Daily Equity Report

A cursory look at the headlines across the globe continues to highlight the ongoing problems in the global economy. Weak economies have impacted stock markets, but they also play a large factor in the movements of one currency versus another.

The heads of the G20 meet late next week. One of the discussion points is going to be global currencies and specifically the role of the US dollar as the world’s only reserve currency.

Economic news from Europe indicated that manufacturers saw orders plunge by a third in January compared to a year back, according to the FT. Based on this information it appears that the GDP for the first quarter is likely to contract by more than the 1,5% of the 4th quarter.

The key central bank interest rate for the euro is currently 1,5%. It will drop either 0,25% or 0,5% next week. The ECB has been far slower in lowering interest rates compared to the UK and the US.

The euro fell against other currencies. It fell back over 1,5% today to around $1.3288

The Pound also fell against the US dollar with Britain’s GDP declining in the 4th quarter by 1,6%, slightly higher than the forecast of 1,5%.

The US Dollar index tracks the US dollar against the euro, yen, pound, Canadian dollar, Swiss franc and the Swedish krona. It is trading at around 85 up from 82 a week back.

US Dollar index

Ironically therefore the dollar remains relatively strong, despite the massive intervention from the government and the Federal Reserve in trying to devalue the currency. The reason is that the other currencies against which it is measured are just as weak.

For many years the talk from US secretary treasurers has been that of a strong US dollar, but the actions of the Federal Reserve now clearly demonstrate a desire to weaken. Increasingly exporters, especially China are getting edgy about the weakening US dollar, especially when they own so many of them in the form of dollar denominated debt.

The rand weakened to R9,60 dollar.

In a world where one currency merely floats against another, with not one having an intrinsic underpin and each economy is trying to weaken the unit to remain competitive, it becomes a difficult business trying to assess which currency to allocate funds to.

This is one reason why gold as measured in various currencies appears to have a generally long term uptrend, when measured against paper.

On that note have a wonderful weekend.

Regards

Ian de Lange
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Seed Investments provides advice and ongoing investment management to Private Clients. If you would like to discuss further, please contact Vincent Heys on contact details above or vincent@seedinvestments.co.za