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Morning Brief – Hydrogen: it’s back and this time it’s different…and it’s green

Hydrogen: it’s back and this time it’s different…and it’s green


Older readers will recall the Zepellin, Hindenburg that unfortunately exploded on May 6 1937 in New Jersey killing 36 of the 97 passengers. Now hydrogen filled airships are making a come back as firstly they are green and secondly due to improvements in technology they can be manufactured to carry extremely heavy payloads (safely) and, most interestingly, more efficiently and more quickly than ocean going freight ships. Until now for instance large turbine blades for wind farms have to be shipped and then, in the case of on land wind farms, have to be transported by road to the sites. Now they can be flown from point to point by these large airships. Lockheed Martin have designed and built the LHM-1 which can carry 21 tons and 19 passengers. A UK company named Varialift is designing an airship capable of carrying 250 tons and another already has an airship with a payload of 60 tons. The figures for comparative transportation times are instructive: Washington DC to Lisbon: 6092kms and 11-13 days by sea or 4 days by airship. Tokyo to Los Angeles 9138 kms and 18-22 days by sea or 4 days by airship. With more than 10,000 windfarms due to be built globally, this is only one area of significant demand for this form of transport.



Stairway to Heaven


All this Zeppelin talk has made me unable to resist an excerpt from Led Zeppelin’s finest song: Stairway to Heaven(1971):
There’s a lady who’s sure all that glitters is gold
And she’s buying a stairway to heaven
All together now, and she’s buying a stairway to heaven
When she gets there she knows, if those stores are all closed
With a word she can get what she came for
All together now, with a word she can get what she came for
Ooh and it makes me wonder
(How does it affect you blokes?) Ooh and it makes us wonder
(That’s interesting that, yeah)
There’s a sign on the wall, but she wants to be sure
’cause you know words sometimes have two meanings
All together now, ’cause you know words sometimes have two meanings
(A lot of words have two meanings
Um, like in this song the word to buy
Buying a stairway to heaven……………….


Jimmy Page and Robert Plant have earned USD 560M from this song alone ….and still counting!



New Year resolution gym madness


Me to my trainer (proudly): “ Yesterday I did 200 sit ups”
Trainer to me (dismissively): “ Mike Tyson used to do 2,500 sit ups every day.”


Mike Tyson competed for 20 years, was the undisputed champion of the world, earned more than USD 300M and now at the age of 53 is worth USD3M having been declared bankrupt in 2003.
Bet he can still do more press ups than me though!


Nice weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Baaaaad news

Baaaaad news


If you’re planning on taking on the pub quiz any time soon it may be worth keeping this one in mind. Not the traditional victim of sheep observations, it is in fact Australia that is the world’s leading exporter of lamb and mutton. Towering above New Zealand and Wales, Australia in 2018 exported a whopping 2.6 billion US Dollars of lamb and mutton and accounted for 7% of agricultural production. Exports in agricultural produce have fallen in the last half century from just over 60% of total exports by value to marginally over 10%. However, having realised a fragile current account surplus of 7.85 billion AUD in Q3 2019 and deficits throughout 2016/17, the trade in lamb and mutton cannot be considered negligible to economic performance. With the wild fires destroying acre upon acre of arable land, concerns surrounding Australia’s agricultural exports are mounting.


The economic risks to Australia and thus the Australian Dollar sadly do not even end with the devastating wild fires. In the same time as Australia’s reliance upon agricultural exports has shrunk by 50%, so too has its exposure to Chinese importation swelled from 2% to 27% over the same period. The Coronavirus crisis in China has seen flights into the nation suspended from many countries and expectations of a slowdown in consumer spending and economic performance gather speed. Australia is therefore facing risks across the breadth of its exports rather than having to deal with the specific threat to agriculture.


As the health crisis has unfolded the prices of non-precious commodities has tumbled. Crude oil, a good barometer of economic expectations so long as conditions of supply can be assumed to be stable, has tumbled by as much as 10 US Dollars per barrel throughout the crisis so far. The same is true in metal and ore prices, the underlying commodities of which account for more than 50% of Australia’s total exports.


Aside from risks derived from the wildfires in Australia and the Coronavirus outbreak, economic fundamentals are also not on the side of the Aussie Dollar. Despite inflation picking up at the start of the year following its 2019 slump, the Reserve Bank of Australia is not looking raise rates any time soon and yesterday only signalled a delay to further monetary easing. Markets still price in a 20% chance of a 25 basis point cut at the Bank’s next meeting in February. The tripartite problems to the Aussie’s value show no sign of abating and it seems likely we get a re-test of December’s GBPAUD low. If this resistance is taken out in the coming weeks there is headroom towards GBPAUD 1:2. Against the US Dollar, the Australian Dollar could reasonably print at its worse value since 2009 within weeks.


The Bank of England will present its latest monetary policy decision today. The market still prices a 50% chance of a cut in futures markets as all eyes will be on Carney’s last Monetary Policy Committee meeting before the Governorship changes hands. The interest rate decision today comes the day before the UK leaves the European Union and embarks upon its transition period. The Withdrawal Bill has passed through the Lords paving the way for a smooth transition tomorrow but as focus turns to trade negotiations there will be episodes of extremely choppy trading in the months ahead.




Discussion and Analysis by Charles Porter

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Morning Brief – Loonyness



This week brought the “news” that Canadian real estate has been the beneficiary of the Harry and Meghan circus moving to Vancouver. And what was the evidence for this? The answer is that hits on the Rightmove site have increased by 70% in the past month: incontrovertible proof! Here at SGM-FX we scoff at this “fact” and put it down to nosy parkers including the world’s press hounds trying to catch a glimpse of where H&M are holed up and looking to see how much “the secretive” Russian oligarch paid for the Vancouver Island spread. Meanwhile the Canadian Dollar also known as the Loonie after the duck-like looking bird, has mostly remained in the 0.75-0.80 range versus the USD over the past 5 years – nice to see that the Loonie at least is keeping its feet on the ground!





Mattel, the famous manufacturer of the Barbie Doll has announced the launch of a new inclusive range featuring dolls with vitiligo ( wassat I hear you ask, and ok I had to look it up too- it means a skin condition involving loss of pigment) , no hair and prosthetic limbs. There is also a red headed Ken addition where 170 new models have been added to the range in the past 5 years. In 2019 the best Barbie seller was a curvy model (female) with an Afro hairstyle. In case you are wondering there are now 5 Barbie body types, 22 skin tones, 76 hairstyles, 94 hair colours and 13 eye colours. Ken only has 4 body types, 13 skin tones, 22 hair colours and 9 eye colours -so it really is not a man’s world when it comes to dolls. Before you pooh pooh all this, toys are big business with Mattel clocking up gross annual sales of over USD 6.6 Billion. Canny SGM-FX collector Graham has a number of Ken Dolls stashed in his garage just waiting for mullet hairstyles and flared jeans to come back in….



Katharine Ross


Happy 80th birthday to Katharine Ross, the American actress who firstly wowed Dustin Hoffman in The Graduate, 1967 before starring opposite Paul Newman and Robert Redford in Butch Cassidy and The Sundance Kid (1969). Her career was more successful than her first 4 marriages which averaged less than 4 years each, but her 5th marriage to fellow actor Sam Elliott has been a keeper at 36 years. Between them they are worth USD 15 Million and they are both still working and sometimes acting together at the Malibu Playhouse, if you are in the Los Angeles area.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – No small issue

No small issue


Buyers of Rand have enjoyed the sell-off in the South African currency so far this year. Sellers on the other hand have displayed concern throughout the market as the South African economy embarks upon quite the first quarter of the decade. This shift in sentiment has been responsible for the change in price so far this year with the Rand yesterday trading at the cheapest level so far this year against both the Pound and US Dollar yesterday afternoon. The problem you might rightly suspect begins with Eskom, but it doesn’t end with the state-owner utility company.


The sell-off in the Rand in the past week or so is most likely the effect of position adjustment as we move towards the draft Eskom solution this week, budget speech next month (26th February), and Moody’s credit rating in the first week of March. Last week we learned the likely cost of load shedding in 2019. Estimated by the Council for Scientific and Industrial research at as high as R118 billion last year, the lights were switched off for a cumulative planned 530 hours in 2019. If that figure is correct it means that the single issue created by the failure of the state utility and its management is alone responsible for a puncture approximately 2.5% of the size of the entire economy. The cost per capita of Eskom’s failings last year alone therefore is over two thousand Rand. And what did each citizen get for their R2,000 bill? Less than nothing! Growth forecasts for South Africa are weak and if load shedding were to take place at a rate akin to 2015 this year, they could well turn negative plunging the economy into its second recession since 2018.


In accordance with President Cyril Ramaphosa’s announcement last year, we had expected Eskom’s CEO Andre de Ruyter to announce his plan to split up the energy provider into three separate legal entities each responsible for generation, transmission and distribution respectively. On Sunday, he cautioned against rushing the division of responsibilities announcing his concern that a sudden separation could provoke lenders to constrain credit and cash even faster. The market sensed division between political and executive leadership in South Africa and, fearing another potential delay to the emergence of a holistic plan, sold the domestic currency.


Finance Minister Tito Mboweni will deliver his budget speech to the nation with the world watching in one months’ time. The cash allocated and commitments made to the provider responsible for 90% of South Africa’s energy provision will set the stage for Moody’s ratings agency to decide once again if domestic debt is worthy of an ‘investment grade’ stamp or should be classed rather fondly as ‘junk’.




Discussion and Analysis by Charles Porter

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Morning Brief – Kung Hei Fat Choy

Kung Hei Fat Choy


As we embark on the Year of the Rat, a very happy new year to our Chinese readers. Remy Cointreau is hoping that the coronavirus does not stop the huge Chinese drinking market from quaffing their cognac as well as The Botanist Gin and METAXA Greek brandy which also form part of the portfolio. With turnover of $ 1.2 Billion and profit of $150 Million and a worldwide market, this global brand founded in 1724 (for those of you who are interested) is naturally keen that its drinking customers celebrate with their brands even if those Remy Cointreau fans are unable to travel.



Elvis Presley


This month would have seen the King turn 85 if he had not headed to the recording studio in the sky in 1977 at the age of 42. During his 25 year music career he managed to sell 600 million records with 21 of his albums and 35 of his singles reaching #1. By the time he zipped himself into his jumpsuit at the end of his career he was able to command $1Million per show. However at the time of his death Elvis was only worth $5 Million or the equivalent of $20 Million today. Where did his money go? The answer is real estate, parties, drugs and hangers on, with his manager, the Colonel, taking the lion’s share. Typically modest, Elvis Presley had the last word:
“I don’t know anything about music. In my line you don’t have to.”





The country rather than the bird: lays claim to holding the title of tallest man in the world with Sultan Kosen measuring 251 cms or 8 Feet 2 Inches. This great height comes with disadvantages such as requiring crutches to move around due to the pressure on his joints, needing to have both his clothes and his bed specially made for him, struggling to find shoes for his 36 Cms or 14.4 Inch feet and the list goes on. Married to “petite” 175 Cms, Merve Dibo, they live in the south east Turkish city of Mardin.
Unfortunately this towering claim to fame has not prevented the Turkish Lira’s decline in a fairly straight line from 2.35 to 5.90 versus the USD in the past 6 years.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Judging by appearances

Judging by appearances


Not necessarily the right approach: look at penguins when they are on land (which is after all where we see them) whether it be Yellow eyed(New Zealand), Galapagos(Galapagos), Humboldt(Peru) or Fairy(Australia); all these species have adapted to different climates and environments which is quite something given that they are built like a thermos and waddle or wobble their way around. However once in water, where we only see them courtesy of David Attenborough and his imitators, they become completely different using their unwieldy on land feet as a rudder enabling them to make hairpin turns at over 50 kph. Their cousin the Emperor penguin can dive to over 500 metres and are the fastest underwater maneuverers and deepest divers of any bird.


Now turning to the currency equivalent of an underwater penguin (sometimes)……GBP!


GBP: versus the USD in the past 8 years GBP has declined by 18%, in the past 4 years it has declined by 11% and in the past year it has risen by 4%. However versus the EUR, GBP is flat over the past 8 years, has fallen 21% in the past 4 years and has risen 6% in the past year.


Like the penguin on land, these arbitrary observation points do not tell the whole story since in June 2014 GBP stood at USD 1.71 but at the same time at only EUR 0.80. So what all this tells us is that despite what has been written in the newspapers, GBP has hardly moved versus EUR in the past 8 years but in that period there have been times when it has moved extremely sharply which just underlines the need to set hedging levels and to put the requisite protection in place. As they say on TV when asking the tele-audience to vote: Our lines are open!



The End of January is Nigh


For residents of the UK this has different implications: 31/1/20 sees the deadline for filing on line self-assessment tax returns. For all fans of Scotch whisky worldwide, it means that they can indulge on Burns Night which is tomorrow, 25-01-20. But for those who have been glued to the multiple diet programs on TV channels at this time of year it marks the end of January “the most dismal month.” For SGM-FX’s Graham, it means that he is fast approaching the weigh in after a month of abstinence. Funnily enough Graham has been googling the Israeli Diet. What it lacks in variety is more than made up for by the results: this diet is guaranteed to lose a minimum of 13 pounds or 6 kilos in just 8 days. Here it is: Days 1-2: Apples. Days 3-4: Cheese. Days 5-6 Chicken. Days 7-8 Salad. Nothing else. No salad dressing nor mayo and defo only grilled plain chicken. Oh and it’s very bad for you, so as a last week of January measure, just forget it. There has to be a better way! Meanwhile bring on the sausage, egg and bacon sandwiches, it’s Friday!



Economics and Speeches


Earlier this week when preparing to give a talk to a group of people in the world of Finance here in the City of London, I was reminded of the charming (charmless)President Lyndon B. Johnson or LBJ who was POTUS 1963-1969 and his take on this subject:


“Making a speech on economics is a bit like p#ssing down your leg. It seems hot to you but never to anyone else.”


Ah well…….
Nice weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Who are you?

Who are you?


0.7% in one day is a pretty decent rally for the Pound. Sterling currently sits at 2 week highs against the US Dollar and yesterday GBP reached 2020 highs against the Euro. But what brought us here might surprise you: Confederation of British Industry survey data! This piece of soft data is normally not considered a market moving piece of information. However, yesterday’s fragile market conditions and Sterling traders’ agitation ahead of next week’s Bank of England decision and formal exit from the Union allowed it to become salient information.


Headline data at the beginning of the year and rhetoric from the Bank pointed to the need for a cut in rates. Subsequently, soft data releases have shown evidence of a pick up in activity and confidence following December’s general election – a period not yet observed by more concrete headline economic data. The CBI data release was startling. It showed that overall business optimism had strengthened sharply to record a figure of 23 in the 3 months to January versus -44 the previous quarter.


A reading of 23 is the healthiest observation of business confidence that the CBI has recorded since April 2014 and analysis reveals that it is the sharpest quarterly gain for over 60 years. The composition of the data showed that optimism was broad based and shared by businesses affected by the exportation capacity of the UK. The CBI data is (at least) the 4th such indication of an observable economic boost granted by the 2019 general election and with the interest rate decision exactly 1 week away for the Bank of England, the data was enough to cast doubt over what was previously priced as a confident cut in rates. Money markets immediately moved to slash the discount priced into Gilt Futures to leave only a 50% probability priced in of a Jan 30th cut.


Today it is the turn of the European Central Bank to offer markets its latest interest rate decision. All three barometers of the price of Eurozone money (their interest rates) are expected to remain the same with no new commitments to outright monetary transactions Quantitative Easing. What President Lagarde is expected to do is offer more insight into the Bank’s Strategy Review. The Review could look into everything including the inflation target and monetary policy instruments. As with any systemic economic shakeup there is the potential for volatility. With the Euro at 2020 lows and political headlines in Italy dragging the single currency lower yesterday, Lagarde’s Review could even cause markets to re-view 2019 EURUSD lows.




Discussion and Analysis by Charles Porter

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Morning Brief – History and Hong Kong

History and Hong Kong


News that China is considering the nomination of Shenzhen as a business centre is an unequivocal message to Hong Kong: continuing civil disturbance will be punished. Shenzhen is already a major city with a population of 12.5 million located on the east bank of the Pearl River Estuary on the coast of Guangdong province. Most pertinently it is 15 minutes by high speed train from…Hong Kong. It is worth looking back to 1989 when the then Chinese leader, Deng Xiaoping, the successor to Mao Zedong and the leader credited with giving China capitalism took decisions on his own having only consulted some unelected friends and without reference to the wider Communist Party. On 17-5-89 Deng advised Premier Li Peng that martial law would be declared and troops would be positioned on the streets of Beijing to suppress the burgeoning rebellion that we remember loosely as “Tiananmen Square”. Li Peng dutifully informed the world that Deng had decided on those actions that morning.


30 years later, decisive and life changing decisions can still be made by the President of the Peoples Republic of China and the General Secretary of the Communist Party of China, Xi Jinping which involve a very small number of the 90 million members of the Party.



Scrap Metal-hardly!


We have written before about palladium and how gangs are removing catalytic converters from cars for the palladium by night in suburban streets. Car manufacturers have been exacerbating the demand for this scarce metal by buying up the dwindling supplies that have been stockpiled. To start off with it was good business for the traders: sell spot at a sufficient price to warrant the risk and borrow it while waiting for production to enable delivery. Bad news for those naked short sellers: last week the 1 month finance rate or lease rate (as the metal market calls it) stood at 21% on Thursday. On Friday that rate went to 27% and this week it is now 36%. To remind you, palladium stood at $1,250 per ounce a year ago. Today the price is $2,500. Over the same time frame global physical supplies of palladium available for delivery have fallen from 3.2 million Ounces to 0.8 million Ounces. Not a good time to be short: a classic market squeeze: ouch!



Bungee Jumping Chinese style


The Chinese are clearly keen to distract themselves from the swine flu epidemic that has caused pork prices to rocket in the past year. Near Chongqing (and since I was last there), Meixin Red Wine Town has built a 68 metre tower with a bungee jump in a new theme park. This week to inaugurate the attraction, a 75KG pig was dressed in a purple cape and with its legs lashed together and squealing in terror the luckless animal was launched off the top of the tower. “It was” explained a park spokesman, “ just a bit of entertainment.” Not much fun for the porker, but maybe if he fancies it as “entertainment”, the spokesman should don the purple cape and try it himself!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – How Low Can Ya Go?!

How Low Can Ya Go?!


Despite its relative adolescence on the global stage the Euro is a big player. Largely due to its incompleteness it hasn’t achieved the status of a reserve currency and doesn’t play a huge role as an underwriter of trade in goods and services outside of its own member states and continent. Whilst spewing out headlines on a daily basis given the number of hard and soft data releases what with 19 sovereign members, the Euro never seems to move very much. This isn’t just due to the thirteen trillion Euros in its monetary system making it big and lethargic to move it’s also down to the immense liquidity that has been provided by the European Central Bank and global monetary institutions that has subsumed and killed John Maynard Keynes’ animal spirits.


Today, with the Euro having sold off to its weakest level against the US Dollar so far this year, there are serious Euro discussions afoot. The pair has lost 1.2% versus the US Dollar so far this month meaning that US Dollars are now 1.3 cents more expensive than they were 13 trading sessions ago. With one-month implied volatility hovering around the 4% mark and 9 trading sessions to go in the month, the move is considerable.


This Thursday Christine Lagarde will present the ECB’s latest monetary policy decision. Far from a standard meeting, the European Monetary Authority is expected to launch a strategic review and rethink of its inflation goal. At the moment the ‘close but just below 2%’ ECB mandate looks like a distant memory. If this takes hold as a ceiling rather than a target in the expectations of the consumer and business then disinflation creeps further onto the cards. The move is dramatic and a poorly handled situation could bring further downside to the Euro.


To add to the gloomy international picture, yesterday the International Monetary Fund released its World Economic Outlook Update. If you look at the update that markets received in October last year and in April/July before that references to the trade war between the US and China were littered across each page. Alongside admonitions from the IMF about the threat that the trade war presents to the global economy were heavy handed cuts to global growth outlooks. The two were causal – the threat to Sino-US trade undermined global growth forecasts so severely it was a global systemic risk to growth.


I bemoaned last week of the insignificance of the phase 1 trade deal but make no mistake, no matter how loose-weave its enforcement and ambition it does still provide some assurances to bilateral trade. How then can a partial resolution of the rhetorical conflict be deserving of yet another 0.1 percentage point downward revision of 2019 and 2020’s growth expectations?! The IMF seems to be writing allegory to us – reading between the lines is definitely necessary. Their true message seems to be that a global recession is on the cards unless monetary authorities continue to do whatever it takes to stave one off. Get ready then for a weaker Euro and that count of the broad money base to push even higher from thirteen trillion.




Discussion and Analysis by Charles Porter

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Morning Brief – There’s no business like shoe business

There’s no business like shoe business


Reassuring to learn that even the Sage of Omaha, Warren Buffett occasionally( very occasionally) gets it wrong. Back in 1993: he paid $433 million for a shoe company named Dexter Shoes. Quickly he realised that he had bought a dud as its shoe product was being undercut by cheap foreign imports. By then he had issued shares in Berkshire Hathaway to cover the purchase. 1.6% of the shares. Today those shares would be worth $8.7 Billion! And Dexter? Went into liquidation with BH losing everything. Now THAT’s an expensive shoe purchase!


Viva Las Vegas


Meaning the meadows in Spanish, Las Vegas had a population of 8,000 in 1940 and was best known as a major railroad junction. Following successively nuclear testing in the nearby desert in Nye County and then the establishment of Las Vegas as an entertainment centre, the population has grown to 700,000 today but dormitory towns have sprung up nearby and now the greater Las Vegas area has over 2 million inhabitants. More than 40 million visitors travel to Las Vegas each year. That has placed an intolerable strain on the water supply and multi billion dollar investments are being made in pipelines to pump water into the city with demand having increased by 1.2 billion gallons per year over the past 5 years.


Davos and #FridaysforFuture.


Expect some lively days ahead. Following Greta Thunberg leading 10,000 demonstrators in Lausanne on Friday and launching the FridaysforFuture movement, she is now in Davos. On the way there she was quoted as saying: “It is time to abolish billionaires; we cannot afford billionaires.” For the 119 billionaires jetting in to to the Swiss talkfest, this is not the kind of talk that they appreciate- normally it’s more a case of “Your black Amex will do nicely!” Some of those billionaire attendees from Russia and India which are the most numerous after the USA and China have made their money the hard way and or by using tough tactics, so do not expect them to roll over for Greta on that one!

N.B. #FridaysforFuture is a call to students to not attend school on Fridays. SGM-FX’s wannabe climate activist, Euan has queried whether we recognise this movement and will allow him to show solidarity with the students on Friday’s. SGM-FX is of course an equal opportunity employer, but ……..just not that equal, Euan!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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