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Morning Brief – Cat’s eyes

Cat’s eyes


A useful perspective or model to employ for evaluating where the Pound is headed is by looking at where it is within its tight post-Brexit trading range. We produced a visual analysis previously that showed how Sterling was right at the top of that traded range on a trade-weighted basis and therefore, in the absence of credible progress in Brexit negotiations, it would be vulnerable to a correction lower. As you will have seen, that correction was delivered – and then some. The Pound actually broke out of the lower end of its range. However, given the turmoil in which markets facilitated this move it can’t be considered the death of the post-Brexit range and instead a blip.


The interesting point to be made from this perspective is that the Pound is exactly in line with its mean valuation post-Brexit. What I mean by that is the value of the Pound today on average versus every other currency is identical to the average level that it has been at every day since 24th June 2016, the day after the Brexit referendum. We are right in the middle of the road. So what does this mean for the Pound? Well, we know that the Pound is going to want to break out from that middle ground to bury itself within the upper or lower half of that range as the Sterling bulls and bears vie for position. Much like driving in the middle of the road, the path should be bumpy as the tyres run over the cat’s eyes and Sterling moves to avoid short term obstacles. Increased volatility is one again the order of the month therefore. However, the global liquidity glut created by central banks at every corner of the globe will go some way to limit the severity of this volatility.


The first of such obstacles will be presented today by U.K. Foreign Secretary Dominic Raab. As the first secretary of state standing in whilst Prime Minister Johnson recovers, he will be responsible for presenting the lockdown verdict to the nation. Today’s announcement comes as the death toll stands at 12,868 and limited but tangible evidence that the daily death toll is credibly plateauing. The UK chief medical officer gave two interesting insights into the potential decision to be delivered today. Firstly, Chris Whitty mentioned that we are “probably reaching the peak overall” – a hedged but decisive remark that progress is being made despite a lack of complete clarity. Secondly, the chief medical officer gave his remarks on the all-important rate of infection, the r0. He said, “it’s between about 0.5 and 1”. Another crucial statement that confirms the UK infection is receding but once again fraught with hedging language. Crucially the officer suggested we will be able to judge the spread of this infection rate much more accurately, and therefore judge when to emerge from the lockdown, “over the next 10 or so days”. Another important statement, another blatant hedge!


From this information we should expect an extension of at least 10 days and, under more protective circumstances, a lockdown extension into May. The duration of any extension is important as the decision is the result of a battle between viral protection, long-term mental and physical health and the economy. The shorter the lockdown period the less damage is done to the economy, the quicker the burden on the UK treasury disappears and the less our long term debt pile balloons out of control. We have already seen evidence of the foreign exchange market pricing value into currencies that emerge from lockdown and demonstrate credible normalisation in their societies and economies. Aside from the absolute date of the extension it will be crucial that Raab provides a credible strategy to emerge from the crisis to support record low confidence within business. The more clarity is given about how we emerge as well as when we emerge, the more likely it is that businesses remain open, staff remain working and the economy stays as close to normal as possible.




Discussion and Analysis by Charles Porter

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Morning Brief – Unintended Consequence?

Unintended Consequence?


Off-shoring has been  the name of the game for Western companies seeking opportunities to shave costs by relocating jobs that could be shifted and filled by the large and less expensive workforce available in India, Sri Lanka and other Asian countries. Insurance call centres, banking payment centres, IT coding and many other services have been transferred over the past 20 years. Readers may have noticed that if they have tried to contact some of those types of services in the past few weeks, that it has been less than easy to do so. With President Modi having announced the extension of the Indian shutdown for India’s 1.3 Billion population until May 3, do not expect it to get better any time soon.
When the dust settles, do not be surprised to see large companies coming out with statements such as “ Lessons learnt from the crisis have led us to examine our outsourcing arrangements.”
So while non working disaster recovery plans are hurriedly rewritten, some of those many newly unemployed in home countries can be redeployed and be usefully re-employed doing jobs that were offshored years ago and should now once again be on-shored and brought…home!



No tourism- the cost to Thailand


If, and lets hope it is an if, the Covid-19 crisis does not extend beyond 30-06-20, the Thai economy will suffer a cost of almost USD 40 Billion due to the loss of tourist earnings.While this is mitigated in part by the Thai government’s planned subsidy to the tourist industry, it does go to show what an immense proportion of the largest economy in South East Asia is made up by tourism. So as we all mentally shift our travel plans from Phuket to Penzance in 2020, in theory the Great British tourist industry should be the beneficiary…in part at least.



Ritchie Blackmore


Nice to see the guitarist and songwriter and of course one of the founders of Deep Purple turning 75 yesterday. When I saw him and the band on the shore of Lake Geneva in Switzerland in 1972, his self avowed mission was to play as fast and as loud as possible. His many fans are probably unaware that Ritchie speaks fluent German(he was married to not one but two German ladies-but not simultaneously) and while he now lives in America with his third American wife, he watches German TV on satellite- that is when he is not listening to his huge collection of Renaissance classical music. Inducted into the US Rock and Roll Hall of Fame in 2016, he was however still rock and roll enough not to turn up to collect his award.


Here is part of one of his great songs that he played that night in 1972:

Smoke on the Water


We all came out to Montreux
On the Lake Geneva shoreline
To make records with a mobile
We didn’t have much time
Frank Zappa and the Mothers
Were at the best place around
But some stupid with a flare gun
Burned the place to the ground
Smoke on the water, fire in the sky
Smoke on the water




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Emerging Nightmare

Emerging Nightmare


The currencies of those nations earlier in their cycle of economic development are always the most vulnerable during a crisis. With thinner capital markets, a reliance upon the exportation of primary or secondary materials and raw commodities, they are highly sensitive to global downturn. Accordingly, their currencies are always the first to be hit by speculative flows when the footing that the global economy stands upon appears to crack. We have now passed the immediate speculative selling phase and foreign exchange flows are increasingly reflective of real money exchanges and sentiment, albeit distorted by the defensive actions of respective central banks and governments.


Since the beginning of the year, measured against the US Dollar, the Turkish Lira has lost approximately 15%; the South African Rand 40% at its peak; the Brazilian Real 34%; and the Mexican Peso as much as 37% to name but a few. Whilst the devaluation in each currency’s value will create its own corrective momentum making the exports of each nation cheaper to a degree corresponding to the size of its fall, in a global economy that isn’t buying it’s little consolation. More importantly, falls of this degree in the value of a nation’s currency perturb investors from lending much needed cash to domestic governments. So how long can this last and can it recover?


Fortunately for Emerging Market (EM) currencies we do not live in a Hobbesian state of nature, international institutions are brokering deals or offering direct support to limit both the social and economic impact of the coronavirus. The G20 for example, has been brokering a deal for a moratorium on foreign debt repayments. By temporarily suspending the requirement to repay and finance loans frequently issued in a foreign currency, poorer nations will be able to reallocate capital and simultaneously protect their foreign currency reserves. The call to pursue such a plan came from the IMF and World Bank last month who themselves have created significant budgets available for emerging market borrowing. You can lead a horse to water but you can’t make it drink, however. As Argentina is lining up for its 9th sovereign debt default, Turkey is rejecting IMF support and going it alone to curb speculative selling of its Lira. Nonetheless, the backstops in place mean that it is unlikely an entire nation goes bankrupt causing irrevocable damage to the state and its currency. Emerging market currencies can therefore recover.


Since the Coronavirus outbreak we have seen the biggest drawdown in FX reserves in Emerging Market economies since the 2008 financial crisis. 134 billion Dollars’ worth of FX reserve have been drawn down in major EM economies last month alone. This has not only created downward pressure on EM currencies but also destabilised the finances of EM economies. Federal Reserve Swap lines that have assisted other developed nations by providing US Dollar liquidity are not typically available to such EM nations and they must preserve these holdings. In order to stem outflows from EM currencies as a whole the instability of the global economic outlook or the threat of coronavirus must appear to reside.


This Friday China will release its First-quarter Gross Domestic Product estimate. The reading is one of the first ‘hard’ data releases showing exactly what happened to the economy during the first three months of the crisis. Estimates suggest a sizeable contraction in the Chinese economy from January 2020 through March. UBS has estimated a figure as large as 10% given its view that as many as 80 million people are now unemployed. The deeper the observed contraction the less likely it is that the V-shaped recovery that China itself has touted will unfold. This data release and equivalent releases across the globe this week and next will be critical in understanding how much economic damage is physically being done and thereby inform us how long this crisis can last.




Discussion and Analysis by Charles Porter

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Morning Brief – OPEC+



Yesterday evening in a high stakes negotiation ahead of the markets opening in Asia, the protagonists met to try and agree the largest cut in production ever-10%. The issue apart from the tumbling price of oil now at $22.76 in NYC on Thursday evening is as highlighted here previously storage: quite simply capacity has been exhausted. Watch this space for further news.



Pou Chen Corp


Many of you will not have heard of this Vietnamese company, but it is the largest manufacturer of branded athletic running wear making equipment for Nike, Adidas and New Balance among others. Located in Pouyen, Vietnam and employing 70,000 workers working 3 shifts a day, it is shortly to be closed for an indeterminate period due to fears of infection being spread by so many workers in such close proximity. So far the Covid19 virus has been well contained in Vietnam and Hanoi is not taking chances. One thing for sure is that the super industrious Vietnamese will not suspend operations for a moment longer than is necessary. The Vietnamese Dong having traded at 23000 + versus USD for the past year has fallen in line with other emerging market currencies in the past month and Vietnam’s role as one of the world’s manufacturing and therefore exporting nations will be damaged by any prolonged suspension.



Sir Stirling Moss RIP


Hailed as one of the all time greats in what is still a young sport, motor racing legend Sir Stirling died over the weekend at the age of 90. Despite having never won the F1 championship, he was one of the best known and best loved drivers throughout his life. My only (extremely remote) connection with him was as a very young child I was standing on the seat of my father’s car( a silver Triumph Renown) in Folkestone holding the steering wheel and pretending to drive while making accompanying engine noises. Two passing workmen stopped, looked through the open driver’s window and asked me:
“ So who do you think you are then, Stirling Moss?!”




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Vital Signs

Vital Signs


Whilst the global economy has been all but locked down government activity and stimulus packages have only accelerated. The scale of the unprecedented fiscal and economic responses will be important in gauging the path of global future growth. The relative value with which currencies will trade with each other will also be determined by the trade-off between a) how well did the responses allow them to weather the storm of coronavirus – how many lives and livelihoods were saved by these measures. And b) how much of a burden have these fiscal and monetary responses left the nation – after all this debt has to be paid back somehow. Keeping count of measures implemented thus far will therefore allow you not only to gauge how the foreign exchange market will react in the short term to new stimulus measures, but also how the next decade of overleverage will look.


First dubbed Chinese virus by the President of the United States, China, specifically the City of Wuhan, Hubei province, was the first epicentre of the disease. China’s response was largely monetary, affording banks looser conditions for lending. The People’s Bank of China (PBOC) also injected liquidity with (a measly) CNH 100bn injected into the system in mid-march. The PBOC has since stopped any further injections of liquidity. The hands off approach to allow the private banking sector to sort the stimulus problem should limit the financial burden on the Chinese economy in the long term and the lack of liquidity injection has played a central role in the West’s appetite for Chinese debt since the crisis erupted.


The PBOC was late to implement fiscal measures to support the economy as it did during the great recession of 2008. With a forward looking response towards normalisation and growth, the government has recently made available as much as 2.8 trillion yuan (USD 384bn) of local government bonds to invest in infrastructure. China’s response has been miniscule compared to its Western peers on both the monetary and the fiscal front and this may have impaired China’s ability to weather the storm leading to the disruption of livelihoods and China’s role in the global economy. It will however, mean that thus far China doesn’t emerge with a burden of debt similar to that it left the 2008 great recession with.


Europe was the next epicentre with Italy and Spain exhibiting the highest rates of exponential growth in the virus that had been recorded. The virus was reclassified as a pandemic and pan-European lock downs began. Central bank president Lagarde was off to a shaky start, scaring already skittish markets with her comments that it was not her job to control the spreads within European debt – something she rapidly backtracked on. The central bank, the ECB, initially committed to EUR 750bn in net asset purchases (QE). Given the lack of scope to lower rates from a deposit rate at historic lows (-0.5%) and a lending facility at 0.25%, it beefed up its emergency support arm, the European Stability Mechanism (ESM).


The Eurozone has yet to agree on the so-called Coronabond mutual debt proposal. European leaders meet again today, this time France holds the chair and will attempt to make progress on this collective monetary lifeline. The Netherlands remains staunchly opposed to the mutualisation of debt and even continues to oppose the use of the emergency ‘ESM’. The Eurozone response is undeniably larger than that of China and could saddle it with larger debt burdens in the future. National expenditures have also skyrocketed with the response in Germany alone in immediate virus support with a stability fund package of up to 750bn Euros (USD 815bn). Fiscal spending to encourage growth after the virus throughout 2020 is now well above EUR 100bn in Germany. The Eurozone will emerge with a large burden of debt and with lockdowns beginning to be relaxed across the Eurozone, it will be important to see whether this stimulus pays off.


The UK has pulled out all the stops with the government supporting the wages of individuals for the first time in history under the furlough scheme. On the monetary front the Bank of England (BoE) promised to buy GBP 200bn (USD 248bn) worth of new government and investment-grade corporate bonds to bring its holdings up to GBP 645bn. It also voted to cut the base rate to 0.1%, a record low. This morning markets have also learned that the BoE will now directly finance UK fiscal measures on its own, bypassing the bond market. Unprecedented policy responses will saddle the UK with a huge debt burden expected to be at least 7.5% of GDP for 2020. The composition of that spending including the direct financing of individuals’ wages could prove to allow consumer spending and investment to continue thus proving to weather the storm better than many other nations where unemployment is raging.


Cue the United States. Another set of jobless claims data today will confirm whether the destruction of US jobs is continuing. The US accounts for 402,000 of the 1.4 million confirmed coronavirus cases confirmed worldwide with more than 1,800 fatalities in a single day earlier this week. The US is the new epicentre for the disease and it has the stimulus packages to match. The Federal reserve has slashed rates, created global US Dollar swap lines and set up asset purchase plans to the tune of $700bn. Instead of directly financing citizens’ wages, the US has opted for a program of helicopter money – directly paying money to the population – in an attempt to sure up sending. The US has pledged $1,200 to the majority of US citizens and broadened fiscal spending measures to fund companies, unemployment and specific ailed and critical industries. This will be a far cry from normal income for those who have lost their jobs. With the US currently in the middle of the coronavirus storm, the impact of these policies has yet to be gauged but one thing is for sure: in absolute terms it will leave this crisis will the largest pile of national debt in the world.




Discussion and Analysis by Charles Porter

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Morning Brief – South Korea

South Korea


Known sometimes as “Delivery nation” and its citizens as “Delivery minjok” which means delivery race, even before Covid-19, the expectation is for everything to be available for delivery and often within hours. The delivery staff are often worked as hard if not harder than Amazon fulfilment centre workers- the difference being that often older buildings do not have lifts which makes the work more exhausting.
For all countries and not just in capital cities, the South Korean delivery expectation model will likely become the new normal everywhere following the now greater familiarity with home deliveries in the wake of Covid-19. South Korea’s best known delivery company is called Rocket Wow- all countries will have more Rocket Wows going forward.



Polish Zloty(PLN)


Policy makers in Warsaw are paying close attention to the recent Hungarian experience with the Forint (HUF) which has come under intense pressure in the past two weeks. As Poland launches its bond buying program in earnest those policy makers are taking care not to give the impression of an overly loose monetary policy but one sufficiently loose to protect the country’s businesses. The PLN is back to the same level of 4.22 versus the USD which was last seen in December 2016. For buyers of PLN this advantageous level apart from in December 2016 has not been seen for the past 20 years.



River Thames


For more than 2000 years the River Thames has transported London’s people, UK imported goods, products for export manufactured in the U.K. and been a key attraction for visitors to the U.K. capital given the views afforded of the architecture and sights from the multitude of pleasure steamers that normally go up and down the river.
Apart from infrequent tugs towing refuse and even more infrequent river police patrol boats, the Thames is today now as deserted as it’s ever been. Unless of course you count the 23 occasions between 1309 and 1814 when it froze over. The last time in 1814 which was the fifth such occasion that the ice was thick enough to hold a fair on it.
Here’s a tip: when normal service is resumed, those white and blue Thames Clippers that offer passenger services between Woolwich and Putney are set to get a whole lot busier as those who can, will choose to substitute travel to work by boat in place of the London Underground. Meanwhile William Wordsworth encapsulated it in this one of his most famous poems written in 1802:


Earth has not anything to show more fair:

Dull would he be of soul who could pass by

A sight so touching in its majesty:

This City now doth, like a garment, wear

The beauty of the morning; silent, bare,

Ships, towers, domes, theatres, and temples lie

Open unto the fields, and to the sky;

All bright and glittering in the smokeless air.

Never did sun more beautifully steep

In his first splendour, valley, rock, or hill;

Ne’er saw I, never felt, a calm so deep!

The river glideth at his own sweet will:

Dear God! the very houses seem asleep;

And all that mighty heart is lying still!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Care


Yesterday evening the United Kingdom learned that its Prime Minister, Boris Johnson, had been moved to the intensive care unit of St Thomas’ Hospital following a deterioration in his condition. We wish the Prime Minister a speedy and thorough recovery from the virus. Last night it was easy to see Twitter warriors condemning the words of their peers who perhaps shared a different political persuasion or were taking a more pragmatic approach to the PM’s hospitalisation and questioning “what happens under the worst-case scenario?”. This whole debate has come to the surface in recent weeks. The debate straddles the border between efficiency, or equitability, and morality.


Financial markets often develop a reputation for being callus during these times, reacting violently to a deteriorating image of the world (frequently one that they help to produce) and making the problem itself worse. For example, financial markets’ reaction last night was not to take to Twitter to wish Boris Johnson well or to #ClapForBoris – number two on the London Twitter trends this morning. Instead their immediate reaction was to slash valuations of the Pound. Is that right? To take aim at what can arguably be labelled as a nation’s asset as a result of the deteriorating health of its Prime Minister?


Well, yes, it is, frankly. For one the intention behind a value change in foreign exchange markets is not payback or an act of malice against the nation itself. Secondly, whether or not the devaluation might help or inhibit the whole, or certain groups, of that nation wouldn’t come into the initial equation. It merely has to be a pragmatic response to an evolving situation at home or abroad. A price move is the market adjusting to meet those seeking to sell the underlying asset with those looking to buy it. The price will adjust until the open interest of those respective pairs is balanced and the market can create an efficient exchange price between them.


That’s what happened yesterday evening. The deteriorating condition of the Prime Minister created an expectation that political uncertainty could rise in the UK in a worst-case scenario and many market participants removed their open interest to expose themselves to the UK. Do not forget, that the shift down in price will to some extent compensate other investors and creditors to the UK for the more uncertain political picture increasing the ability for the UK to raise cash. Despite the uncertain health of the Prime Minister, the weaker Sterling price will make UK assets relatively cheaper than they were yesterday making investment marginally more attractive from a price perspective.


We heard from Dominic Raab last night, the UK’s Secretary of State for Foreign Affairs. Mr Raab, who many of you will know as the former Brexit negotiator, is the defacto deputy Prime Minister of the UK and would assume the responsibilities of Mr Johnson in the event of his death. Mr Raab understandably appeared worried for his colleague, superior and friend as he spoke yesterday. After all, Johnson led the Conservative Party to an 80-seat majority late last year during the November general election and has a good command over his Party’s presence in the House of Commons. Despite generating concerning headlines at times he is a source of strength for the UK currency. There is also the enduring problem of Brexit and the government is still committed to a final break and hopeful deal by the 31st December 2020 deadline. In this context, a devaluation in the GB Pound seems fair given the evolving threat to those endeavours.


In the last month, ratings agencies have taken aim at those companies they previously held in good standing. We mentioned last week there were questions being raised as to whether a rating of South African debt as junk would be morally right given it will hamper the raising of credit and make the domestic fiscal crisis worse as the lockdown takes place. The conclusion by Moody’s given that it did downgrade was clearly, yes: it is right.


It’s not just been at Moody’s and within the South African debt review team. The volume of so-called fallen angel bonds – those once awarded an investment-grade rating but have since been downgraded to junk – has ballooned. In Q1’20 alone there has been a realisation of $149bn of such downgraded bonds, almost double that reached in the peak of the 2007/8 recession and this data is diluted by the relatively benign January and February months. The rise in fallen angel assets will make survival harder for these companies as they will find it difficult to borrow for short term spending needed to keep them afloat. But the downgrade is right, moral and efficient. Remember, that for every creditor there is a debtor – public, private, or hybrid it doesn’t matter. Whilst we may be quick to forget about the cash exposure on the other side of these deals and focus on the denial of emergency funding to our distressed and beloved companies, to arbitrarily delay a downgrade is to threaten the creditor which in turn would damage the system just as severely.


Elsewhere in the market this morning risk assets are on the rise. China has reported no new deaths for the first time since the outbreak gathered pace. Death rates in Italy and Spain show signs of plateauing and the death rate is falling across the UK. Signs of a retreating virus and with the focus shifting to how to sustainably emerge from the virus equities and emerging markets have appreciated over their developed market counterparts.




Discussion and Analysis by Charles Porter

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Morning Brief – Luckin Coffee

Luckin Coffee


We have written previously about this Nasdaq quoted Chinese wannabe rival to Starbucks. It all seems a bit passé now in present circumstances with all cafe chains shut for drink in business, but Luckin’s shares having stood at $50 in January they fell to less than $10 on Friday night. It’s a well worn path for those who have set overly ambitious budgets, but Luckin’s management appear to have followed it in Olympic style having created $310 million of fictitious sales for just the last 3 quarters in 2019.
Markets are not presently in the mood for forgiveness when it comes to the F&B sector but when it turns out that the share price has been predicated on sales which simply did not exist, analysts are not slow to get their red pencils out. Presumably to match their red faces…



Oil Price Volatility


Friday night saw WTI close at $28.34 on the prospect of Saudi Russian accord on supplies and pricing. They are due to sit down virtually at least on Thursday 9/4/20 but a spat over the weekend cast doubt on that. Oil has opened at $27.80 in Asia and the markets are still hoping that Saudi Arabia and Russia will meet but it is increasingly clear that the USA will be required to broker an OPEC + agreement. Russia has put out an announcement this morning saying that the two sides are very very close to agreeing so the domestic pressure there is clearly on the minds of negotiators that side of the table.



German Surge


Sadly not in the wider economy but most definitely in a niche German sector. Stung by our piece on the sudden March increase in the sales of sex toys in Canada, Germany has er risen to the challenge. Increases in the sales of sex toys according to Hamburg supplier Dildo King (yes really) were up 87% year on year. While in Bavaria there has been a 3000% increase in demand for fantasy nurse uniforms. We certainly don’t want to start any further panic buying, but demand for condoms is up 500% in Germany and Malaysian manufacturer Karex has warned that they are unable to fulfil demand. Karex incidentally makes 20% of all condoms globally. Here in the UK Ann Summers has seen a much more modest increase of 26% in sales yoy. Best seller is the Rabbit Whisper which is much in demand due to its “ near silent operation.” Presumably before any expressions of user satisfaction…..




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Market News

Market News


Oil firmer to $22 on the back of POTUS saying that he is expecting Russia and Saudi Arabia to reach agreement on both supplies and pricing soon. USD stronger. Equity markets remarkably stable on the back of horrible but expected US Unemployment figures with 6.65 million new claims. France is preparing a second stimulus package with the likely target to be the beleaguered French auto industry. GBP firm especially against ZAR, NZD and AUD.
Strong man Viktor Orban’s win to rule Hungary by decree has backfired spectacularly sparking huge sell offs in the Hungarian Forint-HUF and forcing VO to perform a U turn as the EU are taking a keen interest which could lead not only to a suspension of EU voting rights but more importantly the cutting of the multiple billions that Hungary receives from the EU budget.



Last business day of the UK Tax Year


Today marks the last business day for the UK tax year, so for those of you affected by that, you only have a few more hours to take actions on investments, dividend payments and other financial matters where you do at least know what the current tax regime holds for the consequences of your decisions. Starting next week all around the world economies will be embarking on voyages in new tax environments where both the quantum and the timeframe for the repayment of the ginormous economic stimuli are unknown. All that is known is that in some shape or form there will be payback. A more cheerful consequence of all this is that there are some bargains on offer in the wine world if you know where to look online and of course … can get it delivered!



Shenzhen: The first city in China


Surely some mistake, it’s Beijing you say? Not a bit of it Shenzhen came out yesterday with the reassuring news that it is indeed the first city in China to ban eating cats and dogs… USD v CNY at 7.10 unchanged but widespread relief in the companion pet world…in Shenzhen at least.



World Food Prices


This may come as a surprise to you as it did to us to learn that the United Nations Food Agency has declared that March saw one of the largest falls in global food prices. This was down to two factors: first to a drop in demand as everyone was staying at home and second the dramatic fall in oil prices due to the economic slowdown. The prices in UK supermarkets are not just anecdotally higher but it is a fact that Tesco withdrew many of its offers two weeks ago and Sainsbury’s soon followed suit. Waitrose just became (even) more expensive. So that means….with demand full or more than full and prices lower, supermarket shares are destined to vastly increase their profitability and consequently outperform.


Wishing you a healthy, happy and peaceful weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – One Step Forward…

One Step Forward…

As avid observers of financial markets we spend a lot of our waking hours keeping up to date with market sensitive news. It is an important pursuit to stay on top of markets and the source of that news can come from (virtually) anywhere. Over the last couple of years I’ve seen markets light up from headlines emanating everywhere from the London Evening Standard, through to the financial news source, Bloomberg. Whilst everyone is at home self-isolating and concerned by how coronavirus is progressing across the globe, news becomes of even greater importance to our society. With great power comes great responsibility. I recall when Robert Peston was brought before the House of Commons Treasury select committee for his role in precipitating the financial crisis by employing hyperbole and scaremongering.


In this important time I am extremely disappointed to see (sometimes) reputable news outlets publishing similarly unfounded or misleading analyses. I shan’t name names but on Sky News last night I witnessed a chart with possibly the most ridiculous choice of y-axis I have ever seen. My Physics teacher would not have been impressed had I produced such a graph! The graph had been deployed to demonstrate the potential number of infections if the exponential phase of virus spread continued seemingly indefinitely. Yes, a projection about as useful as a spork in a knife fight. If you were interested, Peston, journalist and presumed significant stakeholder in Combe Incorporated, is still at it. Mr Peston has now been brandishing admonitions that the coronavirus pandemic may be “on par with [the] economic crash”.


This morning’s daily brief is intended to serve as an explainer to counteract the global fake-news pandemic! The principle of infection and exponential growth is a simple one. If each person infected goes on to infect more than one other person then the virus growth will be positive and can appear exponential. It follows that if each person infected on average infects less than one other person the virus will be in decline and eventually be overcome. In health studies this measure called the reproduction number (otherwise known as R or R0) and it is important. With Covid-19 R0 was estimated to be around 2.2. To serve as a source of comparison, the R0 for the common flu for example is approximately 1.3). So, at an R0 of 2.2, for every one step forward we take in successfully treating an infected individual we can expect to have already taken two (in fact 2.2) steps back given the spread of the disease that has taken place in the lifecycle of this infection episode. This figure is consistent with a doubling in infected numbers every 3-to-4 days; a pattern that we have seen unfold in the United Kingdom over the past few weeks.


The London School of Hygiene and Tropical Medicine has modelled how it thinks the all-important reproduction rate has evolved since the UK has undertaken social distancing measures. This type of analysis I will concede is incumbered by the scarcity of relevant and timely data. Given the extent of the social distancing measures implemented by the government and the uptake and adherence to those rules it is projected that R0 in the United Kingdom is now 0.62. Given the scarcity of data there is a significant margin for error meaning that the real post-lockdown figure of R0 could be anywhere between 0.37 and 0.89. Wherever we are in that range we can still conclude that the virus is on the back foot already and is therefore receding. So instead of moving backwards in our combat of the virus for every step forward we now take we only take an estimated 0.62 steps backwards. As a nation we are therefore making positive progress towards our target of eliminating the coronavirus. This analysis, apparently not seen by the news agency that will not be named, means that the exponential phase of virus growth cannot be considered endless; the SKY is not the limit for infection.


Following a tumultuous two weeks in Sterling markets, the Pound looks remarkably directionless as markets await evidence of progress (or lack thereof) in the battle against the virus. The Pound has regained some 60% of the value lose against the US Dollar during the sell-off earlier this month. The jury is still out on whether this move is a fleeting retracement or a meaningful correction.




Discussion and Analysis by Charles Porter

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