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Morning Brief – Eurozone Sentiment

Eurozone Sentiment


Not just a feeling but an index compiled from key services and industry and consumers by the European Commission in yesterday’s November release shows better sentiment well actually less negative sentiment in most cases, across the board. This is against the backdrop of almost flat-either small negative or positive- economic growth across all of Europe. EUR/USD remained flat and on a narrow range yesterday with quieter than usual trading conditions due to the US Thanksgiving Holiday.



Net Migration to the UK


At its lowest level for 6 years as at June 2019 the annual figure was 212,000 which is a closely watched statistic given that immigration is one of the key topics in the General Election currently overshadowing/gripping/transfixing/convulsing the UK depending on what tabloid newspaper you read.



Pussycat Dolls


Breathless fan SGM-FX’s James can barely contain himself with the girls due to appear tomorrow on X Factor which is Top Secret by the way…except that Louis Walsh had not listened (WHAT?) and let it out of the bag earlier this week.

Their best known songs as you will doubtless recall are Stickwitu and Dontcha if you can remember as far back as 2010 when the band split up. Tomorrow, James will have to make do with only 5 out of the 6 Pussycat Dolls as Melody Thornton has declined to appear due to a dispute with Nicole Scherzinger over a share of the lead vocals-Nicole has 95% of them- miaow!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Losers



It’s a sad state of affairs for the G9 currencies versus the behemoth of their group, the US Dollar. So far this week, the US Dollar has continued its advance to supremacy over its highly liquid, yet less heavily traded, 9 colleagues. Between the 13th and 19th of November, the US Dollar was the only G-10 currency that saw investors add to their net long positioning within foreign exchange markets. The Dollar over this period has been supported by continued uncertainty in the trade war negotiations between the United States and China. Last night’s signing of the Hong Kong act into law by President Trump threatens to prolong those tensions and consequently sustain USD strength. 


Those currencies that have seen net short movements in speculative non-commercial positions include the Euro, the Pound, the Yen, the Aussie, New Zealand and Canadian dollars, the Franc and the Norwegian/Swedish Krona. The most severe movement within the G10 space was a 6.5% reduction in open interest within the Canadian Dollar. CAD slipped back to 17% net long positioning versus 23.5% of open interest the week before. The measures of open interest in this ‘CFTC’ data represent the net directional positioning of speculative investments. A net 17% long position therefore means that when the volume of shorts has matched the mass of long positions there remains 17 Pound in every 100 of the open market interest (those participants that have put their money where their mouth is) betting on a rise in that currency. 


The dissipating momentum in the Canadian Dollar is driven by the monetary policy u-turn by central bank governor, Steven Poloz. Whilst the data does not yet account for the hawkish monetary policy speech given by the governor late last week, the severe position adjustment has caused the Loonie to fall by a couple of cents versus the Greenback in the past few weeks. If you recall a few weeks ago when we wrote about the emergence of CAD as the highest yielding G-10 currency on the eve of the Federal Reserve’s move to cut rates, it’s easy to see that the fall from grace is one purely of monetary policy and specifically interest rate expectations. 


Other commodity currencies that sit beside the Canadian currency saw investors cast a shadow over their outlook too. The Aussie and Kiwi Dollar took beatings to their positioning by 1.9% and 2.4% respectively. The general risk off tone surrounding foreign exchange markets isn’t limited to Dollar outperformance, it’s also symptomatic of a low volatility environment. So what do we need to kick the life back into foreign exchange?


Volatility has historically been driven by divergence in central bank policies across the globe. Right now, given a global slowdown and deteriorating terms of trade, monetary conditions throughout the globe are becoming looser, resulting in a general lack of movement. There are concerns that I for one share that the indebtedness of the global economy renders this systemic rather than situational, however, a divergence in policy and economic fortune will still warm up FX markets. We therefore need something to move the dial. 


I offer you Monday 16th December. CLEAR. On this day, we will have learned the fate of the UK General election and therefore probably Brexit, the first monetary policy decision of Christine Lagarde will have shown us the fate of Eurozone monetary policy, and we will have learned, by the 15th of December, whether President Donald Trump will let China off of 15% tariffs on USD 160bn of Chinese imports. This date should be the first trading day of a new path to global (dis)resolution and even pave the way for diverging economic and therefore monetary fortunes. 




Discussion and Analysis by Charles Porter

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Morning Brief – Turkey: Interest Rates

Turkey: Interest Rates


In July interest rates in Turkey stood at 24% and today they have fallen to 14% with President Erdogan urging the Central Bank to get them down below 10% as soon as possible. The Lira is down 8.5% after depreciating 30% in 2018. Inflation having been 16.5% in July is down to 8.5% at the end of October. For those of us who have been involved in the Turkish market for some years, 2019 will go down as the latest example of the country’s roller coaster ride with monetary policy and with a further 1% cut in rates likely on December 3. For those of you keen on monetary statistics, Turkey’s inflation rate averaged 34.74% between 1965 and 2019 with a high of 138.7% in May 1980.



Weather Effect: 2019 Turkey Dinners


It started in the summer with those hotter than normal temperatures which apparently meant that turkeys were put off their strokes and fewer eggs were laid which in turn led to higher turkey prices. Fans of Brussels Sprouts are also due to pay higher prices as the poor Autumn weather has resulted in widespread floods and fewer Brussels Sprouts on offer. The turkey shortage has been exacerbated by many farmers switching to chickens as appetites have changed in 2019. And that’s before breaking news of further celebs switching to nonmeat diets led by David Attenborough and Serena Williams!



Characteristics of those born on November 27


Today we fished out our Horoscope Almanac and discovered that a strongly moralistic personality with perceptiveness, friendliness, sensitivity and positivity are all common traits in our birthday boys and girls. Additionally they tend to be alert, assertive, curious and generous. Lastly they are bad tempered as a rule! Best known 27/11ers are Bruce Lee and Jimi Hendrix. Sadly longevity does not seem to be a feature for people born on this date as Bruce checked out aged 32 and Jimi likewise at just 27. The last lines of his song, Castles Made of Sand say it all:

And so castles made of sand
Slip into the sea, eventually




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – German bottom?

German bottom?


Germany narrowly avoided recession thanks to data last week that showed third quarter growth at 0.1%. Congratulations are in order then; the driver of Eurozone growth and manufacturing export champion is back up and running! Hold on, perhaps we should wait a moment before putting the Riesling on ice. 


If you walked through a dodgy area, one where you’d be fairly relieved not to have been mugged, I think you’d agree that avoiding tragedy on one occasion is unlikely to do wonders for your perception of the neighbourhood in general. Perhaps you all might forgive and forget faster than I, but I’m certain I’d enter the area with similar trepidation as I did the first time. I certainly wouldn’t leave my money lying around there! I concede the metaphor for Germany is wearing thin here, fiscally it’s still a remarkable haven, however, the principle stands: momentary relief from arbitrary observations shouldn’t remove the cloud of doubt from above Germany and the Eurozone just yet.   


The Ifo Institute produces a survey each month on German business confidence. The release is closely monitored by markets as, by definition, we receive three times as many of these soft data releases as we do quarterly GDP and, therefore, it is seen as more timely and reactive when forecasting economic output. Yesterday saw the release of this data and it posted a rise for the third consecutive quarter. Add this to broader survey data such as the Purchasing Manager’s Index released last week and a case is building to suggest that short run sentiment is warming. Perhaps we might even conclude that pessimism surrounding German output and manufacturing is dissipating and being replaced by observations of resilience despite an enduring US-China trade war. 


The market evidence of lifting doubt is exemplified in Germany’s bond market and the yield on its benchmark 10-year note. Since falling to a record low of minus 0.72% while recession confirmation loomed, the asset has recovered to around minus 0.3% – still deep in negative territory but at least staging a recovery towards free, though not subsidised in nominal terms, money at 0%. In contrast, evidence of market sensibility comes from the foreign exchange market (obviously!). The Euro-Dollar exchange rate has failed to appreciate meaningfully since the miniscule Q3 growth was confirmed showing market uncertainty regarding Germany. Confirmation of this scepticism around the Euro is confirmed by CFTC data on Friday showing US Dollar net long positions (those that demonstrate investors’ anticipation of a strengthening Dollar) hitting 5-week highs.


Analysts and institutions claiming bold recoveries in Germany (NatWest among others) might therefore be underwhelmed by German performance in the months to come. Headlines this morning attest to progress on a Phase 1 Trade Deal according to the Ministry of Commerce’s statement regarding a phone call early on in Beijing this morning. However, we’ve been shown glimmers of global trade resolve before, all of which have later faded. With Christmas day less than a month away, learn this lesson now: whilst being early is a virtue, under-baking an idea can be dangerous. The German economy must thaw first before we can be convinced of a meaningful recovery. If we carve into the Turkey now I’m afraid we’ll find it worryingly pink. 





Discussion and Analysis by Charles Porter

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Morning Brief – Breakfast @Tiffany’s?

Breakfast @Tiffany’s?


Louis Vuitton Moët Hennessy (LVMH) announced the acquisition of Tiffany for $16.2 Billion at about the time that you are reading this. This will complement the A to Z of brands that LVMH already own that includes Acqua di Parma, Berluti, Bulgari, Celine, Christian Dior, Dom Pérignon, Fendi, Krug and alphabetically all the way through to Veuve Clicquot. Incidentally the only brands beginning with a T that they have owned to date are TAG Heuer and Thomas Pink!



Foreign Investment


In these times of trade wars/agreements and civil unrest, it is instructive to remember that in 2018 the USA led the way with $277Billion, next was China with $139 Billion and the Hong Kong with $116 Billion. The UK was in 6th place with $64 Billion ahead of Brazil with $61 Billion and Australia with $60 Billion.



Willy Wonka?


Where is Milka chocolate made in Austria? Bludenz: the scene of a major heist when a Hungarian haulier (not a joke by the way) was hired last week by the company to deliver a lorry full of chocolate. The Hungarian haulier sub-contracted to a Czech pal who substituted number plates and delivery documentation and disappeared. Just how much is such a consignment worth? EUR 50,000 is the answer! Austrian police on the case (fruit and nut?)



US Presidential Race 2020


Financial markets last night welcomed the fact that one of their own, Michael Bloomberg(77 and worth $53.4 Billion) has announced that he is running as the Democrat candidate. First he needs to beat off Elizabeth Warren, Joe Biden, Bernie Sanders and Pete Buttigieg the most youthful of the candidates by some distance at 37.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Global Economic Growth

Global Economic Growth


Always useful at this time of year for export led businesses to look beyond forecasted growth rates for one’s own country or region. For those finalising their budgets for 2020 and 2021 global economic growth is forecast to be 2.9% for both years before clawing its way back to 3% in 2022.



Benjamin Netanyahu


Bad end of the week for BN who now faces charges of bribery, fraud and breach of trust. Those of us who watch Israeli politics are conscious that this is unprecedented for Israel and a big shock for his supporters who previously believed Netanyahu to be bulletproof.



Thomas Cook: a story that ends well


Odd to think that just a few weeks ago, pundits were writing off the chances for Thomas Cook’s 2,330 workforce to have any chance of keeping their jobs. With the Hays Group’s timely intervention it turns out that not only were all of those jobs saved, but 200 additional jobs have been created in Head Office, 737 apprentices will be hired(one for each office within the enlarged group) and 500 new staff have been hired for the foreign exchange notes business. So a combined total of 1,437 new jobs. 





Sustainability prize of the week goes to Chris Martin and the band who have elected not to tour to promote their new album Everyday Life which is launched today. Known of course for their songs Viva La Vida, Yellow and Paradise among many more, Coldplay are reducing their carbon footprint. With 7 albums under their belts and a net worth of $475 Million, Coldplay hardly need to promote themselves. Cynics among you might ask if sustainability is something that only the rich can afford to indulge in. We would beg to differ and suggest that it is a global move that should and must be embraced by all. Meanwhile best of luck to Coldplay for their new album and for promoting their own version of sustainability.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Get Real

Get Real


Apart from yet another BRLliant equivocation for a title, pause for applause, it’s apparent that the foreign exchange market is getting worried about equilibrium price action affording a seller of 1 US Dollars 4.2 Brazilian Real. With widespread pension reform hailed to take place in 2019, the market entered 2019 with high hopes for the Real. The start of the year saw USDBRL trade at 3.8. However, due to a lack of political progress on spending reform and legacy concerns the South American currency has weakened by more than 10% year to date.  


The 4.2 level is critical with the level having been reached and defended on three separate occasions in the last five years. To add to the significance of this resistance level, the Brazilian monetary authority (BCB), stepped into the open market earlier this week offering 12,000 reverse swap contracts and $600bn in Spot contracts to defend the 4.2 level. Whilst offering the market an insight into the fire power just above current prices might be thought to reinforce the exchange threshold it simultaneously signalled to market participants that the central bank is concerned that it could be broken. 


The trade war was also supposed to help Brazil’s capital account and therefore lift the value of its currency, but this hasn’t happened. The main export from Brazil is soybeans – a product that the United States exported $3.1bn worth of to China last year alone. The intuition followed that with a 25% tariff imposed upon the US export, then the geographical composition of Chinese Soybean importation would shift. Alongside an inflated price level, this should have increased the demand for Brazil’s currency as Chinese Yuan or US Dollars were sold to facilitate its purchase.


Despite this expectation, the Real has instead been caught up in risk-off market conditions throughout the year flared up by intensifications in the trade war. It follows therefore that with each conflict and disappointment in trade negotiations the Real continues to lose ground. Against the Pound, the weakness in BRL alongside the rally of 5% in Sterling since mid-October, means that the impact of Brexit is all but wiped out within the currency pair.


With the Real on the cusp of 4.20 having flirted with the threshold yesterday afternoon, the currency is attracting significant attention and elevated trading volumes. Jair Bolsonaro, the President of Brazil, has called for the currency to return back towards 4.0 to the US Dollar. Given that the nation remains a net exporter and economic growth is forecast to be higher next year, it seems that if the BCB maintains its monetary defences and we do finally see a level-1 trade deal we could see the BRL grind higher and restore some value.


In Sterling markets, Bank of America Merrill Lynch has joined market participants including Morgan Stanley and JP Morgan calling for a stronger Pound. In that order, 1.39; 1.40; and 1.33, are the GBPUSD calls for the end of 2020; end of Q1 2020; and mid-2020 respectively. With the highest call from Morgan Stanley some 9% higher than currency spot value, it follows that expectations of a majority in the House of Commons come 12th December and an exit plan underway come 31st January 2020 are on the cards at these banks.




Discussion and Analysis by Charles Porter

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Morning Brief – For those of a delicate disposition: look away now!


For those of a delicate disposition: look away now!


The Daily Telegraph has polled a representative group of U.K. 16-24 year olds and has discovered:

28% have never heard of Stalin

50% have never heard of Lenin and 70% have never heard of Mao Tse Tung.

With a General Election 22 days away and a large number of younger voters intrigued by the socialist blandishments of the Labour Party this is more than worrying. With the centralist Labour policies  of the past this would be “so what?” territory, but with the radical left ambitions of the 2019 Labour Party, there is a real need to educate younger voters as to what that means and what it means for their futures.

Far be it for sgm-fx to attempt to influence let alone put this right, but the Labour Party plans to nationalise the railways, the Royal Mail, water and no doubt other utilities, plus BT Openreach for starters!


A veteran of the last time that Labour had a real hard left go in the 1970’s tweeted the following which we picked up and is worth at least a pause for thought among undecided and wavering millennial voters:



The Socialist Manifesto


If it’s for sale, tax it

If you can’t tax it, ban it

If it makes profits, nationalise it

If it makes losses, subsidise it

If they work, punish them

If they don’t work, reward them

If they vote for it, ignore it

If they didn’t vote for it, do it anyway



HSBC Head Honcho


Widely reported incisive forecasting from the HSBC FXHead: following the election GBP will either fall or rise sharply! Better by far to have talked about the binary nature of the most extreme outcomes and the consequent volatility in the GBP market.. but WE knew what he meant…didn’t he?!





Readers Down Under are struggling to read the Sgm-FX Daily today due to a thick haze covering the city while 1300 firefighters battle worse than usual forest fires which now number more than 100 across the East Coast of New South Wales. High winds and a temperature of 42 degrees is stoking those fires.





The state owned airline South African Airways founded in 1934 with a fleet of 44 airliners is in deep financial trouble. The strike which is affecting flights and costing $3.4m a day may be the straw that breaks the camel’s back. Watch out for a government bailout to prop up the ailing airline.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – 2 vs 3

2 vs 3


The Pound this morning sits at 2 week highs versus the US Dollar and shows signs of returning to the 1.30 ceiling which it has established for itself lately. However, with little more than three weeks left until the General Election in the UK, the Pound will be vulnerable to political headlines and polling results. As Sky News announced yesterday that former Speaker of the House of Commons, John Bercow, will join its election night coverage to keep things in ORDERRRR, polls suggest the Tories lead the Labour Party by about 15 points. It follows that currency markets are hopeful of the prospect of a majority as it provides a clear path to resolving Brexit and clearing the impasse that has dogged the UK Parliament over the last few years since the referendum was held.


Following the speeches offered to UK businesses at the Confederation of British Industry event yesterday, little has changed. In a pragmatic and fiscally responsible change of tone, Johnson has announced he will postpone promised cuts to corporation tax. Constraints on public finances that have caused disputes between Johnson and his Chancellor Sajid Javid whilst formulating the Conservative manifesto look therefore to have swung in Number 11, rather than Number 10’s favour. The claim that Tory leadership, cabinet and MP hopefuls are rallying behind the PM’s secession deal also added to the support that polling results are affording Sterling markets.


Despite its international bias and therefore exposure to a rising Pound, the UK’s headline equity benchmark, the FTSE100, has held up well finding support at 7,250 in the last week. The FTSE250, the more domestically orientated collection of UK stocks, has felt the support of polling data and the prospect of a Brexit resolution too, rising to 1-year highs and trading as high as 20,500. The wind will be taken out of Sterling and equity markets if the polls show a more divided electorate as the election gathers pace ahead of the December 12th vote.


In the first move of its kind since 2015 the People’s Bank of China (PBoC), the Chinese monetary policy authority, cut rates on its seven-day Reverse Repurchase operation. We’ve heard a lot about the Repo market in recent months but essentially the facility provides short term liquidity into Banking markets that aren’t providing adequate levels of money supply on their own. Crucially, the move by the PBoC to cut the rate on the product from 2.55 to 2.5% represents a loosening of policy in support of the Chinese economy. The move demonstrates the vulnerability of a Chinese economy which is sluggishly clinging to growth at around 6% to the Trade War. Whilst 6% might not sound like economic growth figures to bemoan, the expansion figures are at their lowest levels in 30 years. The move supported global equity markets yesterday with the Chinese Yuan moving through 7.0 to the US Dollar once again.




Discussion and Analysis by Charles Porter

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Morning Brief – Limewood Hotel, New Forest

Limewood Hotel, New Forest


News of the theft of 82 bottles of wine worth GBP67,000 last week. Presumably the insurance company will fork out for the replacement cost of these bottles at an average GBP 817 cost per bottle. Incidentally at a normal restaurant mark up of 3 times that equates to GBP 201,000 of wine for diners or the cost of each bottle a stonking GBP 2451. So by any definition definitely high end wine which since it was stolen in a very short time suggests prior specialist knowledge. Maybe a case of cherchez la femme for M Poirot and the boys in blue, but it seems to us amateurs that it would be more fruitful to cherchez le sommelier!



Hong Kong


Friday saw more demonstrations and the closure of the tunnel connecting Hong Kong Island to Kowloon and the mainland. This weekend students and demonstrators have taken over the Polytechnic University which they have turned into a fortress in anticipation of a much tougher crackdown by the police with the now 6 month old unrest degenerating into urban warfare at increasingly more frequent times. Additional police have been drafted in from Western China and there is an increasingly tough message coming out of China. Poor Hong Kong: our thoughts are with everyone there.



Cheese Futures


Soon it will be possible for food processors and food manufacturers to hedge the price of cheddar cheese on Chicago’s Mercantile Exchange with the introduction of cheddar futures and options contracts early next year. Each contract represents 20,000 pounds of block cheddar. This will trade alongside the existing barrel cheese contract which is normally used in processed brands which are becoming less popular as tastes change. With the change in consumption towards more healthy and specialist brands, there is a need to be able to hedge block cheese. So coming soon: the possibility to trade two types of cheese-block and barrel: cheese spreads!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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