20160302 – DAILY UPDATE


The two contestants who will fight for the US presidential campaign became just a bit more certain after yesterday’s ‘Super-Tuesday’ round of primary elections. Both frontrunners moved further in front of their rivals, and at least in Hillary Clinton’s case it becomes increasingly difficult to know if there is any point in her challenger Bernie Sanders continuing the fight, particularly as the demographics of his constituency are probably the exact opposite of what it takes to win in an actual election. But, as they say, part of the process is forcing the opposition to debate the issues that you deem important. Maybe for that reason it behoves us to sit back and enjoy the show. Amongst the GOP, it’s becoming tougher to see how even Rubio, as the 3rd contender can improve his standing, but at least, given the fractured nature of the voting he still has some hopes, however remote. That Ted Cruz with his brand of conservatism might end up being the last best hope of the anti-Trump establishment, makes you want to laugh but also shake your head in wonder. Some great editorials around for those who are interested in all of this. This might seem very far away from currency markets but I would argue the opposite. Yes, there are limitations to the power of the executive in the US political system, but foreign policy is not one of those areas. In a world where currencies have become not just an economic tool for governments, but a political one as well, the next leader of the free world is important to identify. It would be unfair to start speculating about what specific collateral impacts a future Clinton, or Trump presidency could have, but we should all keep a wary eye on what goes on across the pond.


In that spirit, I’ll start off the data watch by reporting on some better than expected ISM numbers last night, from the United States. So far this year the general macro tone has been about a weakening growth trend, whether in China, Japan or in parts of Europe (notably the UK’s poor manufacturing PMI yesterday). So it is particularly interesting that the US economy continues to show solid if not spectacular numbers. One might consider this an aperitif before we dine on the main course which is of course the US labour market data published on Friday. Last time around the non-farm payrolls number was on the disappointing side, at least on a relative basis, but if the tone set by the manufacturing data is anything to go by, a positive surprise could really set the cat amongst the pigeons. The problem is that since the beginning of the year, during the market volatility, the market started to price a decreased probability of further rate hikes in the United States. So much so, that a clear distinction between Federal Reserve thinking and the markets was apparent. It is entirely possible that the market might be forced to move closer to the Fed’s position, and this could result in a dollar rally. In my view, there is still a case for a weakening of the euro and the Japanese yen versus the US dollar purely based on interest rate differentials and likely monetary policy moves. The case for sterling weakness seems quite clear as well albeit for different reasons. With the spectre of Brexit, there are too many uncertainties to permit substantial accumulation of the pound sterling. But it is also worth pointing out that the UK economy is not looking quite as robust as that of the United States.


A technical analyst I have a great deal of respect for, is becoming increasingly positive about commodities, and particularly oil, and therefore he is also getting more bullish about emerging markets. I’m not sure I’m quite there yet, but it is worth noting





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