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Morning Brief – 10, 9, 8…

10, 9, 8…


11 hours ahead of the London time zone is that of Sydney’s. That means that shortly after we conclude our shortened trading day this New Years Eve, the impressive fireworks display on the other side of the world will be underway. 16 hours (presumably less 10 seconds) from the start of Sydney’s fireworks, New York’s Times Square will count along with its renowned ball drop. In our respective time zones and in our respective ways we’ll be welcoming in the New month, year and decade. Ever early, the foreign exchange market has made their calls and thus its bed for 2020.


By looking at the cost of insuring against movements in certain currencies we can determine the relative interest on both sides of the market for one currency and therefore measure and infer the conviction the market holds for price movements over the duration of the observed contracts. For those of you versed in the options market, I’m talking about risk reversals. I shan’t go for the full Times Square from 10-0, rather a modest first second third.


In first place: Peak Dollar (again).


We’ve seen investors anticipate a weaker Dollar for the last couple of years as it continued to outlive the normal duration of its upward rallies. On the eve of 2020, however, the same concerns exist and Dollar strength is still somewhat pervasive. The Dollar’s demise is frequently attributable to investors’ acrimonious attacks on the US economy’s twin deficits in the current account and government budget. This phenomenon is a killer for currencies because questions of solvency and monetary action gather pace.


The threat is more credible this time around. On the eve of 2019 it cost nearly 3.5% to sell the US Dollar forward against the Euro making the cost of hedging and speculatively betting against the greenback’s fall very expensive indeed. Consequently, those without an immense conviction behind its fall would not take positions against it and given the geopolitics that has unfolded in the last 12 months, it did not take a discernible fall. Now, it costs well over 1% less to take out a comparable bet and therefore, with concerns of twin deficits, US peak growth and recession on the table, more players will and are taking out contracts for a bad 2020 for the Dollar.


Runner up: Sorry Sterling


With the passing of the General Election and the confirmation of Johnson’s majority, some pessimism in options and spot markets was withdrawn. Now, with the deadline of 31st December 2020 feeling like an even larger hurdle than January 31st of the Deal deadlines before it, investors have restocked the 12 month bias towards a weaker Pound Sterling. This pricing will reflect the relative expectations of downside versus upside hedging and therefore is not fully indicative of investors’ perspectives. At face value at least, short Sterling is a crowded and popular trade.


Last but certainly not least: Risk, risk and more risk!


JPY, CHF, Gold and Silver are all tipped by options markets to gain value in 2020. The conclusion? 2020 could be a bumpy ride and, perhaps, the record low FX volatility we’ve come accustomed to might be coming to a close. Either way, purchasing the right to buy defensive assets and currencies over a 1y time horizon at current prices attracts a premium over seeking the right to sell them. Therefore investors have shown that they would rather hold safety than risk at current prices.


The market’s call is clear and derived from trading activity and current pricing. It’s view is Dollar down, Pound down (even against the falling dollar!), and risk higher. Speak with you in 366 days (2020 is a leap year) to find out if they were right!




Discussion and Analysis by Charles Porter

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Morning Brief – Currency Markets

Currency Markets


Euro on the rise sending the USD lower and GBP higher as short positions were unwound ahead of year end which together with thin liquidity has exacerbated what would normally have been a smaller set of moves.



China Demographics


Ages: 0-14 yrs 17%; 15-24 yrs 12%; 25-54 yrs 48%
Population: 1.435 Billion
Growth rate: 0.6%
The last statistic is the one to note as you will have noted that as 77% of the population is below the age of 54, that means 23% is above the age of 55. Not a problem for the moment but given increased longevity and the 48% of the population between 25 and 48, when they are no longer working in 40 years time, it will be a problem. They will all need to be paid for in older age and a smaller workforce will have to work that much harder. This is not unfamiliar to those in Western Europe who now have to deal with both a declining and an ageing population.



May Madness


Booked your spring bank holiday weekend away? Smug that you are ahead of the pack? Even though you have paid double for those flights to Spain? Oh dear. 30 million diaries were printed and sold before the announcement that the traditional first Monday in May had been moved to Friday May 8 to commemorate Victory in Europe or VE Day. Apparently blissfully unaware of this, many Brits keen to get those towels on the sunbeds ahead of the Germans/ French/Dutch have plonked their money down, booked their flights for the weekend of 1-4 May, and there’s the clue, now look like plonkers!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Markets


Last Christmas Cracker Joke for 2019 (honest) : Why didn’t the lobster share his Christmas treats? Because he was shellfish!




The main feature in the past few days has been the firm oil price of $61.31 for WTI as a result of firstly reduced inventories(that old adage of more demand than supply) and secondly a more upbeat outlook following the agreement of Phase One of the U.S.-China Trade Deal.


In the Currency markets, EUR/USD spiked up a full 2 cents at 1500hrs EST to 1.1270 on 25-12-19 Christmas Day when the world was enjoying a market holiday. This almost certainly was a timed program order that had been incorrectly entered. By 1800hrs EST, the market had reverted to the previous close of 24 December and all was left was a spike in the graph.  


In the Equity markets, the FTSE 250 enjoyed a Santa rally closing on a high in fact a record high on Christmas Eve.


Ever wished you had cornered a market after an event and therefore too late? Well this week it is my turn: if only I had filled my suitcase with umbrellas before heading to Beirut where I am writing this. Lebanon is suffering from the ongoing effects of Storm Loulou which include snow, torrential rain, floods and mudslides which are scheduled to last until pretty much the time that the wheels of BA148 leave the ground on our return. Judging by the number of wet pedestrians passing by in the street below, there is a shortage of umbrellas here!





Loulou means a pearl in Lebanese and the reason the storm has been named Loulou is that the expectation is that all the rain down below the mountain range will soon turn to snow or pearls! Not many people know about THAT symbolism!



Legend better than Stephens?!


Today is popstar John Legend’s 40th birthday- born John Stephens he launched his career with a properly high level of ambition by re-naming himself. An alumnus of University of Pennsylvania where he read English, he quickly turned his formal education to his advantage by partnering successively and successfully with Kanye West, Jay-Z and Alicia Keyes. Now worth $45Million, John Legend has added the soubriquet philanthropist to his already impressive list of  accomplishments that include songwriter, actor and singer.


Wishing you a great weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – One step forward..

One step forward..


Two steps back. The Pound at least is on track to follow this frustrating course. Having rallied after the general election result became clear, a combination of profit taking and renewed exit uncertainty has caused the Pound to have lost a lot of value. Despite the election result and immediate reaction, the Pound has had one of its worst weeks in 2019.


For those still yet to exchange money on their SGM cards for their festive holiday, fear not, the Pound still trades well above both its 2019 median and its opening price at the beginning of this year. Importantly, the Pound has crossed through important psychological and material resistance levels, adding conviction to the belief that investors consider the Pound a risky place to be on the eve of 2020. Limiting my conviction behind this assertion is the fact that with the Christmas holidays upon us, desk absences and limited commerce mean that trading activity and thus liquidity is considerably lower. It follows therefore that more noise and volatility can appear in a market with variations in the spot value of currencies not necessarily indicative of value or path and rather responsive to minor imbalances in supply and demand.


It is unlikely for Sterling to post significant gains whilst the threat of Johnson’s 31st December 2020 legal deadline is in sight. Accordingly, a cap below 1.43 (Sterling’s 2018 post-Brexit high) and low-mid 1.25s whilst not rocket science is a good guide to your 2020 GBP range. We should expect to see a repeat of the extortionate implied volatility pricing we saw in options markets ahead of the general election as the trade deal deadline approaches. If there is no evidence of sufficient progress on the trade deal then GBP should sell off into year end. However, if a deal looks like it could go either way then expect volatility, expensive volatility pricing, and significant Sterling moves on minor headlines.


It’s Christmas Eve and that means that in just two hours time (assuming you read this at 9AM London time!), Santa will be hitting Wellington in New Zealand (assuming he arrives at midnight). You get the idea right? It’s 13 hours ahead. With trade war optimism instilled in markets since the start of December, Santa might be well advised not to buy his mince pies and Rudolph’s carrots on his first few stops – he’ll pay a pretty penny! What with the Euro’s sell-off this month following an uncertain ECB presidential handoff, if Santa’s coming from Lapland (Finland) and selling his Euros, he’ll need to dig even deeper into those pockets.




Discussion and Analysis by Charles Porter

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Morning Brief – Management Guru: Andy Grove-the”guru’s guru” and his book, High Output Management

Management Guru: Andy Grove-the”guru’s guru” and his book, High Output Management


Andy Grove who departed this world in 2016 had many choice quotes, but those who knew him as CEO of Intel would not be surprised to learn that Dominic Cummings, the UK Prime Minister’s Chief Adviser has embraced his book and set it as required reading for Government Special Advisers over Christmas. Here are a few:
Those who relax end up losing
Success contains the seeds of its own destruction
Success breeds complacency. Complacency breeds failure





Exactly 20 years ago Macau reverted to Chinese sovereignty having being ruled by Portugal since 1557. It was both the first and the last colony held by a European country on Chinese territory. There you go: now you are definitely in with a chance if you play Trivial Pursuits over the Christmas period.



Carla Bruni


The Italian model turned songstress celebrates her 52nd birthday today. Before snagging Nicolas Sarkozy in 2008, Carla Bruni was busy carving herself out a top modelling career and then selling no less than 5 million albums while walking out with first Eric Clapton then Mick Jagger. Worth at least USD 15 million no doubt to the irritation of her husband who is “only”worth USD 12 million, there is also the sensitive matter of the height differential where again Carlo leads at 175cms versus Sarko’s 165cms.


Christmas Cracker Joke: What do you call a polar bear wearing earmuffs? Anything you want, it can’t hear you!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Yesterday in World Currency markets

Yesterday in World Currency markets


The Swedish Central Bank, the Rijsbank became the first Central Bank to raise rates…… to zero %.. after 5 years at minus. The Swedish Crown (SKR) dutifully rose marginally versus the USD. Norges Bank the Norwegian Central Bank kept its powder dry and kept rates on hold-so no change in the NKR. On the other side of the world the AUD rose approx. 0.3% on the back of a surprise fall in unemployment. The Japanese Yen was sidelined and unchanged. The Brazilian Real benefitted from a more muscular 2.2% growth forecast. The  EUR was up versus the USD on two things: the U.S. impeachment proceedings plus ..wait for it: German business morale improving!



Bank of England; Monetary Policy Committee


Deft footwork from the policymakers with interest rates kept unchanged and talk of too early to say how Brexit uncertainty might go with the new PM’s Brexit moves as yet unclarified. 2 out of 9 members voted for a cut with the other 7 saying let’s wait and see. The statement said that if the current growth rate ( currently a meagre 0.1%) continues, rates may need to be cut, but if growth picks up, rates will need to be raised. Ho hum. Less there for market watchers than in a joke in Scrooge’s cracker.



Cats and Foxes


Have you noticed how cats always make a bee line for people who don’t like…cats?!

Well this week it’s been the turn of a fox in Dagenham (which for overseas readers is a suburb of Greater London on the south bank of the Thames.) The fox, in search of a warm place to rest up, selected a cupboard in the house of a ….vegan! For those of you who don’t know, foxes are omnivores and urban foxes in particular are not known for their vegan diet, preferring small mammals, birds, eggs, carrion and other choice meaty morsels. There are estimated to be 225,000 foxes in the UK of which 33,000 live in cities. For ever Basil Brush fan SGM-FX’s Euan, who currently resides in Lewisham in South East London, is prepared to offer a warm welcome to some foxy friends over Christmas-he might have meant something different- but that’s what he said!


Meanwhile our man with the Christmas cracker has just sent this:

Q: What do you call a man wearing trousers made of wrapping paper?  Russell….!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Fake News – Old News?

Fake News – Old News?


In the early hours of this morning it became clear that Donald Trump, serving US President since 2017, had been impeached. From this side of the Atlantic the term “impeachment” seems daunting and we might assume that those who fall victim to it must surely be condemned to an inescapable and unenviable fate. A conviction of impeachment in the United Kingdom typically refers to acts of Treason and, until only a couple of decades ago, was still punishable by hanging. In the US, the consequences for Donald Trump are far less dire and deadly! In contrast, even if the impeachment proceedings go the full mile against the incumbent President – something a very long way off – imprisonment wouldn’t even be on the table! Accordingly, the reaction of currency markets to the political development have been limited.



What happened?


President Trump lost two votes in the House of Representatives last night. The first vote, an investigation into a misuse of power, saw the president lose by a majority of 33 votes, with 230 votes to the united Republicans’ 197. This vote was important because it carries the verdict on Trump’s leveraging of the Ukrainian President to investigate the Bidens which, you will note, is the accusation that has attracted the most media and therefore voter attention. The second vote, which passed by a slightly lesser margin of 31 votes, confirmed the House’s opinion that the President has obstructed Congress and therefore in their opinion undermined US democracy.


What happened in currency markets was underwhelming. A mild sell-off in EURUSD saw the value of the US Dollar fall by only about 0.15 of a cent versus the European single currency. Against a Pound Sterling that is still trying to find its feet in the days following the general election, the US Dollar showed no change even several hours after the vote took place. Perhaps the only discernible currency movement was a small revaluation in the Japanese Yen, a barometer of risk, during the decision.



Were traders just asleep?


No – they just didn’t really care! In the United States’ bicameral system it is the Democrats – those represented by Biden himself in the previous administration – that control the House of Representatives. Political partisanship alone would therefore dictate that Trump was successfully impeached. Moreover, with no immediate ramifications other than the impeachment debate now passing to the Senate (controlled by Trump’s Republicans), it will be business as usual in the United States today. The Senate will hold a trial on the impeachment movement against the President early next year and, given the composition of the legislative body, is more likely to put an end to Trump’s attempted ousting.


Trump isn’t the first US President to face impeachment proceedings, in fact he is the fourth. In recent history, it has been Presidents Nixon and, after him, Clinton that have faced these proceedings. Before their time it was President Johnson that was impeached in 1868. Whilst the fortune for Nixon wasn’t so bright given his resignation ahead of formal impeachment, President Clinton at least continued his term to serve for more than one additional year – “I did not have sexual relations with that woman”. In the time that followed both impeachment hearings and votes, the impact on the US Dollar was clouded and little can be taken from US Dollar price action over these periods in order to guide us through the next phase of Trump’s impeachment. It is worth noting, however, that if Trump is successful in sealing the Republican nomination for 2020 he will become the first President to seal a party nomination having suffered the House’s impeachment.


The US Dollar will not suffer from the impeachment proceedings as they unfold so long as polling continues to be blind to the accusations of misuse of office and frustration of congress. Particularly in 2017, we learned that Trump’s Republican Presidency is supportive of the US Dollar particularly due to his pro-business agenda. Having rightly downplayed the probability of Trump’s Presidency being ended by these proceedings alone, make no mistake; a credible threat to restore the United States to a Democratic presidency in addition to political uncertainty could be Dollar negative. Accordingly, if the Democrats manage to use Trump’s impeachment to their electoral advantage in 2020 then a devaluation of the US Dollar could ensue. Today will also see the Bank of England release its latest monetary policy decision. The decision will be important for the Pound if the Bank acknowledges the latest general election and its likely impact on economic uncertainty due to Brexit. My opinion is that the outgoing Carney is unlikely to offer his two cents for fear of both politicising the monetary authority and overselling the incumbent Conservative Party.




Discussion and Analysis by Charles Porter

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Morning Brief – UK Markets and the practice of Setting Price Objectives

UK Markets and the practice of Setting Price Objectives


Concern that a hard exit from Europe might be worse than a soft exit hit GBP despite the release that the number in employment rose by 24,000 in the quarter to 31/10 taking the employed to 32.8 million and a rate of 76.2% which is the best level since January 1975. Gilts prices fell as investors concluded that the chances of an interest rate cut next year were slightly lower.

Expect this to be the world we live in for the next year at least: sharp market moves as sentiment varies.

Yesterday GBP versus USD had a range of 2 cents and GBP versus EUR the same. The practice of putting on price objectives and price protection needs to be dusted off by both private and corporate clients. Those SGM-FX clients who have followed this discipline since the exit poll on Thursday night have already seen the benefits and others who would like to discuss putting such a strategy in place should let us know.



France and the Let them eat cake moment


President macron’s pension reforms are not going smoothly: yes the strike protest has dropped from 800,000 to 340,000 but the government’s attitude to the protesters, which can be summed up as “non”, and its inability to articulate the reform in a way that people can readily understand, has increased public support for the strikers. His cause was not helped earlier in the week when Jean-Paul Delevoye the responsible government official for the reform had to resign having overlooked the fact that he personally had 13 interests and side jobs!

In case you are wondering the OECD average retirement age is 65 while the French are off to their gites to enjoy retirement by the time they are 61. As a percentage of their working lives, those four years are significant and a drain on those who are still working-and funding that earlier retirement.



Whirlpool owners of Hotpoint and Indesit: Alert.


Bad news for washing machine owners of these marques as Whirlpool the Michigan USA based company and parent of Hotpoint recalls more than half a million machines in the UK alone over concerns that the door locking mechanism causes a risk of fire as the heating element is prone to connect with it. Never mind the logistical exercise of recalling more than 20% in the UK alone of the total sold, but the sheer cost to the company is enough not only to seriously erode profit margins but to threaten its viability in what is a fiercely competitive market. James, economist and Master of Finance as well as being the appointed man in a white coat and clipboard on these matters at SGM-FX, has tried to estimate the cost but even at a low ball estimate of £200 per machine, that translates to a cost of GBP 100 million.

The main European competitor is of course the Bosch-Siemens Group for all you dishwasher/washing machine market watchers out there. Meanwhile Hotpoint has set up a hotline to enable owners to check if their models are affected.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – US-China



End of the beginning or beginning of the end? Markets took heart on Friday with news that the two sides have reached agreement in the nick of time ahead of the imposition of those increased tariffs yesterday December 15. Japan’s Nikkei surged 2.5% to a new 14 month high and the Shanghai Blue Chips rose 2%. The MSCI of Asia Pacific shares excluding Japan also rose 1.5%. Now we have the so called Phase One deal, the expectation is that the two sides will be keen to capitalise on that and push on to Phase Two quickly.





The Libyan National Army under General Haftar is on the verge of a final battle in the long running civil war to capture the capital, Tripoli which is defended by the United Nations backed Government of National Accord. When I last visited Tripoli the Gaddafi regime was fully in control, every lamppost was adorned with his picture and the prevailing ever present secret police and their network of informers meant that the atmosphere was one of fear. It is now 9 years since Muammar Gaddafi was ousted and in that time more than 2,000 soldiers have been killed and 146,000 people have been displaced with no positive effect to the country which at 1,759,540 sq kms is over 7 times the size of the U.K. and is of course tellingly only 1,000 kms from the southern most parts of Europe.



Swiss and the Digital Currency Debate


The Swiss Government asked the Swiss National Bank as the country’s central bank and monetary authority to look into the prospects for a central bank digital currency for the use of the general public. Such a digital currency would complement rather than replace conventional bank notes. In a country like Switzerland that is a pretty serious question. On Friday the SNB concluded that this would bring no additional benefits and would threaten financial stability. 


China and Sweden are the only two countries to be looking to introduce such an initiative. They and other countries would be well advised to listen to the SNB as money and its management is less a way of life than a long established religion in Switzerland. 


GBP rallied up to CHF 1.33 early on Friday before falling back to CHF1.31 for those of you contemplating following in the footsteps of Prince Andrew and the Duchess of York and snapping up a chalet in Verbier for CHF 19 Million as they did in 2013. The SGM-FX elves have been devilling and have worked out that with GBP at CHF 1.46 at that time, Prince Andrew is currently sitting on a paper foreign exchange profit of GBP 1.4 Million. Small beer to someone with such conspicuous wealth -and spending-he also spent GBP7.5 Million in that same year on some home improvements to his UK residence, Royal Lodge his 30 room home in Windsor Great Park.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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team discussion

Morning Brief – Markets



When the UK Election exit poll came out at 10pm ,there was a flurry of activity and the phones lit up across the room at SGM-FX headquarters. GBP rallied sharply across the board before drifting back in the hour or so afterwards. Since then, GBP has given up further ground but remains significantly firmer than it was at close of business yesterday. SGM-FX stalwarts were on duty throughout the night and our clients were not slow to take advantage of us being open. Recent joiner Nick asked nervously whether this meant that he would always have to work 16 hours straight- calm down dear and get back on the football field; we work on that old Latin dictum: Mens Sana in Corpore Sano: a Healthy Mind in a Healthy Body!



London: an unashamed salute to a truly Global Financial Centre after a tawdry General Election


Two stats which you should expect to increasingly as the exact terms of the future UK-Europe business relationship are crafted and which represent the value built over the past decades in the UK financial marketplace: USD 12 Trillion Assets under Management; USD 4.75 Trillion Foreign Exchange Daily Turnover. There are of course more-a lot more- but without the infrastructure, skills and connectivity which are the so-called parallel markets: finance, trade, insurance, shipping, law, accountancy and real estate the London markets could not function to the standard required to compete and win on a global basis each day…every day.



Election Reaction


Thousands have taken to the streets in the capital in protest against the election. Police attempts to disperse the crowd have failed and two, polling stations were ransacked. Before you reach for your remote control to check the latest UK news on your TVs, this was in Algiers yesterday as Algeria went to the polls to elect a new President.



Happy Birthday To a Clutch of Top Rockers-well three anyway


Born this day in 1948 was firstly Jeff “Skunk” Baxter American guitarist in Steely Dan and The Doobie Brothers. Improbably more recently he has worked as a defence consultant and chaired a Congressional Advisory Board on missile defence-not something I would have predicted in 1973 when I saw him at the Southampton Gaumont!  Next up born on 13 Dec 1950  is David “Davy” O’List guitarist with The Nice, Roxy Music, Jethro Tull and Pink Floyd (what a great CV). Last but definitely not least and the youngest of these three is Steve Forbert, U.S. guitarist and singer songwriter born this day in 1954 and  I have to confess, a long time favourite of mine, and also of DJ “Whispering” Bob Harris with his unforgettable song, Romeo’s Tune.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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