Morning

The Pound seems to have “calmed” after a few weeks of rumours and sell offs following the good and bad news from the STAY AND GO EU camps. Suffice to say regardless of your own opinions as to whether we should in fact stay or go, the facts do speak volumes. From the IMF, EU, US and our own Conservative Party (the majority I would like to think) the benefits simply outweigh the cons on staying in the EU. The political fallout not to mention the financial impact of leaving the EU will be felt for generations. And then there is the small issue of the value of the GBP. Be rest assured, if you cross the LEAVE box in June, your holiday to a foreign destination will jump by 15% not to mention the cost of importing raw materials for manufacture. In other words, just about everything that has a foreign input in their goods for sale locally will jump in price and that includes the cost of filling your car/van/scooter/plane/train and bumper car. So be warned, you will be FAR WORSE OFF if we leave the EU. That is fact.

Today we see the UK core Retail Sales numbers published. Last month saw a drop of 0.4% and this month, economists are predicting a fall again but only of 0.1%….needless to say, a fall is a fall and giving the BoE further headaches. Yesterday we saw the Unemployment number published at 5.10% and wage growth (lower) at 1.80%…again another important indicator for the BoE…As you are well aware the BoE have repeatedly said for a rise in interest rates there needs to be growth in wages and CPI (Inflation) neither of which are going anywhere fast. So rates will and should remain at 0.50% for the coming months – of course the results of the EU referendum will be interesting to say the least as the value of the GBP and general sentiment will affect the GBP massively.  I for one will be very worried if the LEAVE vote wins because of the financial fallout that will ensue. This vote like the Scottish vote, will have monumental repercussions either way.

No change expected at the ECB meeting later today, other than the normal rhetoric that they are doing everything they can to prop up the EU economy. Good luck with that!!! Nevertheless the EUR is being propped up as the US economy slows as confirmed by the FED who of course announced they are only likely to raise rates twice in 2016…..

Emerging economy currencies, like the S.African ZAR has enjoyed a wonderful rally in recent weeks propped up by the climbing EUR. Locals telling me that foreigners continue to buy local bonds (R2bn yesterday). Be careful though, because a further fall in the EUR(USD) this morning and we could see ZAR longs cutting positions on profit taking. Additionally SA inflation was reported yesterday with headline inflation falling to (on expectation) to 6.30% from 7.00% while core inflation fell to 5.40% (below the 6% upper band)…..as such and given these recent favourable moves in the ZAR and inflation, rates have probably reached their “limit” for now.

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