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The FED released their minutes from their JUNE meeting and surprise surprise the rhetoric made it pretty clear that the delay to a US rate hike was the result of the upcoming UK referendum and uncertainty surrounding the result. The FED noted that the UK’s referendum was making it difficult for the FED to raise rates in spite of their expectation of a rise in inflation over the coming months. The members noted that rate hikes are still data dependent and especially made reference to the labour market following the recent disappointing NFP numbers (June +38k). With the elections due in November I think the FED will in all likelihood hold off hiking until December at the earliest regardless of any respectful change in NFP. I say that because rate changes could affect (in some way) the way people vote and while the FED is independent of the White House, they would prefer to tread carefully so as not to upset the applecart. No doubt the FED members will be keeping close tabs on tomorrow’s NFP (expected +175K). One could argue that the expectations as we saw in June could be vastly different (June expected +164K and printed +38K).
With regard to the UK referendum (remember the meeting was held pre 23rd June) the minutes noted “considerable uncertainty about the outcome of the vote and its potential economic and financial market consequences.” Additionally the members noted they “would closely monitor developments associated with the referendum as well as other global economic and financial developments that could affect the U.S. outlook.” Suffice to say the FED were concerned about the spill over effects in the event the UK vote LEAVE…so with that now confirmed the FED are probably steaming up and down the corridors scratching their heads and wondering why this happened. Already the USD has seen a move that could see EURUSD head for PARITY by year end and this will add pressure to the US economy given the strong USD and the effects on corporates exporting abroad. Certainly NOT the result they wanted (or expected) and as I wrote yesterday their words were by no means scaremongering…they were facts and true to life concerns. Agh!!! If only people listened.
As for our beleaguered GBP. Down in the dumps. I read a story this morning that people planning their vacations are opting for “All Inclusive” deals because of the extra costs associated with their holidays. GOOD I HOPE THEY STAY HOME. Yesterday was another terrible day for the GBP falling to 1.2795 at one stage before recovering this morning to trade at 1.2950….not that that recovery is likely to last as pressure is already mounting and the GBPUSD is trading heavily. The market is definitely SHORT GBP overall and I expect further deterioration in the GBP until we see “a player” (be it a CB, BIS, funds) start to hoover up the GBP and sending all the shorts to cover their positions. The overall sentiment remains the same. Until we hear some rhetoric from the new PM (Ms May we hope) as to how the UK will deal with the EU (and others) and whether Article 50 will be declared, let’s assume things will remain volatile and uncertain. Honestly with Gove (the backstabber) and Johnson (the mouse) and Farage (Pinocchio) I would RELISH and jump for joy if May said to hell with it, now the cats out the bag lets have ANOTHER referendum and see what happens. I suspect people would vote somewhat differently now they know the lies that were fed to us. AGH!!!!
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