Morning Brief – Holiday Today

Holiday Today


In London today is of course the late summer bank holiday. In the USA it is both National Eat Outside Day and National Bacon Day and yesterday was National Toasted Marshmallow Day. These are new kinds of celebrations for most non Americans but as non historical or religious based are at least easily understood.

SGM-FX is unable to enjoy a bacon sandwich outside today ( bacon sandwich provider of choice Birleys off Fenchurch Street remains shuttered) but while hungry for the return of Birleys, SGM-FX is ready and open for business with 41 Eastcheap manned and watchful.

EUR remains strong at 1.19 versus USD and USD weaker after the initial reaction to PM Abe’s resignation news versus JPY at 105.30. GBP remains a beneficiary versus USD and EUR enjoying its best levels for two months.



South Africa: Cape Town Table Mountain


Pretty scenes of Table Mountain covered in snow on Saturday although the mountain is shut to visitors due to slippery conditions. SA Consumer Price Inflation at 4.2% warming up as restrictions on the SA economy are lifted and will soon melt that snow except maybe at the very top of Table Mountain for a few more weeks. ZAR strengthened to 16.60 versus USD its best level since June 10.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Japan: Abe Resignation

Japan: Abe Resignation


Markets in Europe are opening to the confirmation of Japan PM Abe’s resignation on health grounds. USD/JPY was trading at 106.93 and rapidly fell to 106.07 as markets processed the news. While it was known that Abe was unwell, the fact that he has been PM since 2012 and he is Japan’s longest serving PM ever has caused a more than usual ripple effect.



UK Net Migration


Net migration in the UK was 313,000 in the year to March which is the highest level since March 2016. So fears that the UK is closed to immigrants and the skills and contributions that they bring seems to be if not groundless, certainly not borne out by the trend. This number is arrived at by 715,000 moving to the UK for work or study and 403,000 leaving for other countries. GBP having a bumpy time having in the past 24 hours initially benefitted from a weak USD then being buffeted by the testimony of Fed Chairman, Jay Powell.



Eurozone Corporate Lending


Europe’s corporates have followed up June’s 7% increase from June 2019 by a further 7% in July from a year earlier. Emergency credit, state guarantees and rock bottom rates on central bank lending have all allowed Europe’s banks to pump out funding to non financial corporations. Household lending has been steady at 3% growth rates each month for the past 4 months with job guarantee schemes keeping unemployment and income losses lower than they would otherwise have been. The money supply measurement M3 has grown by 10.2% which is not a reflection of vibrant European business activity but rather the result of the European Central Bank printing record amounts of money.



French Priorities


This week while the rest of the world has been transfixed by the increasingly rancorous US  election, France has been tied up with the Sainte Marie La Mer story: for those who have managed to avoid it, France has been divided in opinion and poised on the edge of their sofas by the story of two gendarmes who told sunbathers to cover their toplessnesses in this little known resort near Perpignan. Was this an unreasonable assault on basic human rights etc?


New SGM-FX Client Desk joiner and keen stats man Harry Clynch has been delving into the European records of just how many ladies by country choose to sunbathe topless. And the answer is: 48% Spanish, 34% German and in third place with 22% the French madamoiselles. Seasoned connoisseur SGM-FX colleague Euan “ Going topless is legal in the UK too” Maskell has of course visited the Cap d’Agde nudist resort which is 90 mins up the coast from Sainte Marie La Mer where it is de rigeur to bare all and furthermore there are no officious gendarmes to interfere.


Oooh la la!



Have a great weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Mocking Jay

Mocking Jay



Federal Reserve President Jay Powell will speak today at the virtual Jackson Hole Symposium. The event has already taken its toll on global markets and the US Dollar in particular with cautious words from Kansas City and Richmond Fed presidents weighing heavy on the greenback. The last Federal Reserve meeting that the market got the opportunity to have an in-depth look at was July’s. What we learned was that the Fed wasn’t quite as committed to its expansionary warpath as previously thought. Against this backdrop here’s what to expect from today’s speech.


Jackson Hole is an overpriced skiing town for most of the year. However, for one week only it becomes the host town of the world’s elite business executives, central bankers and politicians with a private security bill that even Harry and Megan would scorn at. This year it will be held in a virtual capacity but already it is proving that it can still pack its usual punch when it comes to market moving headlines. Yesterday Kansas City Fed President Esther George introduced the wider market to the propensity for a ‘double-dip’ recession should the virus spread once again. Richmond’s Fed President Thomas Barkin also left the Dollar facing a headwind following his speech warning once again of the prevalence of unemployment within the US economy. Despite the speeches made yesterday the US Dollar held relatively firm with markets awaiting Chairman Powell’s speech today.


Market recently learned that American central bankers were not in fact as open to the kind of hyper accommodative monetary policy that the market had expected them to produce. In particular, markets saw that in July members of the Federal Reserve were not as in-tune with their yield-destroying (and therefore Dollar-toppling) policy of ‘explicit yield curve control’ as previously believed. The correction in US yields which in turn encouraged a stronger US Dollar following July’s minutes was neither severe nor negligible. Given that the Chairman is certain to be of the belief that the US economy faces chronic risks, not least because of his chum vying for another four years in the White House, he is likely to offer a somewhat cautious and perhaps even dovish tone note during his speech later today.


It looks like yield curve control and more aggressive market manipulation is out of the question following the July minutes. Given that markets are still following the Federal Reserve closely and believing in the support that it has offered, Powell is likely to maintain the tone the July minutes unveiled. However, the Chairman will have the possibility to discuss alternative policy measures that would de facto imply lower yields and accommodative monetary policy for the longer term. A move to pursue such policies would be interpreted as dovish by the market and lead to a flow of money away from the US Dollar.


One such policy would include the setting of a higher inflation target than the US Fed currently aims for. Higher rates of inflation demand a cheaper cost of money (interest) in order to stimulate the economy to encourage higher prices. At the moment a 0.25% interest rate is struggling to get close to the Fed’s inflation target of 2%. If the Reserve was to hike up it’s target of inflation then already accommodative policy at 0.25% would prove to be even more insufficient and push the market further into its belief that more Dollar-sacrificing monetary support is to come. Not only that but a higher target inflation rate will de facto imply that policy remains looser for longer. Consider inflation rises to the Fed’s current 2% target. If the Reserve Bank has already moved the target to 3% then a policy response would be demanded at a later stage to keep the rate in line with target. If such an initiative is unveiled by Powell today expect the Dollar to sell off. If no such suggestion or economic caution comes from the central banker then expect the Dollar’s recent consolidation to continue and even accelerate.




Discussion and Analysis by Charles Porter

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Morning Brief – German Economy

German Economy


Not just Germany but the rest of Europe are watching for signs of green shoots in Europe’s largest economy. The expectation is for Germany’s economy to grow by 7% in Q3 having contracted by 9.7% in Q2 although the recovery is still described as fragile. However with both manufacturing and services looking better in Q2, the German business morale has improved with the business climate index increasing from 90.4 in July to 92.6 in August. German equities reached their best level for a month on the back of both these statistics as well as renewed hopes for Phase Two of the Us-China trade talks.



Battery Life


Elon Musk has once again staked his reputation on Tesla being able to make huge capacity gains in mass produced batteries. This time he has said that Tesla will achieve an increase of no less than 50% in battery life in the next 4 years. This of course is huge for the auto industry and also consequently for air quality and the green lobby. Tesla’s shareholder meeting is on September 22 and EM has also dubbed that day (Tesla) Battery Day with the clear suggestion that he plans to unveil further battery news then. Battery Day is actually each February 18 when the rest of the world commemorates the Italian inventor of the battery, Alessandro Volta (1745-1827). Tesla shares we should remember, stood at USD 214 a year ago on August 27 2019 and now……

at USD 2049..! So maybe based on that performance, Elon Musk has earned the right to change the date of Battery Day to suit himself.





Yes it was exactly 25 years ago today that Henry Olusegun Adeola Samuel better known to his fans as Seal had big success and an even larger contribution to his USD 40 million net worth with his song, Kiss from a Rose which went to Number 1 on US Billboard. Here’s a flavour:


There used to be a greying tower alone on the sea
You became the light on the dark side of me
Love remained a drug that’s the high and not the pill
But did you know that when it snows
My eyes become large
And the light that you shine can’t be seen?

Baby, I compare you to a kiss from a rose on the grey
Ooo, the more I get of you, the stranger it feels, yeah
Now that your rose is in bloom
A light hits the gloom on the grey

There is so much a man can tell you
So much he can say
You remain my power, my pleasure, my pain
Baby, to me, you’re like a growing
Addiction that I can’t deny
Won’t you tell me, is that healthy, baby?
But did you know that when it snows
My eyes become large
And the light that you shine can’t be seen?


Phew…strong stuff!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Brexit


Throughout the course of Brexit negotiations there has been a severe and frequent mispricing of risk in the UK Pound. The nature of negotiation and politics brings the obstacle of a series of high-risk events not least overnight summits, negotiation phases and general elections as we have seen on several occasions since 23 June 2016. We are either living in another period of market complacency or Sterling traders know something that the public and likely government doesn’t.


At shy of 10% implied volatility in cable (GBPUSD) over 6 months, the options market is pricing an alarmingly low level of expected price volatility in the UK currency. This could be attributed to one of a few things: 1) the salience of a Brexit deal to the UK economy has suddenly vanished. 2) as both economies reel, will former Union members of 47 years be more lenient meaning a deal is all but in the bag? 3) is this just a case of market complacency and yet another mispricing?


Whatever the reason, if there are further deteriorations or significant progress in Brexit negotiations then current market pricing is likely to exacerbate spot price volatility providing ample opportunity for strategic FX market participants. One of the best ways to take advantage of mispriced volatility is with a strategy of limit orders and stop loss protections. We would be glad to discuss and implement such a strategy with you.



In a nutshell

From tech stock surges to emerging market currency underperformance, bond market mania to carbon credits, almost every corner of financial markets have felt the pandemic in some way. Two commodities in particular show the changing habits of our post lockdown lives. As we swap the pub and planes for our own homes, the price of nuts has plummeted whilst the cost of wood has skyrocketed.


Believe it or not lumber is a traded contract on the Chicago Mercantile Exchange. During the turbulence of the first outbreak of the pandemic itself the contract traded below $300 per thousand board feet for the first time in half a decade. Today the contract stands at an all time high in excess of $800. The meteoric rise was the result of low inventories and demand for the raw material prompted by the rise of the DIY project. Shed refurbishments and home extension projects have pushed the futures contract to its present highs.


Exacerbating the wealth inequality between squirrels and beavers, the price of nuts has simultaneously plummeted. I have seldom if ever dived into the nut bowl on the bar top but pubs as well as airlines and hotels are some of the largest market participants in the nut market. Shelled almonds have fallen from $6,500 in the US ahead of the pandemic outbreak to below $4,000 today. Thinking of cashewing in? You’ll find that market down some 10% on the year. The United States is a leading exporter of nuts but maybe don’t start taking trading signals on the Dollar from peanuts just yet.




Discussion and Analysis by Charles Porter

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Morning Brief – Australian Unemployment and Exchange Rate Volatility

Australian Unemployment and Exchange Rate Volatility


Like most countries, since March this year Australia has seen gyrations in the unemployment rate: in April at the then height of lockdown it reached 14%; by July this had fallen to 9%, but with further LockDown measures particularly in Melbourne, the expectation is for that number to increase to 13% by the end of September. The AUD exchange rate is even more pronounced in its movement: back in January 2018 versus USD, AUD stood at AUD 0.81 but in March 2020 albeit briefly it reached 0.57 and now at the time of writing, it is 0.71 with the expectation that it will likely weaken further on the economic outlook. Movements of such magnitude in globally traded currencies such as AUD/USD ie minus 30% and then plus 25% and especially in a short time frame have become unusual in the past few years which makes this even more noteworthy.



Neom City


Scroll forward 10 years and in 2030 you may be holidaying at the new USD 500 Billion Red Sea mega city being created by the Kingdom of Saudi Arabia which will include sports and leisure facilities and will cover more than 26,500 square kilometres and will be hi tech and green-with lots of wind, hydrogen and solar renewable power. The idea? To wean the Kingdom off their over reliance on carbon. To date there has been some cynicism in the West as to whether this grand scheme is no more than a passing fancy of the Crown Prince; however yesterday that changed: the Energy Ministry committed to funding and also announced that they will make sure the new city comes to fruition. When Saudi economic and political is brought to bear that is more than sufficient for Neom City to happen.





Today 24 August is of course the Madness bass guitarist, Mark “Bedders’ Bedford’s 59th birthday. Now part of respectable punk rock establishment history legend, it is difficult to conceive of the impact that Madness, The Clash and the Sex Pistols in particular, had on the music scene in the pubs and clubs of the early 80’s.

Here is a reminder of that era with Madness’ 1981 It Must be Love:



I never thought I’d miss you
Half as much as I do
And I never thought I’d feel this way
The way I feel
About you
As soon as I wake up
Every night, every day
I know that it’s you I need
To take the blues away


It must be love, love, love
It must be love, love, love
Nothing more, nothing less
Love is the best




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Half Term Report for US-China Trade Deal

Half Term Report for US-China Trade Deal


It all seems a long time ago but Phase 1 of the US-China trade deal was inked on January 15 and now the two sides plan to sit down to evaluate performance under the agreement on agricultural and manufactured goods and energy and services. Covid and the new security law in Hong Kong have overshadowed the entente reached 7 months ago. Since the end of July when USD/CNY breached the important 7 level, CNY has reached its best level and is currently below 6.92.



Welsh Exports


Sheep in Wales well used to looking over their shoulders now face a new threat: one side effect of Covid is the collapse in demand for carpets in the hospitality industry including cruse ships. Welsh sheep as already indicated hold certain attractions for certain people and none more so than for those in the carpet industry which finds the tough wool produced by the sheep extremely suitable for carpets that need to be hard wearing.  25% of Welsh wool normally goes to China and that avenue is also now closed off. For those who have not tried Welsh gin, I recommend Brecon Gin which produces both Special Reserve and Botanical blends which in these days of no access to Duty Free shopping are excellent and competitively priced at GBP18 or USD 23 or EUR 20.



Kenny Rogers


Had KR not departed this world in March this year, today would have been his 82nd birthday. Singer, songwriter, record producer and entrepreneur, Kenny Rogers enjoyed a 63 year career working pretty much right up to the final whistle and was worth USD 250 million. Very much old school in terms of his work ethic, this spilled over into his personal life where as a country star espousing family values he embraced the estate of matrimony with gusto marrying 5 times and fathering 5 children. One of his most successful songs was based on his long experience of attempting to please his many wives was released in 1999 making KR the oldest country singer at 61 to reach Number One on the Billboard Hot Country Songs:


Buy Me a Rose:


He works hard to give her all he thinks she wants
A three car garage, her own credit cards
He pulls in late to wake her up with a kiss good night
If he could only read her mind, she’d say:

Buy me a rose, call me from work
Open a door for me, what would it hurt
Show me you love me by the look in your eyes
These are the little things I need the most in my life

Now the days have grown to years of feeling all alone
And she can’t help but wonder what she’s doing wrong
Cause lately she’d try anything to turn his head
Would it make a difference if she said:

Buy me a rose, call me from work
Open a door for me, what would it hurt
Show me you love me by the look in your eyes
These are the little things I need the most in my life



Thai style Democracy


The Rap against Dictatorship group rapper, Dechathorn Bamrungmuang (who?!) known to his fans as “Hockey” may have gone viral with his protest against the Thai government, but he has now been silenced and detained in police custody overnight. His best known number is “What my Country’s Got” but alas SGM-FX’s I.T. guru and keen follower of pop fashion, Michael remains ignorant of what Hockey is on about as the boys in blue have successfully removed that particular virus at least and taken it down..down..down etc.


Have a great weekend!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – A is for..

A is for..



A LOT of Money. In an otherwise tranquil and unremarkable market environment yesterday, US technology stock Apple managed to secure a $2 Trillion Dollar valuation. The company known for making iPhones and other such sought after gadgets has one of the healthiest profit margins on the Nasdaq, routinely registering in excess of 20%. In the first few weeks of the pandemic the company was set back by fears of supply chain disruption and a deteriorating global environment within which to sell its product. Tensions have been building between the US and China following the reimposition of tariffs on Chinese Tech giant Huawei protracting fears of supply chain disruption within Apple’s products. Skyrocketing unemployment across the US and Apple’s core markets has also given credence to concerns of a surprise to sales as the consumer struggles. Nonetheless Apple has more than doubled its share price since the lows reached during the first weeks of the pandemic.


One reason for Apple’s surge has been its defiance of the global economic backdrop, posting sales growth of 11% in Q2 2020. If fact all five of its main products posted sales revenue growth in the second quarter, positively surprising a market that was braced for the worst. The valuation of Apple at the $2 trillion mark is overstretched. The price-to-earnings ratio is now at 35 times; its highest since the end of 2007. The rebound of the equity market has surprised many commentators and if there is a sharp correction in stock valuations the volatility signals could spill over into the foreign exchange market.


The Federal Reserve last night struck a very cautious tone pushing the foreign exchange market into risk-off mode. The Fed noted that the ongoing tensions between the US and China and the health crisis could manifest in below-expectation economic growth in the second half of 2020. With market dynamics having not favoured the US currency in recent months the news alone would likely have encouraged further losses for the greenback as the US economy on these forecasts looks set to underperform its peers. However, it is debasement fears caused by over-accommodative monetary policy that have done the heavy lifting in the Dollar’s shift.


Despite having expanded the balance sheet by several trillion Dollars during the course of the pandemic the market had been anticipating further action from the Fed. In particular the market has been anticipating two measures to potentially have been discussed in recent Fed meetings: new inflation targets and explicit yield curve control. Both would have had severe impacts upon the cost and reward of buying and selling US Dollars in the FX market and ultimately produce a headwind to the greenback. Minutes of the Reserve’s July meeting were released last night where the majority of members shared the view that, “yield caps and targets would likely provide only modest benefits in the current environment”. Therefore “many participants judged that yield caps and targets were not warranted”. The news led the market to price out its expectation for the imposition of these extraordinary measures, supporting the US Dollar in the process.




Discussion and Analysis by Charles Porter

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Morning Brief – Currencies and Hurricanes

Currencies and Hurricanes


The hurricane season officially starts each year on June 1 and lasts 5 months but normally is fiercest from the beginning of September until mid October. Currencies likewise tend to be more volatile in exactly the same period. True to form the USD traded at a 2 year low yesterday, GBP at 1.32 and EUR at 1.19 are both at levels not seen for some time and equity markets while at recent highs are nervous. Sprinkle on top of these markets, Covid, Brexit talks and a US presidential election and the signs are there that judiciously selecting objectives or protection levels and putting limit orders in place is a sound strategy.



Champagne Charlie?


SGM-FX’s Client Desk leader and Economist, Charles is dusting off his stats tables: the champagne industry-French of course- reached agreement last night after some tense talks to cut annual production from the 2019 level of 10,200kg per hectare to 8000 kg in 2020. It is estimated that there are more than 100 million bottles unsold at present. That means that despite the production cut, readers should stand by for some juicy offers coming up. Plenty of festive bubbles in prospect this Christmas!



Lady Gaga


It was this day in 2008 that Lady Gaga’s epic album Fame was released placing her firmly in the pantheon of pop greats. Some great songs on that album but here’s Part of one that readers will remember and certainly lifted the roof of the O2 when I together with plenty of what she calls her “Little Monsters” saw Lady Gaga there in 2011:

Just Dance:


Red One
Gaga (oh, yeah)


I’ve had a little bit too much, much
All of the people start to rush.
Start to rush by.
A dizzy twister dance
Can’t find my drink or man.
Where are my keys? I lost my phone, phone.


What’s going on, on the floor?
I love this record, baby, but I can’t see straight anymore.
Keep it cool, what’s the name of this club?
I can’t remember but it’s alright, a-alright.


Just dance. Gonna be okay.
Just dance. Spin that record babe.
Just dance. Gonna be okay.
Dance. Dance. Dance. Just dance.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Explosion



The decline in the US Dollar has been caused by three things 1) the explosion in ‘money’ and debt 2) the collapse in real yields underlying the Dollar and 3) a lack of control over the virus in the United States. This trifecta of threats to the US Dollar has accommodated the appreciation of the Euro to its current lofty valuations and raised a whole host of questions regarding the global economy. This brief looks at the first and arguably largest of the causes: the explosion of money and US Debt.


The graph below illustrates how much money is in the Eurozone and US economies respectively. The measure for those interested is called ‘M3’ and represents the amount of relatively and highly liquid money in a financial system at that point in time. Why does the supply of money in a system matter? Well, if money is the instrument through which we value our economies and assets within them then, even if the worth of an asset in our minds remains relatively stable, in monetary terms it will fall. An economy produces a finite amount of stuff whose value in turn is measured in money – another type of stuff. If the stock of that money is diluted then it is the money itself that loses value and not the asset. If this happens then one consequence is inflation, the other is devaluation of the currency as each unit of currency becomes worth slightly less. In the graph below you can see that money supply growth in the US has way out-paced its counterpart in the Eurozone. This has put downward pressure on the greenback and, unless the Fed curtails its current phase of monetary expansion the Dollar could continue to fall.





The effect of debasement within the US currency has facilitated a rotation out of the Dollar with the Euro finding itself as one of the main benefactors of the greenback’s decline. Last week, data showed that investors in futures markets were the most bullish they have ever been with respect to the European single currency. Net long, non-commercial positions surpassed 200,000 representing some $30bn in open ‘bets’ in favour of the Euro. The exposure to the Euro that has contributed to its 10% rise versus the US Dollar since May 2020 could now prove to be a ticking time bomb sitting beneath the Euro.


The Euro benefitted from the decline in the US Dollar thanks to positive sentiment surrounding the Eurozone following the approval of the European Recovery Fund and evidence of more competent containment of the virus outbreak. If headlines begin to sour in the Eurozone, particularly with respect to the infection rate and national lockdowns, a rapid ‘short-covering’ to eliminate this over exposure would put huge pressure on the value of the Euro. The healthy growth in the value of net long Euro positions has showed little sign of stopping in recent weeks. This will continue to accommodate the Euro’s appreciation but also add to the size of the bomb beneath the Euro.




Discussion and Analysis by Charles Porter

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