High	Low			High	Low
EUR/USD	1.1171	1.1101		USD/ZAR	11.8599	11.7778
GBP/USD	1.5691	1.5653		GBP/ZAR	18.59	18.46
EUR/GBP	0.7125	0.7089		USD/RUB	50.73	48.84
USD/JPY	121.10	120.63		USD/NGN	199.3	198.9
GBP/CHF	1.4687	1.4626		S&P 500	2,134	2,130
USD/ILS	3.8896	3.8492		Oil (Brent)	66.80	66.40

Impressive numbers for the UK economy are becoming quite common post-election. Can you imagine if the outcome of the vote had been different and these strong numbers starting to come out after the result. There would be wailing and gnashing of teeth. But in any case, back in the real world, retail sales in the UK were excellent. Up 4.7% year on year to April, versus expectations of +3.8%. The pound sterling reacted strongly and positively in the wake of the numbers, clearly good data trumps bad data for GBP at the moment. I consider 1.5446 a significant level for GBP/USD, a fall through that level will go some way towards convincing me that a new dollar rally has commenced. It is the reaction low from earlier in the week.

 

There were a lot of manufacturing PMI’s published yesterday. It’s worth viewing them together:

	Actual	Forecast	Previous
Japan	50.9	50.3	49.9
China	49.1	49.3	48.9
Eurozone	52.3	52.0	52.0
US	53.8	54.5	54.1

The key, in looking at this type of data is to avoid comparisons of absolute numbers across economies, but to focus on whether the data is improving. For example, Japanese data has improved in comparison to the previous published number, albeit not as much as the economists forecast; same thing with Chinese data; Eurozone data however, has not only exceeded the expectations of economists but also beat the previous number; this makes the US the ugly duckling, because the published number yesterday was both worse than expected and also worse than the previous published number. What to make of all this? Well.. for a start it’s only one type of data point that we need to monitor, but it does reveal the relative positions of economies. The United States, clearly the rock star for the last few years appears to have cooled off somewhat, although I hasten to add that this is in the context of solid data, while the Eurozone, the basket case, is experience something of a revival, albeit from a very low base. This doesn’t alter our conviction that the US dollar is set to rally, but it does put the question to monetary authorities about how quickly normalisation can occur. My understanding is that the Federal Reserve is still much influenced by the timing of economic activity last year – with poor data at the start of the year, followed by a quite stunning improvement in economic performance in the middle. I can only suggest that the fundamental data we are receiving at the moment is sufficiently unclear and therefore challenges the dollar bull case. Luckily I pay a lot of attention to technicals and market history, on that basis, I still have a high level of conviction that within the next 6 – 12 months we will see new highs for the US dollar.

 

A couple of central bank decisions of the last 24 hours, rates were left unchanged in both South Africa and Japan. What I found intriguing was the price action in the case of the BoJ. The key point of the decision is that they have no current plans to expand the level of monetary stimulus, it wasn’t so long ago that news of that sort would have impacted the Japanese yen, in this case any impact has been negligible. It certainly doesn’t feel like the market is substantially short the Japanese yen yet. There is room for the Japanese yen to weaken in my view.

 

The new Nigerian President will assume office in the next few days. The naira is clearly in a holding pattern at the moment, waiting to digest appointments, economic policy plans, developing a better understanding of the new economic landscape in the African giant. For weeks liquidity has been worse than usual, but my understanding is that Nigeria has earned a democratic dividend. Foreign investors cannot ignore an economy of this size, with a spectacular recent record on growth, and if confidence increases there could be fairly dramatic inflows into the Nigerian economy once again. We will all hope that the dividend is spent wisely, as Nigeria has a tremendous geopolitical importance for the region.

 

Later on today, President Draghi speaks about Eurozone monetary policy, we get an update on US inflation data, as well as retail sales in Canada and the fiscal situation in the UK. Lots to digest in front of a long weekend.

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