Core durable goods orders that came out yesterday for the United States are an example of the dilemma facing the Federal Reserve Board later on today as they complete their FOMC meeting to determine where US interest rates go from here. They weren’t impressive, month on month for March there was a slight decline of -0,2% versus February when numbers had fallen by 1.3%, compare this to economist forecasts of growth of 0.5%. There is definitely a case for the FOMC to consider caution, and to be honest no one really expects a hike later on today. As I mentioned yesterday some economists do however expect the FOMC to give themselves room to hike in June, and they could well do, the more forward looking data like the PMI surveys are indicating improvements, even if the backward looking data has not. But that could be dependent on a visible improvement in the data.
This morning UK Q1 2016 GDP has just been published, it’s a slightly better than forecast, and the same 2.1% growth we saw for Q4 2015. But the quarter on quarter number is actually weaker that the Q4 2015 one, albeit in line with expectations. The Chancellor, George Osborne, has already weighed in blaming Brexit fears for the quarterly weakening. He probably has a point. The pound recovered some of its early morning losses on the back of the announcement. At the moment I tend to pay little attention to UK economic data because it’s not really driving the currency. Brexit and the well known Bank of England stance that rates aren’t going up at all in the near future are the dominant themes for now. It wouldn’t surprise me if fears about Brexit start to recede as the government and the ‘Stay’ campaign ramps up, the big boys are starting to get involved and when you have heavyweights like the US President on your side, it provides a sort of a headwind. But we still have a long way to go, as the say…”a week is a long time in politics”.
The recovery in the oil price continues, personally I’ll only start to get excited if we see prices exceed the last reaction high which is at 54.30. Looking at that weekly chart below we are still very much in a bear trend, and a higher high is a prerequisite if the dominant trend is to be called into question. I remain sceptical as the fundamentals don’t really support a sustained lift in the oil price. The price recovery has at least reduced the risk of further systemic damage from indebted oil companies, but a recent report does suggest that the ratings agencies are behind the curve in terms of downgrades for oil dependent sovereigns.
Still, the recovery has been beneficial for economies like Nigeria, at least in so far as the wild depreciation we saw at the start of the year has stopped and we are seeing definite signs of stability. It’s worth pointing out that if the Nigerian government’s search for loans is successful they will use the dollars (or other currencies) they’ve borrowed to purchase naira, this could provide a short term boost and see USD/NGN lower at some point in the year, but don’t count on this being the start of something longer term. No doubt there is pent up demand for imported goods in Nigeria now, even though the emptier ports belie the fact. The 300 level is here to stay and we should get used to it!
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