20160613 – DAILY UPDATE


With polls showing the ‘Leave’ campaign gaining momentum UK markets have reacted badly this morning. Stocks are down, sterling is down, it’s really not a great start to the week. GBP/USD has gone through a number of levels we’ve been watching, and there is a real chance now that we might accelerate lower, but we would need to see a fall through the April lows just above 1.40 to entertain stronger conviction. One things for sure if it’s going to happen it should be a relatively quick move. I don’t know whether that means that Brexit is really going to happen, or that panic over Brexit will reach a crescendo.


I’m still betting that polls showing a tight race, or even ‘Leave’ winning might be the best thing for the ‘Remain’ camp. Why? Because I suspect there’s a silent majority which is perfectly satisfied with the status quo. Unless the chaos of Brexit energises some voters, they might not believe there’s a risk of ‘Leave’ winning and they’ll not make the effort to go out and vote. As the noise surrounding these polls reverberates across the British media the odds of complacency are surely falling. I’ll finish by just commenting on the polls themselves. Am I the only one who is sceptical about the polling companies after their disastrous showing at the last general election? Are ‘Leave’ the Labour vote this time around? We shall see in less than two weeks!


As the data on the Nigerian economy gets progressively worse. The central bank (CBN) has indicated that details will be announced soon about a move towards a more flexible exchange rate model. I’m not going to speculate about what that means, but seeing as the parallel market rate over 80% above the official rate, you don’t need to be a genius to figure out that there will be a devaluation of some sort implicit in the new arrangement. This is great news. Anything that enables market signals in Nigeria to become a bit more transparent, a bit closer to the everyday reality of ordinary Nigerians can only be a good thing. We will provide more detail when the CBN releases the news.


With all the Brexit drama, it’s almost easy to forget that we face some fairly key central bank decisions in the coming week. After the terrible non-farm payrolls employment report at the start of this month, the probability of a hike by the FOMC is surely diminished. But it’s worth noting that there’s still a chance of the FOMC choosing to look through the weak number because of the Verizon strike. This type of thing has happened before and the following month’s numbers showed a very strong bounce following the end of the strike. On that basis, I would suggest the risk of a June hike is probably higher than currently thought. We’ll know more on the 15th. We will also get decisions from the central banks of Japan, Switzerland and the UK. We’re likely to see even more expansionary monetary policy from the Japanese on Thursday, but I can’t imagine there’ll be much excitement from the Bank of England. Even if they were so inclined, not ahead of the vote!


More so than most weeks, we will be subject to significant volatility. The pound sterling will be vulnerable to updates on latest polling data, and the market will be cautious ahead of the FOMC announcement. Exercise caution.




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