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Morning Brief – China and Hong Kong: enigma

China and Hong Kong: enigma


The incredibly successful statistics from China throw out a big question of which more below. Between 1952 and 2018 GDP averaged 8.1%. Life expectancy has risen from 35 in 1949 to 77 today. 770M people have been taken out of poverty since 1978. More than $2 trillion has entered the country as foreign direct investment since 1980. This has all been as a result of China’s willingness to accept foreign influence and to embrace new ideas. Why then is China currently following a line of inflexibility and authoritarian rule in the case of Hong Kong? Writing this from Hong Kong this morning, the argument that China cannot afford to allow any state or region to depart from the single policy approach does not wash. Hong Kong has thrived on invention and ingenuity and curtailing that spirit has resulted in today’s pro democracy movement. An enigma indeed for its leaders which China would do well to overcome-quickly.



Automation-Machine Learning aka Artificial Intelligence


According to McKinsey the jobs of 140M knowledge workers in developed economies will be at risk in the next 10 years. This translates into 50% of clerical jobs and 29% of finance and insurance jobs. It is worth examining the impact of much improved technology and what has already taken place in the past 10 years since the financial crisis: much of what McKinsey is forecasting has already occurred with changes in business practices, off shoring and faster business processing due to IT enhancements. That is certainly our experience at SGM-FX which has benefitted our customers and meant that we can handle larger volumes with fewer administrative staff. Our view is that those savings should be reinvested in the customer experience with more and better client facing staff which is what we have done.



Private Banks


Competition is forcing private banks to provide better and therefore more costly services to their clients. Those who accept lower profits will survive and those who do not, will not. Our experience is that many of the larger banking groups do not accept this situation and that has meant that SGM-FX are seeing a steady stream of their clients in search of better currency services and pricing which has been to their benefit judging by the comments that we have received.





Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Largest Risk Facing Global Economy

Largest Risk Facing Global Economy


This is the lack of policy instruments at the disposal of central banks in the event of a financial crisis: with interest rates on historic lows and the ability to provide any fiscal stimulus heavily curtailed, the options available are limited. Nothing obvious in the way of a solution other than better global growth but what it means is that next time round it will be harder to address a global financial crisis. It is worth remembering that at such times the USD and Gold are the natural havens for flight capital.



Oil Traders


The news that the USA has placed sanctions on four Chinese tanker firms including the well known large company Cosco has shocked an already nervous oil market in the wake of the drone attacks on the oil supply pipeline in Saudi Arabia. Quite why traders should be surprised given that the USA announced that they would not tolerate shipping companies carrying Iranian oil back in May is another matter, but that is down to the ongoing uncertainty caused by the wider trade war between the USA and China. Oil WTI is little changed at $56 which is where it was pre the drone attacks.



Tipping Etiquette for the new(ish) Gig Economy


Point of Sale credit and debit card machines increasingly give diners options ranging from No Tip to 10/15/20 or Other %. That is straightforward and avoids awkwardness unless possibly when it comes to hitting the No Tip option. These days Deliveroo workers for example depend on tips and it is not uncommon to ride the lift down with disgruntled Deliveroo workers who have received a grunt and muttered thanks but no tip from less generous neighbours in our building. These days it’s got complicated again and especially due to people carrying less or no cash. What’s the answer? Well needless to say when travelling, the SGM-FX Prepaid Currency Card allows tips and also allows users to draw cash from ATMs at no cost: problem solved!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Gladiators, are you ready?

Gladiators, are you ready?


I’m sure BBC Parliament has never had quite so many viewers as it enjoyed yesterday. Markets were fixated as usual with the political developments of the day in their pursuit to value domestic equity, currency and fixed income assets, but this time the population also turned to the Commons. Johnson, going on Bercow’s first whistle, came out of the blocks charging. In his speech, supposedly on the Supreme Court’s decision on his illegal prorogation of Parliament, he managed to not mention the illegality for some ten minutes. Finally acknowledging the reason for which he was standing at the dispatch box, the Prime Minister confirmed he would respect the court’s decision but maintained that he believed it to be wrong. 


Going on Bercow’s second whistle, the challenger Jeremy Corbyn had a more reserved demeanour in accordance with his general persona in the Commons. The attacks levied only two sword lengths away from each other were designed to taunt Corbyn into challenging Johnson to a leadership election. Jeering the leader of the opposition that this process was exactly what he himself had called for during his party conference in Brighton that very week, the Conservative Party rapturously applauded.


The Labour Party has said it does not want an election until a no-deal exit has been taken off the table and the legal deadline of 31st October taken off the table by forcing Johnson to either achieve a deal or negotiate an extension at October’s European Summit commencing three weeks today. It would be fascinating to see just how much Parliament’s opposition to an election until a no-deal exit is legally precluded is preserving any value behind the Pound. So, is Corbyn really our secret red-caped Sterlingman?! Well, maybe to an extent in this most minute of self-preservatory corners but, like Gotham, perhaps he’s not the hero Sterling needs right now!


The all-guns-blazing approach taken by Johnson yesterday hours after the resumption of Parliamentary proceedings did little for Sterling’s fortune. A lack of humility in the face of the Supreme Court decision, a sustained push towards an exit on the 31st October and general bullish attitude demonstrated to markets that perhaps more political manoeuvring was on the cards and that they should therefore expect some serious twists and turns in the Brexit process. The Pound fell by 1% against the US Dollar yesterday and up to 0.67% against an ailing Euro as parliament sat.


Impeachment proceedings against the President of the United States did not unsettle the US Dollar yesterday. Initially, markets started off in defensive mode following the announcement of proceedings by Speaker of the House of Representatives, Nancy Pelosi. However, as a general risk aversion gripped markets by a combination of this event, oil sanctions and Brexit, investors drove defensive bids towards the United States and the Dollar appreciated mildly. When Trump announced that a trade deal with China could come sooner than people expected, the Dollar really gathered steam, rising by 0.56% against the Euro and simultaneously passed through important resistance levels. Today continues to be Dollar up, Euro down, Pound down affording the best value for the Pound versus the Dollar, the Pound in exchange for the Euro and the Euro when purchased against the Dollar that we have seen so far this week. 




Discussion and Analysis by Charles Porter

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Morning Brief – NoDeal Brexit: What the bookies say: And Over the Rainbow

NoDeal Brexit: What the bookies say: And Over the Rainbow


After yesterday’s court ruling and with 37 days left to the current deadline: 40% probability of NoDeal. And that is despite the Benn Amendment that prevents the U.K. leaving with NoDeal(!)

Meanwhile the cliff edge uncertainty has sent UK factory output expectations to a 10 year low. Stocks of finished goods have increased at the fastest rate since the 2008 financial crisis.

And just for good measure the Prime Minister is flying back overnight fresh from trade talks with POTUS to confront both his own party and the rather larger number of Her Majesty’s opposition made up from a variety of parties: a sort of loose Rainbow Coalition! 



Affirmative Federal Reserve Action


Yesterday the Fed injected $30 Billion of 14 day cash and $75 Billion of overnight funds. The US market correctly read not only the impact of this funding but also received the message that the Fed was in interventionist mode and did not want to see a spike in short term interest rates to 10% like last Tuesday. Result: calm. This is what international markets are very much focused on in these days of political and economic uncertainty: central bank actions that they can respect and understand.





Here at SGM-FX global HQ we know full well the danger of joking about outlandish concepts that defy reality, just in case they ever come to pass- but here goes:  the concept advanced by Her Majesty’s Opposition regarding the cutting of the working week from 5 to 4 days with a maximum of 32 hours worked but with the same amount of pay is no less than a miracle of alchemy- turning base metal into gold. At a stroke this would mean an increase of work productivity of 20% overnight-something that no government of any party has ever managed to achieve since the Romans put the ancient Britons to work , but that was 7 days a week and 2000 years ago when employment law was let’s just say non existent!

SGM-FX’s intrepid traveller Richard was seen yesterday lunchtime pouring over a Thomas Cook brochure ( has no-one told him?!) and looking at long weekends in Europe. Bless!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Sagging



Of the $6.6tn daily foreign exchange market, trading across the two leviathans, EUR and USD, takes the lion’s share. In normal times then, the sheer weight of demand and supply behind both of these two major currencies makes the EURUSD pair relatively flat. However, when presented with a big enough reason, the value of the Euro’s immovable object versus the US Dollar’s unstoppable force does move. Yesterday presented one of these opportunities which saw the Euro lose 0.4% of its value against the Dollar. 


Soft data, those data relying upon sentiment and human interpretation rather than economic facts, is widely regarded because it is a fast-moving barometer of any economy. Whilst less accurate and more volatile than so-called ‘hard data’ observations of things like consumer confidence are useful in generating a more up to date impression of an economy than, for example, GDP growth with its statistical lags and complications. Soft data called the Purchasing Managers’ Index was released yesterday first in Germany and France and then for the Eurozone as a whole. Split into Manufacturing, Services and Composite, the Index recorded lower than previous readings and below consensus forecasts across the board in France, Germany and the Eurozone: three-dimensional cricket; three-for-three-for-three!


Sure, the Eurozone economy has been waning for a long time but it’s serious when the reserved and cautious ECB President Mario Draghi warns the European Parliament that geopolitical risks could cause the Eurozone to endure a ‘prolonged sag’. What was of particular concern is the 49.1 (versus 51.5 consensus forecast and 51.7 previous) observation in Germany’s composite PMI. Due to the statistical composition of the Index, a sub-50 reading signals expectations of economic contraction. Unsurprisingly, a surprise downside reading that crosses the momentum definition from expansion to contraction caused havoc within the single currency yesterday.


Bond yields continued to drive further into negative territory in a bid for safety within Europe. With talk of fiscal reform underway in Europe and an incoming President of the ECB, it will be important for the Eurozone economy to prove it can manage the change and deliver inflation again. Otherwise, it’s further down the rabbit hole for the Euro. Today the Supreme Court in the United Kingdom is expected to deliver its verdict on the prorogation of Parliament in yet another development in the Brexit saga.




Discussion and Analysis by Charles Porter

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Morning Brief – Don’t just book it: Thomas Cook it….


Don’t just book it: Thomas Cook it….


Will have a new meaning for the 600,000 customers abroad as at last night of which approximately one third are British and need to be repatriated. The venerable company founded in 1841 has no national significance so will not be saved by the UK Government. Chinese company Fosun is the major shareholder and was instrumental in securing the GBP 200 million necessary to tide it over the lean winter months and to save the company which incidentally is on top of the GBP 900 million already provisionally committed. Sadly this has not succeeded and the company has been placed into administration in the early hours of today.Somewhat redefines the concept of a package holiday…

SGM-FX Prepaid Currency Cards will definitely come in handy for those affected and needing funds while they wait to be repatriated.



Hong Kong: Another weekend, another series of demonstrations


Tear gas and scuffles in the New Territories town of Sha-Tin last night. The demonstrators were chanting “Liberate Hong Hong Kong” and “Fight for freedom.” Somewhat ironic given the SAR status of Hong Kong versus the altogether more strict and unreported regime response to civil unrest in the People’s Republic. 



A 1573% increase?


What could that possibly be? Trump tweets? Bitcoin? No. It is the increase in the theft of catalytic converters in their Greater London area from 173 in 2017 to 2894 in 2019. Thieves can remove catalytic converters in just 3 minutes with specialist cutting equipment and then cash in the palladium and other precious metals arising from their handiwork. Police advise vigilance…..SGM-FX singleton Euan plans on sleeping beside his motor to protect its virtue unless a girlfriend materializes anytime soon. Anybody?! Please!!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – China: The Growth Story

China: The Growth Story


Bizarre really that market analysts are wringing their collective hands because China’s growth for this quarter may dip below 6% after 6.2% in the last reported March to June period. In Europe’s anaemic world, we can only dream about such a figure. Needless to say the headlines will all reflect the impact of the trade war on the world’s second largest economy, but China is still projecting a growth figure of 6.5% for 2019 which is not too shabby. In any case if you have not spotted it, October 1st 2019 is the 70th anniversary of the founding of the People’s Republic of China and why is that significant? Be sure: there will be a lot of celebratory projects and spending in Q4 which will make damn sure that that 6.5% figure is achieved!



Oil and Interest Rates


With WTI Oil now at $58 versus the $55 pre drone attack price, measures taken by the Saudis to restore supplies and a minor drop in the temperature of the US anti Iran rhetoric can so far be judged to have been successful. Markets have moved on to sift through the Fed announcement of the cut in US rates and the BoE report from yesterday which signalled low rates for longer in the UK. What both Central Banks have done is to give themselves flexibility to cut or not cut later-albeit for very different reasons-rather than expend the meagre ammunition that remains to them too early.



UK Retail Sales


A surprise drop of 0.2% in retail sales and a much larger fall of 3.2% in on line sales from the previous month. Never fear, the SGM-FX team of analysts can explain this: canny SGM-FX shopper Graham has been spotted nipping into Costco on a much more frequent basis in recent weeks while his online Amazon deliveries to the office have dwindled to a trickle-just how many widescreen TVs does a man need?! 

Alas these trips to Costco have not been sufficient to keep the whole of UK Retail Sales on an upward trend, but we do understand that Graham has a full freezer of tomahawk steaks and chicken breasts (less than £1 each if you are interested) as well as crates and crates of wife beater(Stella Artois). What a patriot!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Top Trumps

Top Trumps


As eagle eyed purveyors of the foreign exchange market I’m sure each of you reading this would have been keeping a watchful eye over the actions of the Federal Reserve Bank in the United States and UK inflation yesterday. In fact, both events seem like they might go down as the two most important events of 2019 not to have (yet) moved the foreign exchange market. 



UK Inflation


Since the referendum in 2016 wiped out up to 15% of the value of the Pound versus its major peers, inflation has held firm. As a consequence of the United Kingdom importing a high proportion of its consumables and goods in from abroad, the weaker Pound immediately pushed import prices higher, raising the general price level. Due to the economic rule that higher inflation rates are normally signalling stronger economic activity, the Bank of England was able to perform a juggling act presenting above-target inflation as a symptom of a robust domestic economy, not a struggling one.


The three years since the referendum have therefore seen the Bank of England play an accidental role as the defender of the value of the Pound. Whilst politics and global economics might not have been on its side, the role of our central bank in promising higher yields behind the Pound when the rest of the world’s central banks were easing policies saw it claw back and protect the value of GBP. However, the truth behind domestic inflation, particularly within more homeward orientated markets that seldom compete overseas, has been one of relative stagnation. Within importation markets we always see lags whilst reserves are depleted and statistics sort themselves out. Across the world, for example, we measure inflation in year-on-year terms so the observed inflation rate is the price change versus twelve months ago.


A systemically higher inflation rate caused by rapidly inflating import prices is gradually eroded by this year-on-year observation method; higher prices today compared with similarly high prices one year ago in percentage change terms do not show up. Yesterday’s inflation reading of only 1.7%, the lowest since 2016, will worry markets that inflation will continue to fall now that the statistical obscurity has worn out. All this means that the Bank of England, through its use of sanguine language, may not be able to be the defender of the value of the Pound, opening the path for it to move lower if political (read Brexit) developments do not play out in its favour. Yesterday the Pound fell but only minutely reflecting investors’ preoccupation with Brexit and all things politics.


Today the Bank of England will deliver its September policy decision. They are unlikely to follow the US in cutting rates given the one off nature of this data, however, their language will be studied to gauge expectation surrounding future price movements. 





The Federal Reserve Bank in the United States cut interest rates but 25 basis points, 0.25%, yesterday evening. With the president’s scathing reaction to the decision, the broadcast of the Fed meeting could rather have been on Comedy Central under the programming of “The Roast of Jay Powell”. But there’s always a certain joy in watching a central banker explain that all is rosy, couldn’t be better, but we’ve got to cut interest rates once again in a consecutive meeting. 


A hawkish press meeting following the cut decision pushed the US Dollar higher but only marginally, keeping USD within its week-to-date range. The limited price action reflects investors’ distrust in the banking authority but also their distaste to enter alternative currencies and assets – it’s still the best of a bad bunch. However, with the lion’s share of foreign exchange traded in the City of London, more US Dollars are traded in London than in New York. My suspicion is that traders in Europe are unlikely to be impressed by last night’s decision and so steer on the side of caution with respect to Dollar holdings. 




Discussion and Analysis by Charles Porter

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Morning Brief – Windfall or the Economics of the Madhouse

Windfall or the Economics of the Madhouse


To most of us including the Cambridge English Dictionary a windfall is an amount of money that you win or receive unexpectedly. The managers of Eurozone economics view a windfall as being money that they have saved due to lower global interest rates. Now this may seem like semantics but there is a world of difference between receiving money as a windfall and not spending money, and in this case the Eurozone are patting themselves on the back for some creative economics resulting in a “windfall” of EUR 140 Billion. It’s not just the Eurozone that shares this view, it is enthusiastically endorsed by ratings agency Standard and Poors-and we all remember, or do we, what happened the last time S&P and others endorsed the credit boom.


With Greece leading the pack with a debt to GDP ratio of 175% and only six of the smallest countries with ratios of less than 50%, the majority and incidentally the largest save Germany of Eurozone countries have indebtedness of between 50 and 100% of GDP with France, Spain and Italy at, or over 100%. No discussion about paying down some debt, but either productivity has to rise, or Europe as a whole in the future faces the same kind of austerity that Frankfurt and Brussels have forced Greece to endure in the past 7 years.



Smart Meters going the same way as HIPs?


News in, the deadline for every household being offered a smart meter to monitor energy consumption has been quietly (initially) extended for 4 years. Why? Poor rollouts, technology not working, impossible to switch suppliers…the list goes on. 20 years ago it was all about HIPs or Home Information Packs which were mandatory(briefly) for sellers of houses to provide to buyers showing them among other things how energy efficient properties were. Airbrushed out of history to save embarrassment just in case the obvious question is asked: Why, given that a survey is mandatory for any mortgage provider to grant a mortgage, would a HIP add any value whatsoever to those most vulnerable in the housing market? In the same way, would the ability to analyse consumption through a Smart Meter, add value to a household that watches TV, boils a kettle and turns the lights on?! Note that the language has changed markedly from the high pressure sales techniques we have all received from the energy companies: they are now saying that it is of course not compulsory to have a Smart Meter!



Energy Pricing


So leading on from the Smart Meter story, the question is what is happening with energy pricing? We all have a sense of pricing having risen, but from a myriad of complicated UK Government tables breaking it down by region, consumption and billing it is….very hard to say just how much it has gone up. Research on the web reflects a lack of up to date statistics and is confused by the energy companies telling us why prices have risen and not by how much (funny old world) In 2013 it was reported that domestic gas prices for example had increased by 300% over the previous 10 years versus a basket of household costs that had increased by just 30% in the same timeframe. It is not unrealistic given the year on year increases that can be identified(typically 10-12%) that this pattern has continued.


You may ask just how this impacts the currency markets! Much of our energy is imported therefore the price increases have been inflated by a sharp devaluation in GBP: weak GBP=higher energy prices.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Crude Responses: Oil and Brexit

Crude Responses: Oil and Brexit


The attacks over the weekend on Saudi Aramco’s eastern facilities have moved foreign exchange markets. Unlike a lot of financial headlines at the moment, this serious threat to the provision of global energy looks as though it could have an enduring impact upon global FX. Throughout yesterday’s European trading session, a demand for security led to a defensive bid for the US Dollar. For decades, the relationship between the value of the US Dollar and the price of oil has been inverted: the higher the cost of energy (usually denominated in USD for additional statistical complication) the weaker the US Dollar would likely be.


Given that Brent Crude (BRN), for example, could be written as an exchange rate between the commodity and the US Dollar in the form of a currency pair, BRNUSD, comparison is challenging. A move in the price of a Dollar de facto changes the analysis of the relative value of a barrel of oil versus a unit of currency and vice versa. However, take my word for it, the relationship is one of the tried and tested gospels of the foreign exchange market.


In recent years it has become widely recognised that the United States is largely energy sufficient and within certain studies is even proven to be a net exporter of oil. West Texas Intermediate, a widely adopted bench mark, represents oil largely which consists of that extracted from the Permian Basin in North America. Having been explored for around a century now, this oil field was unable to provide for the vast oil and energy demands of the world’s most significant developed economy. However, the invention and liberalisation of alternative energies exploration including fracking and shale production have changed the scene. The strong-oil-weak-dollar relationship is almost as significant in some market veterans’ eyes as the law of gravity and a challenge to it has the potential to upset many traditional flows.


Yesterday, as stated above, the Dollar appreciated by around one quarter of one percent (25 basis points) across the board. If the 5.7 million barrels per day of crude oil that have been withdrawn from daily production as a result of the attacks on the Saudi Arabian plant take several weeks to be restored, $100pbl is seriously possible. Given the United States’ relative insulation from this energy crisis and slight positioning towards energy exportation, we could rationally expect the Dollar to continue its advance.


On the other side of the energy crisis, those economies highly dependent upon oil and energy importation have had their currencies severely weakened by the forces within the global foreign exchange market. Turkey and India are particularly vulnerable to energy prices with almost total exposure to foreign energy resources. With worryingly high structural current account deficits, the worsening terms of trade (the relative cost of economic activity and production at home versus abroad), both currencies suffered yesterday.


At market open on Saturday evening, the price of Gold in Dollar terms gapped up and opened above $1500 per ounce, to record an immediate change in price of 1.5%. The Indian Rupee opened 1% down on its price versus its Friday close against the US Dollar and the Turkish Lira traded down by 1% against the Dollar before the European session began.


The other crude response came in the form of Brexit. The Pound threatened to continue its surge at lunchtime yesterday when optimistic reports regarding the lunch time meeting between UK PM Boris Johnson and EU Commission President Jean-Claude Junker surfaced. However, when the request to move a press conference between Johnson and the Luxembourg Prime Minister inside was rejected, Boris’ refusal to take the stand left Pound traders concerned. The value of the Pound fell once again to close 0.5% down against an appreciating US Dollar and 20 basis points down on a trade weighted basis. A lack of progress and workable solutions to the Irish backstop continue to hamper the Pound. Despite the short squeeze that led to last week’s rapid appreciation of the Pound Sterling, short positions as recorded by CFTC data showed the volume bets that would profit from GBP heading downward reach a two year high. This positioning leaves the door open for a sharp correction to the undervaluation of the Pound but is also a perfect indicator for the uncertainty and fragility within the UK economy.




Discussion and Analysis by Charles Porter

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