State of equilibrium

Noha Doha

In the immortal words of Homer Simpson ‘Noha Doha’. 24 hours on the Japanese Yen is back to Fridays levels and oil is trading very little changed from Friday, suggesting that just a small tweak from producers will create a state of equilibrium and oil prices retrace to $50 a barrel. Lower production from Kuwait where operatives continue to strike is certainly helping the situation.

Dollar to fall further? Over the past two years as the dollar strengthened from 1.70 to 1.40 against the pound and 1.40 to 1.10 against the Euro many factors were working in favour of the dollar, stronger growth, higher interest rates and impending quantitative easing in Europe. Now, however, we appear to be at the crossroad. US rates may move a little higher but two more rises may now have been discounted. Doubts are also increasing about the underlying strength of the US economy and as we look toward the second half of 2016 some believe that the European economy will start to take off, led by the powerhouse that is Germany as QE finds its way into the ‘real’ economy. 

More $ concern

Today sees further primaries with Donald Trump expected to win New York comfortably and Hilary Clinton also expected to win by 10 points or more. Unfortunately, when viewed from abroad neither candidate gives much confidence as to what they will bring to the table in 2017.

The massive division on both sides of the House shows a society that is polarising at the extremes and maybe reminds one of the stabilising importance of the EU. As we move closer to Novembers presidential election, it is highly likely that there will be a drag exerted on the dollar as international investors play safe.

UK referendum still to catch fire

Two polls over the weekend show a solid lead for Remain, but both were conducted over the phone and fit the pattern previously seen that phone polls vote remain yet on-line vote Leave. Some of the breakdown in the Com-Res poll supported preconceived views, for example Scottish voters will be solid for remain. Similarly the young were more inclined to remain, while older voters tend to support leave.

What was confusing however, is that the demographic that supports leave the most is DE’s, yet these are typical Labour voters who to all intents and purposes should be in the remain camp. At the end of the day it is probably best to trust the bookies who are still quoting 4/9 remain and 2/1 leave. 

Watch out today

Mark Carney will be testifying today at 15.30 before the Lord’s economic affairs committee. There is plenty of speculation that he will be put on the spot and may have his neutrality tested to extraction with regard to the referendum. The press will be looking for the slightest intonation one way or the other. Good luck MC. At 10.00 the ZEW will hopefully show some signs that the European economy is about to pick up, but may be a little soon. 

Mr Draghi will hold his conference on Thursday and as usual the market will be looking for any nuance regarding the effectiveness or not of lower interest rates and the same for QE. Can’t help feeling that we are near to yet another pivotal moment in the FX markets when exporters should be taking advantage of favourable rates whilst importers should be seeking insurance with upside attached.