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With the impending FED meeting “around the corner” global stock markets have been hit hard today with stock markets down between 1.00-1.50% depending where you invest. FTSE down 1.3%, DOW 0.75% Italy 2% as investors fear the FED will ignore recent poor data and hike rates. The only saving grace is later today FED member Lael Brainard who is an avid wait voter is giving a speech with investors waiting to see if she gives any clues as to how the FED will vote on the 21st September. MS Brainard is a “Dove” so if she changes her rhetoric in any way and leans to a Hawk, then its game on and in all probability the FED will go ahead and hike. I am a Dove myself and think the FED should wait regardless and wait for further confirmation on how the US economy is fairing (including Inflation and NFP). If the FED chair wants to increase the market probability of a rate hike then having a Dove speak like a Hawk is the best opportunity to confirm a rate a hike is on the cards. From tomorrow the FED goes into information lock down (Blackout) so all eyes will be on the speech later today. FYG the speech is scheduled for 1.15 EST.
Despite the great UK PMI numbers the GBP was hit hard late last week on disappointing data (and US rate hike risk) sending the GBP to the cleaners. In addition this morning the British Chamber of Commerce (BCC) announced they have slashed the UK’s GDP growth for next year to 1% from 2.30% citing post Brexit fears and uncertainty (and rightfully so). How many times have I commented on this issue that when the time comes and we start to negotiate the terms of Brexit the EU will go for the knock-out blow and play hard ball. Already business investors have slashed spending and hiring sparked by the uncertainty that surrounds Brexit. What really annoys me is the Leave camp have now removed the promise of £350mio to the NHS (from the EU) from their manifesto (something that as you know was a key LIE on their bus). The fact that they lied to such an extent should in itself be reason to call another referendum. I cannot believe 17.4mio people fell for the lies. The Remain camp on the other hand told the truth throughout and already the damages are being felt. Importers have been hit hard, holiday makers are cancelling foreign holidays and hiring has come to a stop. And we have not even started negotiating the terms of our exit. PM May has told her cabinet to accept Brexit and get on with things. But can they really forge ahead in the face of untenable hardships around the corner. Why can’t she ask for another referendum now the cards are on the table? I am almost certain things would be very different this time round. While immigration is an issue even once the terms are agreed I am certain the EU will say to us if we want preferable terms of trade they must be accompanied by freedom of movement for the labour force. How can the UK expect to enjoy trading without the free flow of people? Just won’t happen!
This is what petrifies me going forward and why I think the GBP will get an almighty hammering once negotiations start. This will send the UK economy into a freefall and set us back 6 years. What a shame really after all the heroic work ex-Chancellor Osborne and ex-PM Cameron achieved. Don’t forget at one stage we were the fastest growing economy amongst Western Countries. Now we find ourselves categorised with the Greeks. Even Spain will grow faster than the UK.
So all eyes and ears will be pealed to the TV and radio at 6.15pm local time when Brainard speaks. One thing is for certain when I write this blog tomorrow morning I’ll either be in a good mood or bad mood. Either the GBP will be smoking above 1.34 or withering just above 1.31 (depending how the EUR gets dealt). It is too much of a tough call so I guess investors should simply wait in the sidelines and act once the news is out.
Good luck and let’s be careful out there today
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