Oh to be a fly on the wall in the corridors of the FED. What a positively horrible number on Friday. NFP printed a woeful +38k (expected +163k) after last month’s +160k. So here is a question for you, only last Monday the FED Chair Yellen opened the door to 3 US rate hikes in 2016. However given the shocking number on Friday and the FED’s comments that hikes are data dependent, can they still hike like they indicated? One has to think that the rate hike is now off the table for June and one now has to look at July now for the “earliest” hike. No doubt, the FED will be hoping that between now and 08 July and the next NFP number, other economic data will be good and the NFP number in July goes back up to in excess of 150k giving the FED the ammo to hike on the 27 July. If if if….one thing is for certain nothing can be taken for granted anymore and the FED have real issues. Later today Chair Yellen will give a conference and no doubt US data, China growth and the impact of a potential BREXIT vote will be on her agenda. It will be interesting to see if she changes her rhetoric from last week when 3 hikes were on the table to 1-2 now. Ahead of China’s publication tomorrow of their FX reserves, the Chair will be trying to sound as positive as possible without giving the impression that they have a potential nightmare scenario in the making. From last Monday (Yellen’s speech) until this morning, odds in favor of a rate hike have dropped from 25% to 4% in June and from 54% to 27% in July.
BREXIT, oi vei. Weekend polls now put the LEAVE camp ahead of the REMAIN camp. Impressive comments yesterday by ex PM Sir Major on the Andrew Marr (BBC1 show) unfortunately were unable to help matters. It appears quite clearly that everything now is focused on migration/immigration and the fear that in the coming years the UK will be flooded with migrants leaving her exposed and financially exposed. What surprises me greatly is the total disappearance of Home Secretary Theresa May. Surely as the Home Secretary she should be in the front line appeasing the electorate and explaining the Tories immigration policy and how they will stop the flow of people into the UK. Yet, she is nowhere to be seen. It is like she has been told to stay away and let the PM fight for the REMAIN camp. Honestly that is a bad tactical move. I want to hear from her. I want to hear what they have up their sleeve and how they will deal with immigration and benefits to EU citizens arriving on our doorstep. We know the financial implications of a BREXIT vote and we know the consequences, so why the REMAIN camp is not clarifying that and putting people’s minds to rest is something I do not understand. I will not express my view’s here, but the fact is people are “scared” and the only way to ease that fear is announce Government policies that will ease the migration flow and keep the UK clear. It is a real minefield out there and clearly more needs to be done.
Good news for South Africa, the long awaited S&P rating decision was published Friday night and S.A managed to hold onto its current rating (with continued negative outlook). The next rating decision is now in December so the SARB has its work cut out between now and then. The ZAR has enjoyed a double whammy (1) Rating confirmation and (2) weaker USD post NFP Friday. While the outlook remains somewhat negative, the SARB will in all likelihood keep rates unchanged and hope that inflation remains within the range and the economy enjoys a period of growth. Like Australia, this is all dependent on growth in China and the EU (largest trading partners).
GBP volatility is now reaching fever pitch. 1m GBPUSD 21.75 while GBPEUR 1m 19.75/22.50 and 2m 15.30/17.30 – I do not remember volatility levels so high even during the Scottish referendum. I tell you one thing, if LEAVE wins, that volatility level will crack 30 and rise close to 40% as the GBP collapses towards 1.3000…After rising to just shy of 1.46 on Friday post NFP, the GBPUSD has collapsed having traded as low as 1.4351 overnight in Asia before recovering to 1.4425 presently. Now that’s what you call volatility. Clearly we are still range bound 1.4300-1.4650 and awaiting the daily comments and polls to push us one way or another. While the polls indicate a lead for the LEAVE camp, people are known to change their minds when putting pen to paper. As things stand, it is simply too close to call though I do wonder if people will decide to REMAIN and put up with the EU rather than take a chance and dive into the deep unknown.
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