FX avoids equity crash, bonds don’tBy Arnaud Masset
Currency markets have avoided the turbulence in equity markets: of course the Japanese yen strengthened amidst the ‘risk-off’ sentiment, but only by 1.60%, down to 108.50 JPY per USD, before stabilizing at around 109.20. The greenback’s fundamentals are strong, especially in light of last Friday’s inflation outlook and solid jobs report. The dollar is oversold; a rally is just a matter of time.
Bonds shot up, as rushed into them from stocks. On Monday US treasuries rallied sharply across all maturities. The 2-year yield dropped 20 basis points to around 1.95%, the 5-year slid 26 bps to around 2.35%, while the 10-year fell 23 bps to 2.65%.
Zuma’s resignation to boost South AfricaBy Vincent-Frédéric Mivelaz
Cyril Ramaphosa has already replaced him as leader of the African National Congress (ANC), and soon will replace him as President of South Africa. Jacob Zuma appears to be on his way out. He and Deputy President Ramaphosa are reportedly “discussing formalities” of the handover.
This is good news for investors in South Africa. We expect further USD/ZAR depreciation from a current level of 11.96 rand per dollar (-4.0% YTD). Since the beginning of 2018, ZAR is the best performing currency against the greenback, and the South African economy is looking at a strong 2018. Business confidence is up, trade is better-than-expected and inflation reasonable at 4.70%. Since recent steep decrease of FTSE/JSE 40 index, largely due to political uncertainty, we remain confident that South African equities are on the way to recovery.
New Zealand not normal yetBy Peter Rosenstreich
‘Normalization’ is the big story for many central banks, but not New Zealand’s. At tomorrow’s meeting, NZ’s central bank is expected to hold policy unchanged. As with other G10 countries, domestic inflation has disappointed: economic improvement has not translated into price pressures. The jobless rate fell to a fresh nine-year low in December quarter, but an influx of workers has kept wages from accelerating. Annual inflation fell to 1.6% from the prior quarter's 1.9% as cheaper food as consumer goods all but offset higher fuel and housing costs. The Reserve Bank of New Zealand is priced to remain on hold this year, which will likely lead to a weaker NZD.