediately and have not stopped. Honestly, I am scared. Speaking to businesses and investors alike, there is an air of uncertainty and fear. Interest rates might be non existent but I can tell you right now, cash is king.
So what did Pres. Yellen say. “Financial conditions in the US have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar,” she said. The Fed chief added that if the turmoil continued it would act as a brake on the economy and affect the jobs market. Yellen cited the uncertainty in the Chinese economy, the possible impact of falling commodity prices on emerging-market economies and financial market volatility as potential risks to the US economy. The Fed chief said: “The economy is in many ways close to normal.” Specifically unemployment dropped below 5% , which many of her FED colleagues consider to be full employment, and that inflation was LIKELY (wishful thinking?) to move up to 2%. “Against this backdrop, the committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labour market indicators will continue to strengthen,” she said.
Additionally today President Zuma will give his “State of the Nation” address. As a good friend at a large S.A noted in his ZAR commentary this morning, “The Address is usually not a market-mover and typically only a small portion of the speech is given to economic policy. There is, nevertheless, unusually large market interest this time around given the economic and political environments and looming risk of junk status”. Furthermore he added, ” The expectation is that the speech will try and please everyone, with a popular tone contradicting pledges of fiscal conservancy to protect the rating — this is a political not policy speech after all. There will be the usual calls for national progress, teachers to teach and so on, and renewed pledges to sort out the state-owned enterprises (SOEs). We would be surprised if there are any direct references to tax hikes. Key issues to watch are: the nuclear plan, NHI, minimum wages, land reform (including restitution and redistribution), the size and productivity of the civil service, and private sector involvement with struggling SOEs. Overall, the State of the Nation Address is likely to be long on rhetoric but have no X-factor market-moving details — Zuma will talk the talk; Gordhan (Finance Minister) will have to walk the walk”.
Good luck and let’s be careful out there
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