Good morning

	High	Low			High	Low
EUR/USD	1.1373	1.1327		USD/ZAR	13.6240	13.4910
GBP/USD	1.5472	1.5422		GBP/ZAR	21.06	20.83
EUR/GBP	0.7360	0.7325		USD/RUB	68.53	66.41
USD/JPY	120.85	120.10		USD/ILS	3.8986	3.8581
GBP/CHF	1.5022	1.4934		S&P 500	1,975	1,957
GBP/AUD	2.1874	2.1660		Oil (Brent)	49.27	48.28

The much-awaited September 17 FOMC meeting is finally here. Market consensus (although extremely divided) expects the FED to hike US interest rates by 0.25% according to a Bloomberg survey and ParityFX, while the FED Funds futures are noting only a 1/4 probability of a hike. We continue to see economic activity in the US as solid and justifying modest rate hikes, however the recent turmoil in China has led to many commentators to question whether the FED will hike preferring to wait perhaps until December when the markets have calmed down somewhat. I fear that if the FED does wait the market will view this badly in that the solid US economy is being overshadowed by events globally. As I wrote last week I think the FED must play their card and hike rates now which will show just how confident the FED are that the hike will NOT disrupt the events/stimulus is China and the EU. I think the FED must act now as this will boost sentiment and while initially the USD will appreciate (considerably) FX traders will slow that appreciation down because they will then question how much further the FED are likely to go in their rate hiking. The FED will “give it time” and see how the hike filters into the market and more importantly how it affects economic data out the US, EU and China. If there is no marked change in the data then the FED will have known they made the right decision and they can continue hiking in December.

As the strains in financial markets have eased somewhat, a recent sharp contraction in imports (and lower contraction in exports) into China underscores the risks of slowing Chinese domestic demand. A slowing China remains problematic for growth in many EM economies as we have noted several times, and the recent downgrade of Brazil is a key reminder that the BRICs face several issues as a result of events in China.  Regardless of the outcome of the FOMC meeting, EM performance should be weighed down by China uncertainty, slowing growth, & capital outflows.

Jeremy Corbyn’s Labour leadership victory will be a “major issue” for global investors and his economic policies would be “detrimental” to Britain’s pro-business reputation, according to MOST  UK newspapers, economic pundits and the Labour MP’s who have stepped down. As Nigel Green chief executive of independent financial adviser deVere Group aptly wrote, “The victory of this hard-Left socialist as Leader of Her Majesty’s Opposition is, I suspect, going to prove to be a major issue for global investors. Corbyn’s economic policies fly in the face of the message that ‘Britain is open for business’. They would be detrimental to Britain’s hard-earned and invaluable pro-business reputation. He seems utterly determined to drag Britain back to the 1970s, an era in which the UK was strangled by high taxes and an inflexible labour market.” Green urged that if Corbyn thinks high taxes and inflexible labour is the way forward in today’s world, he suggests that he looks at France in the first years of Hollande’s presidency. Green continued “So-called Corbynomics, whereby everyone would pay more tax to pay for hugely increased public spending, would backfire spectacularly. Mr Corbyn seems so far removed from reality that he is unwilling or unable to accept that if you significantly increase taxes and disincentivise work and investment, people will change their behaviours.” Green anticipates that if taxes are excessively increased, many of Britain’s most successful wealth and job creators and investors, who also support the Revenue through their significant UK income tax receipts and personal spending, will simply move to lower tax jurisdictions given that these individuals have the resources to do so and will do so. He added that ramping up taxes is going to make Britain a less attractive place to work for top international talent, again meaning lower tax revenues. “Global investors have been monitoring the UK political landscape carefully in recent times and that scrutiny will be intensified further due to Corbyn’s victory.”

And to ADD FUEL to this fire, the SNP announced they are putting forward the framework to have another Scottish referendum on leaving the UK. Cast your mind back to the last referendum and how badly UK stocks and the GBP fared and you wonder what air they are breathing up in Scotland. England, Wales and N.Ireland will survive. Scotland will go bust overnight when oil already at $48p.b sinks even further (as per Goldman Sachs to $20). Good luck with that.

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