UK buildings

Morning Brief – UK House Sellers

UK House Sellers


For those readers who remember the 1980’s, you will recall that the most loathed symbol of Young Urban Professionals or Yuppies was the estate agent who zipped around in a flash (red) company motor with a mobile phone the size of a brick clamped to his ear. With the advent of the internet and improvements in technology, to no-one’s surprise the chains of estate agents have shrunk, the flash motor has been either binned or replaced with a Smartcar and the phone has also become smart and smaller….a lot smaller. Instinctively one would have expected online property sales companies to have done commensurately better. Worth checking Purplebricks, the largest of the online companies: since 2015 sales have rocketed from GBP3.4M to GBP136M in 2018. Unfortunately profitability or rather losses have followed the same trajectory: Loss of GBP 5.4M in 2015 to loss of GBP51.8M in 2018. Needless to say the shares have followed suit: down 80% over the same period. Something wrong with the business model?



50% Off+ Premium Cabin Discounts+ Business Class Airfares+ Spending Money=?


Just some of the incentives on offer from the global Cruise business that is reeling from the understandable reluctance of its target customers to risk a cruise during this peak season for the industry. Many of our clients escape the cold northern hemisphere and normally take a few weeks to discover new places and enjoy warm weather at this time of year. Not in 2020 which is shaping up to be a watershed year for the whole cruise business model and will have a knock on effect on ports all over the world and associated support businesses. So what businesses will benefit? The answer is Staycations: book Cornwall -now!



Education: Largest School in the World


That title belongs to The City Montessori School in Lucknow, India founded in 1959, with 1000 classrooms and wait for it…..55,547 pupils from age 3 to 18. Gupta, are you here?! Must take a bit of time to complete the attendance register!



When I was Four, I told my mother I wanted to be a rock star when I grew up. She said, “You can’t do both.”


This from Steven Tyler lead singer of rock band Aerosmith who together with bandmate guitarist Joe Perry were known as the Toxic Twins due to their drug excesses in the 1970’s. Now clean for over 20 years apart from Joe having a brief lapse with a “foot problem” which necessitated a return to rehab in 2008, Aerosmith are the most successful US hard rock band ever and have sold over 150 Million albums worldwide. 71 year old Tyler is worth over $130 Million and the band is on a semi-permanent farewell tour having landed in Las Vegas where they have a residency until mid 2020.

Catch’em if you can!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Cool, but how?

Cool, but how?


If you want the simplest of summaries to yesterday’s budget speech in South Africa then read no further than the title. Tito Mboweni mostly said the right things as he laid the budget before the nation yesterday. The one thing he missed out was how!? What the review promised was more parsimonious compensation for government workers. We learned how much the Treasury expected to save and therefore the support it would provide to efforts of fiscal sustainability. What was missing is how they’re going to achieve such cuts, limiting the positive impact the announcement had on the Rand yesterday.


As with any budget review the Minister opened by painting the scene. With broad strokes the image that emerged wasn’t pretty. The biggest deficit in 28 years was the conclusion. Not a good start!


A deficit of 6.8% is forecast for 2021 facilitated by shrinking economic output (GDP) meaning that any shortfall in spending is exaggerated in percentage terms versus the size of the economy. The 2021 forecast deficit is the largest hole in South Africa’s coffers since 1982/3 when the figure soared to 7.2%. European readers living under the harsh constraints of the ECB’s six-pack of fiscal rules legally limiting their budget deficits to 3% upon threat of Billions of Euro’s of fines must be surprised at South Africa’s forecast.


Kicking off with such dire news the Minister was on the back foot to placate markets who were chomping at the bit to sell the South African currency. And so the Treasury delivered:


To contain the budget deficit and move towards debt stabilization, the 2020 budget proposes a significant reduction in government expenditure growth, mainly as a result of lower growth in the public-service wage bill.


The long and short of it is nominal spending is forecast to be down 2.7% for this year and 3.3% for two years after that. The big question: will that outweigh the burden placed on the nation by the debt of Eskom. The big answer: NO! And the Rand’s price action yesterday reflected a discount in domestic assets still representing the headache that the state owned utility creates. With fear around the Coronavirus intensifying, Rand trading was overwhelmed in the latter half of Wednesday’s session by a broader emerging market sell-off. Whilst the pattern emerging in the global infection rate is motivating risk decisions, Trump’s admonitions regarding infection on the continent of North America jolted markets. The President offered an hour long press conference yesterday afternoon on the subject, appointing Vice President Mike Pence as the man in command of coordination.


Markets will now turn their focus to Moody’s for any indication on the path of South Africa’s sovereign debt rating. The rating decision will arrive in one months’ time and global risk factors as well as details on the implementation of Tito Mboweni’s cost-cutting plan will be pivotal to predicting the Rand’s movements.




Discussion and Analysis by Charles Porter

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Morning Brief – Shrove Tuesday yesterday which means today is Ash Wednesday and the start of Lent

Shrove Tuesday yesterday which means today is Ash Wednesday and the start of Lent


For the next 40 days until Easter Sunday, many will be observing some form of abstinence regime out of either religious or another conviction. Some SGM-FX team members are vying with each other to give up something: Charles(smoking) Euan(alcohol) and James(gym). January proved too much for James and his chest expander, and yesterday’s news that a 62 year old ex US Marine broke the world record for holding the plank position (8 hours 15 Minutes and 15 Seconds if that kind of stat floats your boat) persuaded James that he would do better taking up another form of physical exercise during Lent. Give that man a Peleton exercise bike- at least he can watch Bloomberg TV!



The Mali Empire and the Americas


The Mali Empire may not be as familiar to readers as other better known empires and dynasties such as Phoenician, Roman, Egyptian, Mayan, Inca, Aztec, Mongol and Khmer but between 1235 and 1670 the Malia Empire grew to be fabulously rich, the pre-eminent power in Western Africa with 1 million subjects and spanned at its height more than 1.3 Million square kms. It produced more than half of the total gold in the Old World ie the pre Americas world. What is even less well known is that Abubakari ll who ascended to the throne in 1310 may well have sailed to the Americas in 1311 more than 180 years before Christopher Columbus. So what’s the proof that the Mali King made it to the Americas? Well, quite a bit: the presence of the African plant, the bottle gourd in South America, the composition of spearheads using Malian gold, linguistic traces of the Mandinka language and the fact that Columbus is on record that he saw black traders working in the Americas when he landed in 1492. If only Mali had held on to their early claim…Missing out on claiming the Americas must go down as the greatest oversight in the history of the world…!



Offshore Windfarms: What does USD 1.3 Billion get you?


The answer is the single largest offshore windfarm in the world covering 145 sq kms or 56 sq miles and the same size as 20,000 football pitches. And…’s just off the coast of the UK in the Irish Sea which means that its 189 turbines which are 190 metres in height create enough renewable energy to power 590,000 homes a year. Except in ultra windy 2020 when with the current prevailing storms and strong winds, it is shaping up to be an even bigger power contributor!



Johnny Cash 1932-2003-The Man in Black


Today would have been Johnny Cash’s 88th birthday had he not checked out early and tragically due to a fatal combination of Diabetes, Pneumonia and the neuro-degenerative disease Shy-Drager Syndrome. His 1000 song catalogue is rich and varied with so much good stuff since he espoused multiple different causes including prisoner rehabilitation and That of the Native Americans each of which left its mark on his song writing. Here are a few lines of one of his greatest songs: From Sea to Shining Sea. (Okefenokee is at the top of the pan handle in Georgia near Jacksonville and apart from being a truly huge swamp is considered to be one of the 7 Natural Wonders of Georgia.)


The beautiful spacious skies, the amber waves of grain
To the majestic purple mountains above the fruited plain
God did shed His grace from sea to shining sea on you and on me
From Sleepy Hollow mountain country to the swamps of Okefenokee




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Decoupling



Over the weekend (apparently), we learnt who the king and queen of Winter love island ‘19/‘20 would be. I can only tell you their names by googling it. So I won’t pretend to be a fountain of knowledge on the subject and allow you to make your own searches. One thing I can say is that a lot of these couples made and tested on the ITV hit show and others fail the test of time and decouple pretty fast. With the champions now proud collectors of their £50k prize money and soon to sign their Instagram product placement contracts, ‘tis the season to decouple!


As with most things, the currency market beat them to it. Severe economic and market conditions cause exaggerated movements. Those surviving with the trend tend to be struck from their supposed peers and find their own price path. Some of these are low profile like the de-grouping of South American currencies from their regional or emerging market trend. Others attract more capital and therefore more publicity. I would contend that the biggest decoupling of 2020 so far has been the price of Gold from the value of the Japanese Yen.


As I’ve written about before, the Japanese Yen is a classic safehaven and for a long time has been desired during times of trouble given its track record of relative fiscal profligacy and monetary consistency. As the price and traded volumes of Gold have hit 7-year and all-time records respectively, the value of the Yen has gone the other way, losing as much as 4 Yen versus the US Dollar this year alone. Maybe the Coronavirus is just too close to home for the Yen to be a safe haven? Well I would contend that’s not true: even during the China-US trade conflicts, the heavily exposed Japananese Yen outperformed on haven demand. Instead, the real risk is that Japan, the world’s third largest economy, is staring down the barrel of recession. While the Yen has struggled, other safehavens have pinched a defensive bid and those include the Dollar, Gold and the Swiss Franc, which reached 5-year highs versus its neighbour, the Euro.


As the decoupling stretched further yesterday the global stock market, the sum of the whole world’s publicly listed companies lost a trillion Dollars. A trillion! Beat that Paige and Finn. Ha! Yes, I succumbed to the temptation to google it… Anyway, yesterday’s sell off all stemmed from weekend headlines that the Coronavirus has reached Europe (and Africa) and from WHO admonitions that we could end up with a pandemic. Italy is now the Petri dish for Western capacities to control the Coronavirus – for markets thankfully the outbreak is in Northern Italy which boasts superior medical infrastructure. The Japanese Yen will continue to underperform as a safehaven so long as its economy is under threat. The very characteristics that make the Yen such a haven are threatened by recession and the Coronavirus because, as we’ve already seen from the central bank, monetary and fiscal expansion start to become necessary.




Discussion and Analysis by Charles Porter

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Morning Brief – The Furious One

The Furious One


Hats off to Tyson Fury for his epic victory on Saturday night. Quite a record this 206cm 115 kilo fighter has: 31 fights, 30 wins, 21 KOs. Sgm-FX’s (almost as) tall body builder and keep fit enthusiast Euan was up into the small hours cheering him on!



Blue Is The Colour


Or at least from March it will be once more for UK passport holders. Having lashed out GBP150 for a new 10 year red passport in January as mine was soon to expire, it is a relief  to receive confirmation that I will be able to use it until 2030. Eagle eyed wannabe Scots separatists will note that the motif on the back of the new passports depicts what we understand today to be the UK ie England, Wales, Scotland and Northern Ireland. By the time I come to renew my passport once again, there may well be a bridge between Scotland and Northern Ireland. The most likely route between Portpatrick and Larne is 21 miles which would cost an estimated GBP15 Billion.



Top English Football Clubs with the highest percentage of European players?


The line-up in order: Wolves, Arsenal, Chelsea, Man City and Norwich City ranging from 75% to 50%. So Club Managers are watching the unfolding debate about immigration and skills post Brexit with more than passing(Boom!) interest….

On your head, Francois/Franck/Fernando!



Isabel Allende


For those of you unfamiliar with her work, this Chilean writer’s work contains aspects of what is known as magical realism-no I have no idea either. One of her more opaque thoughts is on the subject of erotica:

Erotica is using a feather, pornography is using the whole chicken.

Just maybe that is that while her work is very well known, her Delphic utterances are less so, unless you are a reader of Spanish literature where she rejoices in the title of the most widely read Spanish language author in the world!

Chilean Peso weaker but unruffled at 807 to USD 1. Caramba!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Airlines



Unsurprisingly Qantas and Air France-KLM both issued announcements of their profitability taking a pounding (no pun) yesterday. Airline management would, in their own minds at least, be considered derelict in their duties, if they did not take the opportunity to blame a lack of profitability on Coronavirus. However, it is worth injecting some cynicism about these statements as surely those same airlines are benefitting at the same time from significantly lower Jet Fuel prices than a year ago which are now down 18% ? It’s just like Brexit last year: any conceivable business setback in the UK was immediately blamed on the impending Brexit, with lots of furrowed brows and sucking of teeth. Time to buckle up, airline management! Unless of course you are CEO of the most profitable airline in the world Delta with $5.2 Billion profits.



The Swiss go Dutch


Banking giant UBS has at last announced the successor as CEO to Sergio Ermotti:  fresh from leading the Netherlands’ banking and insurance giant, ING, Ralph Hamers has been named as the new UBS boss. The Board obviously concluded that the recent ING money laundering scandals which took place under his watch were less important than his private banking credentials-private banking accounts for almost 60% of UBS profitability.



Shrove Tuesday-Italian style


For most people Tuesday next week means tossing a pancake, but for citizens and visitors to Ivrea in the 3 days leading up to Shrove Tuesday it means a battle between two opposing groups using oranges as ammunition. It all goes back to medieval times when Ivrea was ruled over by a wicked Duke whose perks included the right( in his mind at least) to sleep with young Ivrea brides on their wedding night. After a few years of this, a miller’s daughter named Violetta cut off the Duke’s head and the townspeople then burned down the Duke’s castle. The annual battle represents a struggle between the supporters of the Duke and those of Violetta slugging it out. So if you fancy some licensed mayhem, jump on a plane to Turin at the weekend and in under an hour from the airport, you could be chucking oranges!



In this world of political correctness: A View from Tiger Woods:


Hockey is a sport for white men. Basketball is a sport for black men. Golf is a sport for white men dressed like black pimps.

Despite stereotyping and being both racist and sexist as well as questionable in these days of not being able to say not very much at all, Tiger got away with it!


Nice weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Cushty



There have been times since he took over the FED presidency from Janet Yellen that Jay Powell’s job looked unenviable. October last year, for example, when the chairman had to calm a liquidity drought using severe repo operations, must’ve been a particularly stressful time for Mr Powell. The minutes released from the FOMC’s latest meeting, the document detailing the conversation that took place during the rate-setting body’s January sit-down, showed relative calm. The Committee saw lower systemic risk in markets as a result of trade which was a classic scape goat for economic vulnerability last year. The monetary authority’s mention of the Coronavirus (the first mention so far) was limited suggesting their position is that the virus does not carry similar risks to global trades as does White House foreign policy. Mind you, these minutes are from January’s meeting and the escalation in infections and subsequent deaths since this meeting could leave a surprise in their next minutes.


Sovereign yield in the States versus Germany is over 2% per annum. This differential has given impetus for the carry trade and bearish sentiment underpinning EURUSD. The business as usual message from the Federal Reserve last night has done nothing to upset that dynamic and could even be seen to strengthen the Dollar further as confidence around US yield supremacy was bolstered. There were no major shifts last night given the news was confirmatory not revolutionary but the support was just enough to push the Dollar index to its highest level since May 2017.


Futures markets priced in little change on the back of the minutes and still saw a 10% chance of a cut in interest rates at the March meeting and a 45% chance of a cut by the end of June. Upside risks to the index that would usher in further Dollar strength come from these expectations being priced out further and a data-led shift to hiking expectations within the Fed. But the Dollar buyers and Euro sellers might have one thing on their side that could present credible downside risks to the Dollar. Unfortunately, it might come in the form of a rather unpredictable individual with floppy hair.


It’s been a while since @realDonaldTrump attacked the Federal Reserve’s policy for the export-killing Dollar strength that it has created. Last time the President weighed into the currency market the reaction was limited. However, history does tell us that the Treasury can intervene in the FX market. Severe policy actions under the administrations of Clinton, H. W. Bush, Reagan, Carter and Ford saw billions of USD purchased per day by the Treasury in the market. Typically these have been interventions to prop up the Dollar but there have been similar episodes of strong Dollar selling to weaken an over stimulated greenback. It’s a long shot and following the worst start to EURUSD since 2015 and the put-to-call price being most in favour of the Dollar since September last year, the bearish EURUSD episode might not be over just yet.




Discussion and Analysis by Charles Porter

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Morning Brief – Prada



Fashionistas keenly anticipating the Prada Resort Japan fashion show on 21 May are set for disappointment. While Japan remains a key market for Prada the Milan based company has postponed the show due to the Coronavirus outbreak. Watch out for news of concerns regarding the potential impact on the mega Japan event for 2020 with the Olympics due to kick off on July 24th. With the amount of planning and spend, Japan will be crossing pretty much everything really and hoping that the virus is a distant memory by then.





Yesterday the Euro went to a level not seen since April 2017 against the USD after the German ZEW Research survey showed a sharp drop in investor confidence on top of the pessimism pervading the German economy. So far this year the EUR has fallen almost 3.5% against the USD. Expectations are that with likely lower interest rates and soft Eurozone economic data the EURO will get weaker. On top of that the safe haven currencies of USD, CHF and YEN are all benefitting from the ongoing Coronavirus fallout.



As reliable as a Swiss Watch


As the saying goes. The thing is that that expensive piece of wrist bling that you are sporting which reflects success and wealth is less reliable and less accurate than a smart watch. Bad news for Swiss watch makers is that the 21 million watches sold in total by the whole Swiss watch industry last year has been eclipsed by the 31 million sold by Apple. Still, those Swiss are consoling themselves with the fact that their lower sales account for $21Billion of revenue whereas Apple only notched up $11Billion. Apple managed to increase sales by 31% last year, so at that rate of progress Apple will be bigger than the 152 year old Swiss watch industry by 2023 in both numbers of watches sold and revenues. Just to compound things, millennials and other hip watch buyers are eyeing up other smart watch offerings from Google and health monitoring devices such as Fitbit as alternatives to more traditional wrist wear. SGM-FX’s in house traditionalist, Graham is scornful of this trend and has his eagle eye on a Rolex:

“It doesn’t just tell time, it tells history.”….. If only it could tell him where EUR/USD was going!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Continental chaos

Continental chaos


This morning I bring you a story from Europe that should show you just how vulnerable the financial world has become and therefore just how unstable it could prove to be during in the coming year. It comes in the form of fixed income products in Europe that, let’s not forget, have an important impact upon the foreign exchange market.


What do you do when harbouring money in the German government for 10 years costs you more than 40 basis points? You quite rightly look for alternatives and, if they exist, you’ll make a rational decision to buy the alternative instead of the costly Bund. It’s not rocket science – if your favourite brand of shampoo let’s say becomes 10 or 20 times more expensive than its substitutes you’ll strongly consider switching. Trading and investment decisions are no different. The problem comes when the alternative shampoo you’ve purchased in a bright shiny bottle brandished with more superlatives than Donald Trump’s speech writer is actually full of poison. When everyone who used to love the same shampoo you used jumps ship to the new one the behaviour of the herd will mean that we all soon forget what lies within.


Queue Italy and Greece, two protagonists of the European Sovereign Debt crisis in 2010-2014. Loaning to the aforementioned governments was seen as one of the fastest ways to lose your money during this crisis. Expectations of default and economic fundamentals convinced investors that European fixed income products, in particular those of Italy and Greece would never be repaid. They were, ultimately, wrong in their conclusions.


The speech of Mario Draghi promising to do whatever it takes restored some order to the market with Greek debt coming down from its perch above 30% yield. Where investors weren’t mistaken was in their appraisal of the debt. Crucially, the structural problems that created this bondmageddon haven’t changed. The reason bonds rallied so far in the run up to this crisis was because investors believed that whatever they purchased was basically German debt with a different name on it. Why not, right? They’re in a monetary union with each other of course they’ll bail each other out. Wrong! The lack of risk sharing and fiscal Union meant that Germany, as it always promised would be the case, did not come to the guarantee of the Greeks and Italians when investors decided to close their purse strings.


So surely to get back down to the perilously low yields before this crisis something must’ve changed. Surely Eurozone states share risk better now and there is a guarantee to these bonds. Wrong! We had Draghi, we now have Lagarde that built up biblically large balance sheets at their central bank to sure up Eurozone debt and the wider economy but private markets still aren’t willing to take up the risk the central bank has racked up. The very actions undertaken by the European Central Bank are still facing legal action in German courts with no decision forthcoming for almost a decade. Even more concerning than that is the bonds themselves are running out!


Take Italy for example: last week it auctioned off €9bn 16-year duration debt. For this auction it received a record €50bn worth of bids. The yield on debt of this duration is below 1%, down from about 3% at the beginning of last year, baffling levels versus the +35% yield in 2012. When this event unfolded and peaked in 2012 the Euro sold off as far as 1.40 versus the US Dollar and peaked at 1.40 also versus the Pound a few years later. If the bubble dissipates which I’m sure it will eventually, the risk surrounding Eurozone assets including the Euro will be severe and cause a flight to real safety – queue safehaven demand including the US Dollar.




Discussion and Analysis by Charles Porter

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Morning Brief – Okayama and the Hadaka Matsuri

Okayama and the Hadaka Matsuri


This weekend saw the Annual Naked Festival or Hadaka Matsuri in Okayama, Japan’s Honshu Island when 10,000 male participants braved the cold weather clad only in loincloths- fundoshi and white socks-tabi. First they run around semi naked and then around 10pm on Saturday night priests threw bundles of twigs and two sticks into the crowd. This event has been going on every 3 years for the past 500 years and it is a celebration of a bountiful harvest, prosperity and fertility. The twigs and sticks having been fought over and when the victors emerged from the scrap bloody, bruised but victorious they know that they are guaranteed a good year. The Japanese Yen remained steady on these shenanigans!



Health and Safety Nut(ter)s


Have you ever been on a plane when there is an announcement that due to there being one passenger with a nut allergy, not only will there be no nuts served but if you happen to have a cache of nuts, you are requested not to open and eat them? Cards on the table: I am more interested in the drinks trolley, so nuts are of little interest.


When on a plane last week, the nut announcement was made in hushed tones. Everyone tried to look brave at the prospect of 2 hrs in a nut free environment. It transpired that I was sitting directly in front of the nut allergist; it also transpired that he was not an infant nor a child but a 40+ American who not content with depriving us all of our nuts, went on to interrogate the crew as to whether any part of the pre-packed meal could have been handled by anyone also charged with nut packing duties. Pure Monty Python!


Surely nut allergists could/should be given a £10 discount on the fare to bring their own food? Or…..alternatively struggle by for the rather short duration by not leaving themselves open to uncontrollable nut temptation and just not eat?!



It’s not over until the fat lady sings….


As they say about opera. On Friday night it could not come soon enough for the generously proportioned diva to breathe her last. Richard Strauss may have been and achieved many things but his opera Ariadne Auf Naxos did not do it for me. Could it have been the music, the interminable German libretto, or what passed for the plot or maybe the fact that being in Poland the subtitles were in Polish…?! Whatever, the very best Kraków restaurant which is named Farina more than made up for it, and the previous 3 hours were eradicated as a Cosmopolitan cocktail was swiftly poured and served. While there was no chance she was going to get into my heart, the lyrics from the Herman’s Hermits 1966 hit, A Must to Avoid came to my mind as I thought about Ariadne …


She’s a must to avoid
A complete impossibility
She’s a must to avoid
Better take it from me


You’ll think she’s a prize at the start (Prize at the start)
But take my advice, play it smart (Just play it smart)
She’s nothin’ but trouble
Better cut out on the double
Before she gets into your heart




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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