Good morning

  High Low     High Low
EUR/USD 1.0908 1.0869   USD/ZAR 16.4964 16.2838
GBP/USD 1.4280 1.4232 GBP/ZAR 23.50 23.23
EUR/GBP 0.7659 0.7615 USD/RUB 78.62 76.57
GBP/EUR 1.3132 1.3057 USD/ILS 3.9884 3.9515
USD/JPY 118.94 118.40 S&P 500 1902 1873
GBP/CHF 1.4523 1.4441 Oil (Brent) 34.11 33.34
GBP/AUD 2.0334 2.0154 Gold 1126.0 1117.0

The big news overnight was the FOMC.  As we expected, the FOMC kept FED rates unchanged given the slow(er) growth in Q4 and the spillover effects from the increased volatility in the financial markets. We all kinda knew this would happen and in fact all eyes are on the March meeting. Any further deterioration in the data or financial markets SHOULD prompt a delay in rate hikes. Of course should China start to make a comeback and US data improves that will give the FED the push to raise rates again. However, while many market participants expect a rate hike in March, I for one think they will be forced to hold again. Can you honestly see China suddenly reporting in excess of 7% GDP growth in Q1, will the US economy suddenly reverse poor data and flourish like no tomorrow. These things take time and so I fully expect Pres. Yellen to realise March is “too soon”.

In the report the FED committee downgrade their assessment of growth saying that economic activity in Q4 slowed while household spending and business investment only grew moderately. The committee added they were “closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook”. The committee concluded that it was too early to assess the effects of international developments on the US.

Separately overnight the RBNZ kept NZ rates unchanged at 2.50%, after cutting rates 0.25% in December and a total of 1.00% in 2015. The RBNZ’s rhetoric took a dovish tone, opening the door to further easing.  The committee noted “some further policy easing may be required over the coming year,” replacing “we expect to [return inflation to the 2% target] at current interest rate settings, although the bank will reduce rates if circumstances warrant.” Obviously the weaker global economic conditions and a weaker domestic inflation trajectory, as well as a slower NZD depreciation has failed to provide the RBNZ the comfort they desire.

SARB (S.Africa) rate decision at 1.30pm (Ldn) – market expecting a 0.25% rate HIKE. Unreal. Honestly given what I have written above from the FED and RBNZ (and PBoC recently) how and why the SARB feel the need to hike rates is beyond me. It goes against everything I believe in. The hike certainly won’t help the currency and the increased rates will make the already struggling SA economy even more perilous as money becomes more expensive making it harder for corporates to expand. I really don’t understand their thinking. While the SARB is trying to combat inflation (5.3% in December) the number is still within their range of 3-6%. Granted it’s closer to 6 than 3 but surely as is the case in the rest of the world (lower oil and food prices) there are external factors that are in play that aid lower inflation. Best the SARB start looking at what other means they can utilise to help combat inflation. Rely more on exports and reduce imports (weak ZAR = higher cost of “foreign” products sold locally = higher inflation).


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