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Morning Brief – US Federal Reserve

US Federal Reserve

 

Confirmation of continuing easy money conditions from the Fed: bond buying will continue until the twin goals of full(er) employment and inflation at 2% have been achieved. Jay Powell underlined that by saying that while March employment stats were very good, the Fed will not jeopardise progress made by shutting off the easier monetary policy yet. They want to see a “string” of strong employment numbers which the market is interpreting as more than a Quarter. Employment in the USA is still showing 8 million fewer jobs than in February 2020.

 

Hyundai

 

Hyundai joined the not so illustrious list of car manufacturers which had not done their homework on names internationally when it launched the Kona electric vehicle. Hastily renamed the Kauai in Portugal as Kona means vagina, Hyundai were on the back foot. Still that was worse than what kona means in Italian-dead slow or in Norwegian-the wife, or in Polish-Hyundai Kona means Hyundai is dying in pain. The bad news is that kona in the Galician dialect of Spanish means the same as it does in Portuguese. At GBP17,000 or USD 23,600 the Hyundai Kona may say something about their owners’ green credentials but a whole lot extra depending on the country.

 

Fortnum and Mason

 

Favourite posh London grocery and delicatessen is now 314 years old having been founded in 1707 during the reign of Queen Anne when Piccadilly looked rather different to how it is today. F&M are keen to demonstrate their measured approach to business and this is born out by them taking 31 years to perfect the Scotch Egg which they started marketing in 1738. Other notable events include Queen Victoria ordering a large consignment of beef tea which she sent to Florence Nightingale in the Crimea in 1856; F&M hampers being supplied to the Suffragette Movement in 1911 and again to the Everest expedition in 1922. Recently F&M have established bee colonies high above the streets of London with hives on top of the Royal Albert Hall. For honey lovers F&M have a superb selection of honey and will dispatch it to most parts of the world but probably not to the Crimea at the moment….

 

Celine Dion.

 

It’s all a long time ago, but Canadian chanteuse Celine Dion was somewhat surprisingly drafted in to represent Switzerland in the Eurovision Song Contest in 1988. Celine duly won with this song, Ne Partez Pas Sans Moi. Celine sang the song of course in French, but while it is of course very much better and evocative in French, here it is in English:

 

Don’t leave without me

 

You who seek the star

You who live a dream

You, heroes in the space

In the heart, bigger than the earth

Give me the chance

Take me far from here

 

Do not leave without me

Let me follow

You who fly to other cities

Let me live

The most beautiful adventure

The most beautiful journey

Which leads one day

To suns

To the planets of love

 

You the new poets

You the magic birds

You, you might find

New music

You, give me a chance

I want to sing along

 

Do not leave without me

Let me follow

You who fly to other cities

Let me live

Blue of infinity

The joy of being free

On rays, on suns

 

On songs, on wonders

And in sky of love

Blue of infinity

The joy of being free

You who seek these other lives

You who fly towards the year 2000

Do not leave without me

 

Have a Great Weekend!

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Cheese

Cheese

 

Before I get to the astronomical rally in cheese futures that I know you have been eagerly awaiting, let’s take a look at what the Federal Reserve said last night in one of its most defining monetary policy meetings in a decade. As we discussed recently, the market knows that global central banks need to end crisis-era monetary policy. Those same central banks therefore face the challenge of how to begin that process without spooking the market by admitting that the helping hand that has preserved monetary and financial stability since the pandemic broke out needs to be taken away. The Fed’s decision showed last night that the easiest way to do this was to stick to its story that the hand doesn’t need to be retracted and therefore the not-so-invisible hand of the Reserve will continue to guide markets with ample liquidity, negative real rates of interest and ample asset purchases. Just as predicted, the Dollar has sold off and, for now, markets look ahead to the June policy meeting for the real discussions to begin.

 

The take away memo of last night’s dovish Federal Reserve meeting was that the central bank is “still not thinking about tapering” monetary support. To put that in context, that’s a little bit like a driver of a vehicle heading towards a cliff-edge and claiming they’re still not thinking about breaking. Treasury yields immediately fell to 1.61% on a generic ten-year note given the expectation that the Fed will continue to kick the can down the road and provide for ultra-accommodative policy further into the future than expected. The Dollar followed yields lower, breaking through 1.21 versus the Euro for the first time since February. During the pandemic, the Federal Reserve’s balance sheet has almost doubled from approximately 4, to just shy of 8 trillion Dollars.

 

The accumulation of assets on the Fed’s balance sheet alongside record low interest rates has provided the loosest monetary conditions in the United States ever. At 8 trillion Dollars, the Fed’s accumulation of assets represents a value of more than one third of US GDP. To think that the QE programmes that have allowed the balance sheet to swell to these levels have been necessitated to fill holes in private demand within once healthy markets shows the hurdle that the US economy and Fed will have to surmount to reach monetary, economic and financial normality. The longer the programme goes on and the longer the Fed staves off the market, the harder this correction and taper tantrum could be. USD has weakened for now therefore, however, as even lower yields and ever loose monetary conditions continue in a high growth environment, the potential spill over into inflation will create immense tail risks to the Dollar.

 

Surely this can’t be Gouda for the US economy in the long run… and that reminds me… cheese futures..! Did you know that the Chicago Mercantile exchange added blocks of cheese to its range of traded futures contracts last year? Designed, as is any futures contract, to allow buyers and sellers to hedge their exposure to assets in a secured yet open market environment, the cheese futures are traded in blocks of 20,000 lbs (9 tonnes). Cheese futures trading activity has soared since the beginning of the year with open interest in the asset jumping fivefold since the start of the year. The start of the American grilling season (apparently that’s a thing) alongside the recovery in US restaurant sales as the economy opens have accompanied a rising price per pound of the commodity. If you’re thinking of speculating on the commodity, mind out for the nature of futures markets as some are deliverable upon expiry.. eDAM that’s a lot of cheese!

 

 

 

Discussion and Analysis by Charles Porter

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Figures

Morning Brief – Corporate USA

Corporate USA

 

Yesterday POTUS, Joe Biden announced an increase in the minimum hourly wage for federal contractors from $10.95 to $15, an increase of almost 37%. Corporate USA is under no illusions that this will feed through to the bottom lines of non federal corporations. The categories of federal workers that this will apply to include food service contractors, cleaning and maintenance and tipped staff-excluded by President Obama in his executive order of over 4 years ago. The White House claims that the increase will be self funding as there will be higher productivity; the market is unconvinced by that argument and is fretting about the inflationary impact of such a rise. USD however, unchanged at 1.2085 versus EUR.

 

Biggest risks to current market stability?

 

60% of market watchers name new covid variants that are not covered by vaccines. 45% respond with higher than expected inflation and or bond yields. In third place with 30% is geopolitics with China, Russia and Iran as being the main worries.

 

Hypercars

 

We have all heard of supercars but the new class of very expensive high end cars are called hypercars. One which is all electric with 4 motors(one for each wheel) has been produced by Pininfarina named the Battista is due to arrive in London next month and will be sold by Jardine Motors Group. A few numbers:  0-60 faster than a F1 car, 1900 horsepower, 310 miles between charges, only 150 to be made and last but not least a price of GBP 2million or USD2.78million.

 

Pet Insurance

 

Stats in reflecting that people are 3 times as likely to insure their pets as they are to insure themselves against critical illness. Before we reach for the dog biscuits however, the numbers are still relatively small: only 6% of people have critical health cover but 18% of people with pets will take out insurance for their pooches. Sales of pets have rocketed during LockDown as people seek solace not in the pub but with companion animals. SGM-FX’s hirsute hound dog Harry Clynch who is still desperately seeking a hairdresser, is reassured by further evidence (so far) that a pet is not just for LockDown.

 

The Kinks

 

Another of those Brit invasion bands, The Kinks who had a huge influence on the UK and US music scene for more than three decades between 1963 and 1997 had a string of hits-who can forget Waterloo Sunset? Here is their fabulous 1966 Sunny Afternoon which no doubt is striking a chord with wealthy US investors after POTUS announced plans last week to double US capital gains tax:

 

The tax man’s taken all my dough
And left me in my stately home
Lazing on a sunny afternoon
And I can’t sail my yacht
He’s taken everything I got
All I’ve got’s this sunny afternoon

 

Save me, save me, save me from this squeeze
I gotta big fat mama trying to break me
And I love to live so pleasantly
Live this life of luxury
Lazing on a sunny afternoon
In the summertime
In the summertime
In the summertime

 

My girlfriend’s run off with my car
And gone back to her ma and pa
Telling tails of drunkenness and cruelty
Now I’m sitting here
Sipping at my ice cold beer
Lazing on a sunny afternoon

 

Help me, help me, help me sail away
Well give me two good reasons why I oughta stay
‘Cause I love to live so pleasantly
Live this life of luxury
Lazing on a sunny…

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – ZAR FWD

ZAR FWD

 

The Rand had gained in excess of 25% versus the US Dollar since the peak of the asset sell off during the early stages of the pandemic. Sure, you could argue that the notable part about that statistic is the extent of the sell-off during the fire sale of risk assets in March/April last year. But you’d be wrong… During the course of the pandemic South Africa lost its only remaining claim to investment grade debt status and seemingly endless lockdowns took their toll on lives, state finances and commerce. So with the Rand now trading at a stronger rate on many of its crosses than it did before the pandemic, what is going on and can it last?

 

The global flood of liquidity has killed yields globally. Despite murmurings of inflation and a growth-led recovery in the US, don’t expect a positive real yield anytime soon. The same goes for all G-10 FX and most majors: it costs a lot in real and in some cases nominal terms to hold them. All of this boosts the appeal of emerging market currencies that do still offer some return in the form of interest. The liquidity tidal wave also prompts the blinkered approach in markets where seemingly free money finances more and more daring bets. So there’s credibility in a ZAR recovery but does it justify moves in excess of 25%?

 

South Africa has recently admitted that its public finances are at breaking point as a result of the pandemic. The ongoing cost of the health crisis coupled with the shackles it has put on growth rates are testing the economy’s resolve. Without one key factor the move in ZAR would be totally unstable and be overdue a correction: forwards. The market for FX ZAR forwards is out of kilter and has been so since the start of the pandemic. The exodus of market participants from across the ZAR forward curve left a vacuum for a premium to build up on future dated ZAR contracts.

 

In fact, the implied yield within the Rand specifically in FX terms is 1.5% greater than an equivalent tranche of debt on the Jo’burg market. The opportunity for arbitrage therefore is meaning that it is the Rand that is appreciating and reflecting the mismatch in ZAR forwards. The surplus yield in FX for the Rand is not expected to disappear anytime soon meaning that the Rand will continue to stay bid despite the macroeconomic and fundamental pressures for it to deteriorate. With that being said, valuations close to 14 versus the US Dollar are pushing the equilibrium despite the appeal of the forward market. A consolidation towards 15 is therefore likely, however, the Rand should still remain relatively strong.

 

 

 

Discussion and Analysis by Charles Porter

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Skyscraper view

Morning Brief – Italy

Italy

 

As of last week, Italy’s multi party cabinet were at odds and unable to agree on the terms of the funding from the EU. Then on Saturday PM Mario Draghi, no stranger to last minute brinkmanship, made a call to Ursula von der Leyen and hey presto: EUR 220 Billion(USD 266 Billion) agreed and Italy is good to go with a long listed program of infrastructure, digitisation, ecological, health, education and research projects. Cynics would say that this long list will make accountability hard to pin down on Italy and its track record does not inspire confidence. Others will say that the EU is still unconvinced that Italy has really accepted that significant public administration, tax and justice system reforms need to be implemented as conditions of the funding. Realists will say only that Italy is insufficiently productive and its finances are now even more stretched at a time of historically low interest rates. EUR/USD insouciant at a whisker under 1.21.

 

Robin Hood

 

Over the weekend, POTUS Joe Biden has added another title to his already bulging portfolio: that of Robin Hood. The President’s tax reforms are aimed at taking from the rich and giving to the poor. As it was in 12th Century Britain, this is popular in 21st Century USA and 62% of the electorate back the draft proposals-more detail is to be published this week. The gap between the wealthy and the rest in the USA has been steadily increasing and the rate of that increase is accelerating, so it is hardly surprising that the majority back these much higher tax proposals.

 

Summer Holidays

 

Cheery news from the CEO of Thomas Cook who said yesterday that he was confident that post May 17, Brits at least which means EU and others too would be able to travel to Southern Europe for their holidays. While it is still up in the air (or actually not, in the case of the airlines) as the head of a travel firm, not surprisingly he has to keep his clients and his investors and bankers all up beat on that. At 45p the Thomas Cook is double what it was 6 months ago and….half what it was pre-pandemic.

 

Fifth Dimension

 

Formed in 1966 and still going. perhaps best known for Aquarius/Let the Sunshine In from the hit musical Hair which went Gold this week in 1969. You had to be there to appreciate all of the scenery, but here’s a flavour from Hair…

When the moon is in the Seventh House

And Jupiter aligns with Mars
Then peace will guide the planets
And love will steer the stars
This is the dawning of the age of Aquarius
Age of Aquarius
Aquarius
Aquarius

 

Harmony and understanding
Sympathy and trust abounding
No more falsehoods or derisions
Golden living dreams of visions
Mystic crystal revelation
And the mind’s true liberation
Aquarius
Aquarius

 

When the moon is in the Seventh House
And Jupiter aligns with Mars
Then peace will guide the planets
And love will steer the stars
This is the dawning of the age of Aquarius
Age of Aquarius
Aquarius
Aquarius
Aquarius
Aquarius

 

Let the sunshine, let the sunshine in, the sunshine in
Let the sunshine, let the sunshine in, the sunshine in
Let the sunshine, let the sunshine in,…

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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SGM-FX View of london

Morning Brief – US Employment

US Employment

 

Markets welcomed the lowest set of jobless claims figures since March 2020. New job creation plus fewer redundancies means that figures are moving well in the right direction. While there are still 17.4 million unemployed in the USA, there is little doubt that the employment market is showing that there is a marked improvement in confidence.

 

US Capital Gains Tax

 

The US business community’s enthusiasm for post Trump Bidenomics might just be waking up to what it means: the proposal made last night is to double Capital Gains Tax to 39.6% which together with the tax on investment income could take the total to 43.4%. If accurate that would result in two things: a reduction in investment and a vast increase in tax management ie avoidance. It would also halt the frothy equity markets’ inexorable rise if implemented.

 

Corton Charlemagne

 

One of the most prized White Burgundy wines and very much of a treat:  London’s Hedonism Wines will only part with a single bottle of the Coche Dury 2013 Corton Charlemagne when you smack the plastic to the tune of GBP 4,880. Hatton and Edwards have a (slightly) more affordable bottle of the Louis Latour 2003 for GBP 114.

This famous wine is named after a hill in Burgundy called Corton and the Emperor Charlemagne is name checked here for following orders from ‘er in doors, the Empress: the story goes that the luxuriously bearded Charlemagne really loved red wine which tended to stain his white beard, so the Empress insisted on him devoting his efforts to producing a top white wine. Charlemagne lived for almost 65 years and had four wives and a further four concubines who between them bore him 18 children. There were a further number of concubines who did not give him children but were doubtlessly equally enthusiastic connoisseurs of the white wine named after him.

 

Herman’s Hermits and My Sentimental Friend

 

Herman’s Hermits were known for being one of many British Invasion Groups  ie they crossed the Atlantic to the USA from the UK to challenge the US music scene in the 1960’s. Their lead singer Peter Noone and the Hermits notched up 10 Number One Hits and one of their very best songs is this one from 1969,

My Sentimental Friend which is so good, it is worth including in full:

 

On the floor, the people dance around
Moving close together
But there over low, in the corner
There’s the girl I once knew
Who broke me in two

So won’t you please play a song?
A sentimental song
For my sentimental friend over there
We’ve been so long apart
Make it go right to the heart
Of my sentimental friend over there

Bring the tears to her eyes
Help to make her realize
The love we had was just beyond compare
And if the time is right
Maybe I’ll hold her tight
My sentimental friend over there

I recall the way she used to feel
When we heard a sad song
The teardrops would fall
And she’d hold me and tell me
She’d be forever with me

So won’t you please play a song?
A sentimental song
For my sentimental friend over there
We’ve been so long apart
Make it go right to the heart
Of my sentimental friend over there

Bring the tears to her eyes
Help to make her realize
The love we had was just beyond compare
And if the time is right
Maybe I’ll hold her tight
My sentimental friend over there

Oh, won’t you please play a song?
A sentimental song
For my sentimental friend over there
We’ve been so long apart
Make it go right to the heart
Of my sentimental friend over there

Bring the tears to her eyes
Help to make her realize
The love we had was just beyond compare
And if the time is right
Maybe I’ll hold her tight
My sentimental friend over there

Oh, won’t you please play a song?
A sentimental song
For my sentimental friend over there

 

Have a Great Weekend!

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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team discussion

Morning Brief – Tightrope

Tightrope

 

The three phase pandemic from an FX and rates perspective goes as follows: Tantrum, Blinkers and Tapering. The blinkers are still on the international market and still subduing volatility in the foreign exchange market, but yesterday we got a real taste of what tapering looks like and therefore what is in store for the market in the coming months. Following rising (yet ultimately denied) tapering expectations in the United States and the havoc that has brought to USD crosses, the taper tightrope is strung taught in front of every central bank on the planet. For major central banks, I’d want to see a seriously long balancing pole to steady them as they take the first steps on the rope.

 

First off, when the market begins to wobble and see a rising threat beyond its capabilities the tantrum phase begins. Asset valuations start fluctuating wildly, every asset with even a whisker crossing the line of risk vs. safehaven status is sold off and asset prices, the barometer of a confident and healthy market oscillate continuously. Anything carrying the title of junk, offering a dividend, within the emerging market basket or just out of favour with the wider market is thrown to the wayside. In particularly severe cases as we saw in March last year at the beginning of the pandemic, even safe haven assets can shed value as forced liquidations in favour of cash to cover margin calls in other markets can disturb safehaven price dynamics. However, the tantrum phase that saw USD gain a handful of cents on the Pound, Euro and most of its counterparts on a daily basis has all but passed and unless the pandemic morphs into something almost unrecognisably worse than we understand it to be today, should not show its head again in the name of Covid-19.

 

The blinkers phase occurs when the market is blinded by the inundation of cash provided by the seemingly endless printing of money at global central banks. Is it this activity that both staves off the risk of asset price turmoil created during the tantrum phase but also builds note by note, asset purchase by asset purchase and rate cut by rate cut the propensity for tapering risk: the third phase. The blinkers placed upon global markets create that risk that once the blinkers are off, if the world isn’t as appealing as the green-tinted hue of ample liquidity, markets will shed value from assets once more. In a way, the blinkers phase allows for stability in markets despite turmoil still being abundant in the real economy pushing the short term and often over priced risk out into the future to be dealt with in a more orderly fashion during the tapering phase. We are coming towards the end of this phase as a global economy as vaccination efforts promise to diminish the threat that Covid-19 presents to our populations and global trade resumes following more than a year of rolling lockdowns.

 

The ending of the furlough program, rising inflation, economic growth, interest rates and swelling equity markets are all emblematic of a global economy starting to become ready for the blinkers to be taken off. Following an interest rate decision yesterday, it appears the Bank of Canada are ready to remove the bank notes from the eyes of the economy and begin to normalise policy. That spelled good news (from a pure CAD valuation perspective) for the domestic currency, but could hamper the performance of the Canadian economy as it emerges from the pandemic-induced super recession. Following a decision yesterday by the Bank/Banque the Loonie gained 1 cent versus the US Dollar in two minutes, and a further cent versus its major peer the USD in the hour that followed. So what did the bank do and what lessons does it provide to the wider market?

 

Despite holding interest rates stable and continuing to pursue it’s asset purchase program, the BoC reeled in its expectations on when the output gap and economic scaring created by the pandemic would be eliminated from Q1 2023 to H2 2022. Forecasting near full output and revising up the immediate and retrospective outlook for the economy gave hawkish overtones to the monetary policy decision and led markets to price in the expectation that Canada will be one of the first banks to normalise policy following the pandemic. Upon closer inspection the central bank merely highlighted the immense role that it has played in providing abnormal levels of liquidity to stabilise the market and therefore was required to withdraw some of this. The lesson to be learned therefore is that stray even a millimetre from the easing path and markets will take a mile in their hunt for yield, and facilitate wild swings in the prices of domestic assets.

 

 

 

Discussion and Analysis by Charles Porter

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UK buildings

Morning Brief – UK Inflation

UK Inflation

 

10 distinguished economists headed by Prof Tim Congdon have written a both strong and timely letter that was published in yesterday’s Financial Times. What they are warning is that due to the Bank of England’s GBP 150 Billion Nov 2020 asset purchase program, the UK is set for above 2% target inflation in 2022/2023. There is more than a prevailing sense of complacency in the markets since most practitioners have never encountered higher inflation rates and an inflation rate of 5% about which those economists are forewarning would have a disproportionate effect on sentiment and therefore valuations and pricing. US President Ronald Reagan’s most memorable quote was : Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man. What has led to the letter is a sharp rise in the quantity of money in circulation in the UK and in the year to February that measure has shot up by more than 15% which is the largest increase for 30+ years. GBP either unaware of this warning or unaware of it enjoying the spring sunshine and breaking through USD 1.40 on a weaker USD.

 

Greece is the word for tourists

 

Greece is opening to tourists on May 14 formally but effective April 26 tourists from the EU, USA, GB, Serbia, Israel and the UAE do not need to quarantine if they are vaccinated or test negative for Covid19. Tourism accounts for 20% of Greece’s GDP and 20% of all jobs is vital for the economy. SGM-FX sun worshipper, Edwin Holland was dusting off his Speedos in preparation yesterday.

 

Fat Rascals

 

If you are lucky enough to be within striking distance of York, Harrogate, Northallerton or Ilkeley, you will already know and love the Yorkshire institution, Betty’s. For the rest of us Betty’s provide an excellent mail order service which once they have whisked up your teatime choices of Fat Rascals, Cheeky Little Rascals, Fancies, Sachertorte or Lemon and Raspberry Bites, they will deliver them to your door whether you are in the UK, Europe, South Africa, UAE, Singapore, Australia, New Zealand, Canada or the USA. Best of all you can pay for your order via the SGM-FX card in GBP having converted the currency of your choice.

 

We Belong Together

 

It was 16 years ago in 2005 that Mariah Carey released this song. Mariah Carey has sold more than 200 million records and is distinguished by being unequivocally the best selling female hit songwriter, the best selling female artist and best selling female record producer. If that was not enough, Mariah Carey is worth approximately USD 520 Million. Here is We Belong Together:

Sweet love yeah
I didn’t mean it when I said I didn’t love you so
I should have held on tight, I never should have let you go
I didn’t know nothing I was stupid
I was foolish, I was lying to myself

I couldn’t have fathomed I would ever be without your love
Never imagined I’d be sitting here beside myself
‘Cause I didn’t know you, ’cause I didn’t know me
But I thought I knew everything I never felt

The feeling that I’m feeling now that I don’t hear your voice
Or have your touch and kiss your lips
‘Cause I don’t have a choice
Or what I wouldn’t give to have you lying by my side
Right here
‘Cause baby

When you left I lost a part of me
It’s still so hard to believe
Come back baby please
‘Cause we belong together

Who else am I gon’ lean on when times get rough?
Who’s going to talk to me on
The phone ’til the sun comes up?
Who’s going to take your place?
There ain’t nobody better
Oh, baby baby, we belong together

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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St Mary Axe view

Morning Brief – Take off

Take off

 

April is usually a strong month for GBP. Due to the UK tax year’s end at the beginning of April, large corporations domiciled in the UK bolster demand for the UK Pound when repatriating overseas profits. This real money flow tends to provide a significant and tangible bid in GBP that sees the spot price outperform. Until yesterday at least, April had not been kind to the Pound with its major crosses continuing to leak value at a moderate yet steady pace across the board. Yesterday, however, Sterling reared up gaining almost two cents versus the US Dollar within the European trading session alone. So have FTSE100 giants finally balanced their books and started bringing their cash over?!

 

In truth it is highly unlikely that yesterday’s rally in GBP was the result of large corporates brining overseas profits back to the UK. One reason for the limited real money flow from overseas earners this month is the very lack of foreign profits. Whilst pharmaceutical companies may have secured sales overseas, the intra-pandemic tax year of ‘20-‘21 was typically not one of star studded international sales. Due to the political shift associated with Brexit too, capital allocation overseas in sectors from financials to industrials has risen possibly reducing the desire to repatriate profits.

 

So if a rose-tinted April is not on the cards this year, what then was behind the rally in GBP yesterday? Well, the first thing that kicked GBP in the right direction was positioning data that was released over the weekend. Many market participants had expected the falling GBP in the last week or so to be a result of investors losing conviction and confidence in their long-Sterling positions. Accordingly, it was widely expected that this positioning data would confirm further consolidation in the net-long GBP position within the speculative portion of the market. What was released showed quite the opposite with GBP long positions being added to in significant volume suggesting some floor to the speculative unloading of Sterling.

 

Secondly, UK vaccinations have continued at pace with evidence suggesting that the lack of AstraZeneca doses is not having a devastating impact of the UK’s ability to inoculate its population. This did and will continue to provide support once again to the Pound. So too the safety concerns associated with such vaccines that are gathering pace internationally have not deterred the UK population it seems from offering up their chosen arm.

 

Yesterday’s rally also corrected recent GBP weakness ahead of a data heavy week. Should data released this week surprise to the upside or demonstrate a more resilient recovery in the UK economy, GBP could have room to move considerably higher. Key events to watch out for include employment figures today, CPI inflation tomorrow and retail sales to end off the week. Remember, that given the period in question barely covers the opening up of the economy and will cover a period ahead of the pent-up consumer demand that has been recently released on non-essential retail, a data-driven rally could still be some periods off.

 

 

 

Discussion and Analysis by Charles Porter

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SGM-FX London skyline

Morning Brief – Compromise and Consensus

Compromise and Consensus

 

Those of us who have worked in Germany are familiar with these concepts or konzepts embedded solidly in post WW2 business culture (geschaftskultur). This weekend the CDU/CSU parties were hoping that there would be the first leading to the second in order for them to arrive with an agreed successor to Chancellor Angela Merkel when she steps down this autumn. Despite constant communication and assurances of mutual admiration over the weekend, neither Armin Laschet nor Markus Soeder has conceded to the other thereby necessitating a leadership election. This is clearly a key moment for Germany bearing in mind that Angela Merkel has been in power as Chancellor since 2005, but it is also key for the EU and the EUR to have a worthy successor and stabilising influence identified ahead of Merkel’s departure. This rift is threatening the likelihood of the CDU/CSU coalition retaining power with the Greens making political capital out of this dissent. EUR/USD at 1.1980 over the weekend looking vulnerable to a setback.

 

Fast Market or Hot Market?

 

This time it literally is a hot market and it’s to do with hot tubs which have soared in demand during this period of non-travel. Brits have gone nuts for hot tubs and nowhere more so than in the East Midlands and sportingly (given the propensity for lots of rain) South Wales. In case you think this is to do with an adult paddling pool, it’s rather more than that. A hot tub with 4-6 seats costs GBP5,000-GBP20,000. But then it starts: above ground or sunken? Access..you may need a crane to deliver the tub to site? That alone will cost up to GBP 4,000. Then there is the electrical supply: chances are that tubbers will need to install extra equipment. Then there is landscaping, lighting, sound system and no doubt access to a refrigerator, at least, to store the prosecco. Obviously that excludes outside shower and WC. For truly authentic hot tubbers, it has to be a Riverstone which is made from volcanic basalt and retails at GBP 54,000. Come on in!

 

Who Let The Dogs out?

 

Yes it was 20 years ago that the Baha Men, the Bahamian reggae funk band released their version of this Anselm Douglas song. Formed in 1977, the Baha Men had it is fair to say taken a measured and careful approach to stardom having been largely unknown outside pubs and clubs in the Bahamas for their first 23 years. Apart from this song which has been re-released by the Baha Men most recently in 2018, their only other work has been the appropriately named 2019 number, Let’s Go….We are still waiting(!). There is more….much much more but here is a taste of WLTDO-

 

Who let the dogs out?

Who, who, who, who, who?

Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?

Well, the party was nice, the party was pumpin’
Yippie yi yo
And everybody havin’ a ball
Yippie yi yo

I tell the fellas start the name callin’
Yippie yi yo
And the girls respond to the call
I heard a woman shout out

Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?
Who, who, who, who, who?

Who let the dogs out?
Who, who, who, who, who?
Who let the dogs out?
Who, who, who, who, who?

I see de dance people had a ball
‘Coz she really want to skip town
Get back, Gruffy, back, Scruffy
Get back you flea infested mongrel

Gonna tell myself, “Hey, man, no get angry”
Yippie yi yo
To any girls callin’ them canine
Yippie yi yo

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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