Interesting comment from a friend of mine at a S.African Bank, and I quote; “The rand was on the back foot again yesterday, losing around 2.30% to trade as weak as 15.59 to the green back. Weakness was driven mainly by the political spat between the Minister of Finance and its independence and by concerns that a downgrade is inevitable later in the year. In the Ministers press conference yesterday afternoon, after his return from his International road show, he noted that investors abroad were concerned about the risks to our fiscal outlook and also our very slow growth. Ratings agency, Moody’s, arrives this week to do a full investigation prior to announcing their decision whether or not to downgrade the economy”. The ZAR has since lost more ground at the open, trading at 15.68 and looking bleak. The changes to the FM has left a dent in investors’ confidence in S.Africa and their ability to take control of the economy. Already inflation has broken through the 6% upper band and other than tampering with interest rates, the next best thing must be to allow the ZAR to devalue and slow down the importation of inflation. I just hope the FM agrees and lets the ZAR go again. Could we see another (Japanese) flight to safety? Cast your mind back a couple months when the ZAR exploded on the back of investors unwinding their carry trade, I see no reason why this does not come back to bite. The warning signals are there…
Talking about the JPY, the JPY had a pretty eventful run overnight following the BoJ meeting. The BoJ said it “will examine risks to economic activity and prices, and take additional easing measures in terms of three dimensions — quantity, quality, and the interest rate — if it is judged necessary for achieving the price stability target.” The BoJ also revised down its assessment of inflation expectations to say they were “weakening recently”. As inflation continues on its merry go round at flat you wonder whether there is anything they can do to stimulate inflation. One thing is for certain, with inflation at 0 globally now is not the time we will see the BoJ move to raise inflation. As a result you can expect the JPY to trade sub 115 for now until investors decide the recent JPY run has run its course and it’s time to head back to 120……
The migrant crisis. I have written about this many times and while the fallout has yet to be captured in the financial markets (per se) I think we are sitting on a time bomb. You saw the German elections over the weekend and the rise of the right wing. With the EU already stretched to breaking point where exactly are the Germans, Swedes, Greeks, Slovakians and Austrians going to get the money to house these millions of migrants. There is hope that the withdrawal of the Russians from Syria and hopefully some peace accord will slow the need to migrate. I am no politician and I will not comment on local politics but the EU simply cannot afford nor able to cope with the influx of these (millions of) migrants. It is a heartfelt story and one which will continue to make headline news over the summer months.
The GBP trades sideways to weaker overnight. There was a survey by Bloomberg that showed the likelihood of an interest rate CUT in the UK has risen to 23% from 10%. Nothing new there to be honest as Gov Carney has NOT ruled out a rate cut to stimulate the economy. One thing is for certain, rates are not going anywhere fast in the UK. Overall though, things are not looking rosy, and therefore I expect the GBP to come under renewed pressure with 100 days to go to the referendum. Volatility is back!!!
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