Updates

Update: 19th Janaury 2016

After Chinese data showed that the worlds second largest economy had grown 6.8% year on year, risk aversion in the markets calmed significantly. As we wrote that we expected yesterday, the JPY weakened as a result while the NZD and AUD rallied. Expect the NZD to fall tomorrow when weak inflation will bring up the sentiment that the RBNZ may need to make further rate cuts from its already record low rates.

The sterling had earlier rallied following better than expected inflation data, the cable reaching 1.4340 (now 1.4218)  and GBPJPY reaching 169.10 (now 167.65) and GBPCHF reaching 1.4444 (now 1.4262) before Mark Carney made some comments and put an end to the rally by saying he would never condone an increase in rates until the unemployment, wages and inflation were at much higher levels and until concerns with global markets were far better. This strikes me as very strange, although one would think I would be used to contradiction from the BOE by now.

Don’t get me wrong, all of you who have been reading my comments since the middle of last year will know that I am one of the biggest advocates of listening to the central bank. I believe that they can tell us much more about their intentions than by simple reading a bunch of guesses from analysts. However, what shocks me about Carney is that this is the man who said the “time for an increase in rates is fast approaching in August when:

1.) Inflation showed no growth compared to the small growth it now shows.

2.) Global markets were doing far more poorly. (The BOE specifically said at the time that they were not concerned about this!)

3.) Unemployment was higher than it is now.

So if he advocated normalization of monetary policy back then, why has he changed his mind now when all of these conditions have improved? Was he just jealous that the FED was getting all the attention and trying to make some noise and grab headlines for himself? I really cannot begin to understand how the Governor of one of the most important central banks in the world can lack so much consistency. It completely baffles me.

Regardless of this, this week, we are faring better than we were last week (we were faring a further 550 pips better before Carney’s contradiction). With the data from China, the only major deterrent for risk appetite we have at the moment is oil prices and how low they can fall. I take comfort in the fact that of knowing that we are near the bottom and a turn around period can not be too far away. In the mean time:

Tomorrow we expect employment data from the UK and earnings data. Regardless of if it is good it will not make much difference since:

1.) It will probably find its way onto the market early.

2.) Carney’s comments are all that the market will consider until the Sterling hits 1.40 or lower. Regardless of the fact that the UK economy is showing improvement and is the second best performing among the G10 nations, markets will now be even more uneasy knowing that the BOE changes its position on monetary policy like a child changing the channel on a Tv.

I really hate days like this. Even when you predict things right and make progress, something comes along and sets you back to even before the starting line.

Mohammed

 

20 Comments

  1. Hey Mo , thanks for taking the time to give us this update as ever you make make some interesting points , just wish Carney would read them too LOL

  2. “I really cannot begin to understand how the Governor of one of the most important central banks in the world can lack so much consistency. It completely baffles me.”

    I couldn’t agree more with this statement of yours, Mohammed.

    1. Im not so much against what he said today, i am more puzzled by why it is the complete opposite of what he was championing all of last year. Maybe it was all just for the media attention, as ridiculous as that sounds, im starting to believe it.

  3. Thanks Mo, your comments lead me to the idea, that I placed my bets on the wrong horses… I don’t mind that your thoughts are wright, and I know, the market cannot read…
    Regards,
    Thomas

  4. Thanks for the update!
    A frustrating day indeed. Four hours ago, I thought we had reached a turning point. Currently, we are being butchered by the US market opening 🙁

    1. Completely. A massive reversal turns to a massive rout. And for no reason, we all knew rate raises were delayed. But how he changed his rhetoric so much in a nervous market has people paniking left right and centre. The UK data today was Good….

      1. As babypips kindergarten says: market analysis is a three-legged stool of technical, fundamental and sentiment analysis.
        Carnage Carney just pulled the sentiment leg.

        It really is strange. Chinese data was as expected (not better, not worse). UK CPI were actually good and Swiss PPI was disappointing. If anything, GBPCHF Buy should have been a cashcow.

  5. Hi Mo,

    i hope you are well.
    I have a question i want to ask. it is a bit off subject.
    i would like to invest quite a lot of money with IQ option, i ve tried their demo account and they are really good. but i see a some complaints about them online especially regarding withdrawals. I would like to know what you think about them? do you trust IQoption?

    1. I trust them which is why i recommended them. But i have never used deposited more than 1k with them and 10k with anyoption. i have not withdrawn from iq option yet and I have not withdrawn from anyoption and still have my account there ready to be copied as soon as we are out of this mess. Iq option are regulated and i have a friend who has used them for a while now. I trust him completely and he recommended them to me. If anxious though (and you are right to be so with money) try them with a smaller amount first.

  6. hi Mo,

    the reason i asked about iqoption is because i started trading on demo with them yesterday and i got 1000 usd in virtual money, and today i have made 1000 usd just by trading the one minute trades, using small amounts, it seems as if they are letting me win because it is demo, i mean making 100 percent in one day is just too good to be true and that makes me think twice. i really dont know

  7. With a) foreign money thinning, b) policies aimed at curbing property buy-to-let, c) higher property taxes – the case for a property market cool down starts to unfold.
    I see the UK as a nation likes to put its money in property ownership plus a lot of the emerging-rich folks (from middle east, Russia, China) like to buy property as investment / money stashing / etc.
    That, together with ever lower oil prices, will form a good recipe for trouble in significant property price cool down, general deflation, perception of lost personal wealth leading to spiralling consumer and SMB negativity.
    Is this all relatively recent? I’d say so. A lot of people were forecasting oil to go back up which has not happened. Something had to be done politically about the property prices, and that’s just been done with new legislation introduced on the latest budget. So Carney might be retreating but it isn’t like the context hasn’t changed?

    1. Nope. All of this was present at the last time. What has people riled (hence the reaction) is not that he said the time to rise is not now. Everyone already knew it is not now. Its what he referred to as weaknesses (he previously called these strengths when they were far weaker). Thats why the massive reaction and 300 pip movement. He left a nervous market baffled.

  8. Hi,Does the positive data on GBP mean you’re happy to support the GBP/CHF beyond 1.40? Thanks for the regular updates

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