Today's Highlights

  • New Zealand Dollar gains three cents on Reserve Bank of New Zealand decision

  • GBP could weaken on fall in inflation

  • Big rebound in Japanese growth forecast

 

Current Market Overview

A number of analysts and commentators had suggested the Reserve Bank of New Zealand (RBNZ) might cut their base rate from 1.75% when they met early this morning (UK Time) but that didn’t happen. The base rate stayed on hold and the RBNZ didn’t really talk about a cut. They did, delay their expected rate hike, though. Many still believe the next move will have to be a cut as the global economy slows; and China’s falling demand will affect New Zealand exports to China and to Australia, which is also quite dependent on Chinese demands for raw materials. The NZ Dollar gained three cents against the Pound in a couple of hours and made similar gains elsewhere. RBNZ Governor Orr will speak this evening, so his words will be closely followed.

Sterling likely to slip again today

Sterling has had a series of volatile days and today is likely to maintain that pattern. UK inflation data is expected to have slipped to below 2%; scotching any expectation of Bank of England rate hikes. The Bank of England (BoE) – bizarrely in my opinion – has been talking about a rate hike in the event of a ‘no deal’ Brexit. Making life tougher for UK business at such a time seems entirely counter intuitive, but that was their mantra. I doubt they will consider such a thing if inflation is declining and the world economy is slowing. More likely, weakening Sterling and keeping costs low would be necessary and that comes from rate cuts. If the data is as forecast today, Sterling may well slip a little further.

Euro could also fall

Eurozone data is limited to what is expected to be another decline in industrial production and that is likely to weaken the Euro. Despite the slowing data in the Eurozone, the Euro itself has held up well, but investors didn’t buy the Euro for its yield, so it is more likely being held as a safe haven right now and safe haven funds need an incentive to move out of the harbour.

US Dollar stronger than it should be

Like the UK data, US inflation is likely to ease down a little when we see that data this afternoon. We will also see some housing and wages data, but the US versus China trade standoff is the more pressing issue for the US Dollar, which is still stronger than it has a right to be.

Japanese Yen likely to leap

If you have a Japanese Yen need, beware that we are expecting Japan’s economic growth to have picked up in the data due for release late tonight (UK time). Up to 1.4% growth is the Q4 forecast against a 2.8% contraction in Q3. That would be a remarkable turnaround by anyone’s standards. Yen strength will follow if that is proven to be accurate.

Snakes and robbers

And the Indonesian police have apologised for using a snake during an interrogation. The suspect confessed to stealing mobile phones after the snake was draped around his shoulders as he lay on the ground in handcuffs. He was even threatened that the snake would be put up his trousers. In a fabulously understated apology, the Police Chief said, “The investigator was not professional in doing his job”. Now, whether that means he should have used a poisonous snake or some other technique is not clear, but I would suggest that, if you go to Indonesia, it might be a good idea if you don’t steal any mobile phones while you are there.

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