Good morning

The GBP will be in the spotlight this week with the BoE’s Quarterly Inflation Report and employment data on Wednesday. The Inflation Report is generally regarded as a highlight given it may shed further light on the BoE’s economic assessment. The BoE’s forecasts are likely to show a weaker near-term inflation profile and a marginally stronger labour market outlook with growth expectations tuned down given the recent “weaker” data and external factors (EU and China growth). Given the recent data and as mentioned previously, we now anticipate the first rate hike to take place either late Q1 2015 (though this might be way too early) OR after the local elections (i.e., June 2015 – a favourite). Now that the FOMC, ECB and BoJ announcements are out the way the market can now get back to trading the trend and fundamental risk. As I have said repeatedly, the USD rally remains intact and a favourite of ours is the GBP vs the EUR. I expect the GBP to rally not only to 1.30 but well beyond.

China data this week very important to the likes of the AUD and NZD. China Industrial Production on Thursday anticipated to show a slowdown or at least matching 8% from September.  Overall the recent data out of China continues to disappoint though not totally unexpected. This does not bode well for the rest given the reliance on Chinese demand to aid growth. What is quite visible right now is the dichotomy between growth in the US, China, EU, and Asia. What’s more and what WORRIES ME NO END are the vastly different policies being initiated in these regions. It is like one is pulling and one is pushing…with the end result being the elastic snaps or someone ends up on the floor down and out. The spillover effects are going to be horrible. I just don’t trust what I am seeing right now and my gut tells me we are heading into a MAJOR STORM.

The data calendar in the US and EU is light this week, with German GDP, EU CPI and US Retail Sales due Friday being the most important. Forecasts for all 3 show a similar pattern to the last posting and I do not foresee much change either. Overall growth patterns outside the US and UK continue to disappoint with the pattern likely to remain static until the growth from the US start to spill over east and west. I am interested to see German numbers in particular given the reliance the EU puts on Germany coming to the rescue. As we have stated before, labour laws our draconian in some EU countries and before we see the EU get back to growth seen in the US, a major overhaul is needed. Simply put, labour laws need to be uniform across the EU.

I know I mention the ZAR, TRY, ILS etc. (EM currencies), but perhaps one currency that deserves its place among this group in the Nigerian Naira (USDNGN) especially after Nigeria overtook South Africa as the largest economy in Africa (recently). The NGN weakened again (from 162.00 in September) after speculation of a devaluation surfaced and boiled over. Starting the rout on Thursday and spilling over to Friday, the NGN topped 170 Ag the USD before CB intervention brought it back to around 166.25 as I write this. Given the stability of the currency all year (161-163) the fall out from a lower oil price had to play catch up, given the importance and reliance the economy has on this sector. The 12 month NDF (non-deliverable forward) weakened to 198.30 on Friday leaving importers and those with USD and EUR debt (who have not hedged) starring down an empty pit. This is the reason WHY we sent out that piece last week for SME’s and the IMPORTANCE OF HEDGING FX in the face of FX volatility.

Have a good week ahead and good luck