Good morning

NFP came out better than expected on Friday printing +242K (expected +- 195K). However while the payroll number was exciting the wage growth was disappointing and printed -0.10% – which will not be something the FED will be happy to read. Given the data from Friday I still think we will see 2 rate hikes this year (June and December, rather than 4 that was thought back in December). The USD remains stuck in the range and somewhat supported by the news on Friday. This week sees the ECB meeting on Thursday (+ conference) and I have no doubt there will be some interesting rhetoric from the ECB that moves the currencies. There has been talk that the ECB could lower their depo rate another 0.10% and extend QE. You would think this would be negative EUR – then again the market has a mind of its own and the sheep will follow the masses. We are not quite ready for EURUSD at PARITY….but it is coming that is for sure.

What is a worry is North Korea’s threat to bomb the US and S.Korea should the military exercises take place today. Not that I think they will make good on their promise the threat is nevertheless a threat and not something anyone wants to read. Why can’t we all just get along?

Interesting article is the NY Times today: “As Economy Slows, Experts Call on China to Drop Growth Target”. They write, “Every March China releases a closely watched growth target for the year, a number that looms large for the world’s economists, executives and policy makers. But a growing number of those experts are now calling for China to stop setting that goal, saying the target actually harms the economy and encourages officials to falsify data. On Saturday, at the start of the National People’s Congress, the government announced a target for 2016 that acknowledges a worsening slowdown. It is a range, 6.5 percent to 7 percent economic growth over last year, rather than a number, suggesting that leaders are rethinking their adherence to hard-and-fast goals. Still, even the broader target is unlikely to reduce skepticism of official Chinese figures. The government’s reading on the growth rate last year was 6.9 percent. The new target range means that leaders expect China’s growth could dip this year, which would further depress the global economic outlook”. Given what I have written previously, this article reinforces my thoughts that the CNY WILL DEVALUE further over the coming months which should help the economy and help lift the Chinese economy (hopefully) back above the magic 7% GDP number.

Negative interest rates risk backfiring the longer and more deeply central banks in Europe and Japan venture into this unconventional monetary policy, economists from BIS have quoted.  The BIS also warned that the world’s credit boom is beginning to show dangerous signs of unravelling, ushering in a period of fresh turmoil for the over-indebted global economy. With financial markets thrown into fresh paroxysms in 2016, oscillating between extremes of “hope and fear”, the over-leveraged world was finally approaching a day of reckoning, said Claudio Borio, the bank’s chief economist. “We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time”, he said. With every passing day, more and more pessimistic news is coming out and I worry that the global economies are starting to show signs of weakness. Thankfully we have not entered a period of deflation again and while inflation remains pretty much 0.00% in the major economies the timing of any interest rate hikes will be put on the burner for now. Given the slowdown in China and a herky-jerky stock market, Wall Street has been betting that the FED will put off any interest rate increase at its next meeting later this month. William C. Dudley, president of the Federal Reserve Bank of New York, cautioned this week, saying: “I have marked down my growth outlook very modestly.”

The GBP has maintained its rally from 1.38 handle and opens around 1.4150 in Europe. It is the start of the week and I think the GBP will start to give up these gains and move lower again over the course of the week. The EU referendum will play havoc with the GBP over the coming months and therefore you really should become accustomed to a weak GBP.

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