At a time when unlikely political insurgents like Donald Trump (can we still characterise him like that?) are making all the news, it’s remarkable how complacent the establishment in the UK has been regarding the EU referendum. It’s barely a month away, and we are yet to hear a compelling argument in favour of staying in, the rebels are making all the running it seems and the markets know it. Sterling has been chronically weak for weeks and the Financial Times notes today that cable option premia haven’t been this expensive since the global financial crisis. You could liken option premia to insurance premiums. The more risky the situation the more you have to pay, right now for sterling the markets are telling us things are as dicey as at the height of the panic in 2008. It’s no surprise that EUR/GBP has been climbing relentlessly since the Draghi disappointment in December.
The big news on Friday was the US labour market data and the data was slightly better than expected with 215,000 new jobs created, versus economist forecasting 205,000. Significantly the February data was revised upward as well which is always a sign of continued strength in the prevailing trend. For once wage growth didn’t disappoint with a better than forecast month on month increase of 0.3%, versus 0.2% predicted and a fall the previous month. I’m not sure this is enough to eliminate the concerns raised by Yellen in her speech earlier last week, but more of this and everything will be up in the air again. This was a very good set of data. It’s quite clear that the market agrees with me, because it didn’t have much of an impact on the dollar’s current malaise. Yes we got a little bounce in the greenback following the data release but in most markets the dollar is trading weaker again. The US equity markets liked the data though, and why not? It’s a perfect scenario, little threat of a rate rise change of view, but likely we’ll see a more confident consumer in the United States. We’ll need a few months of data like this to change expectations for sure. Of course the better than expected ISM Manufacturing data may have been the reason for the stock market rally, all in all Friday was a good data day in the US. Perhaps over the next month if we get more positive data surprises elsewhere in the world then the markets might start to believe that the Fed will be confident enough to set aside their newly cautious stance.
The naira continues to stabilise in the 320 – 330 range against the dollar. It is noteworthy that month end demand did not have the same impact that we saw last month. One month is too small a data point to go by, we’ll need to see a few month ends with the same sort of supply-demand balance to gain confidence that there are sufficient dollars available to meet demand in Nigeria.
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