All posts by Mireille Percy

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Morning Brief – Friday 26th

Markets

 

At the beginning of this week 1USD would have bought you 42 Argentine Pesos. Today that has become 45 Argentine Pesos. A 7%+ devaluation in a week is dramatic for the already beleaguered Argentine economy and represents a record low for the Peso. This has affected all emerging markets. Generally the USD has strengthened further in the past 24 hours as investors have bought USD, Yen and CHF. GBP has weakened a little as markets mull the likelihood or otherwise of some Brexit progress as the UK Parliament returns to the fray. Apparently 34% of Scots do NOT want a second Referendum… which means 66% either do or do not know.

 

 

 

Germany and the EU and German Elections

 

The increasing strength for the AFD-Alternative for Deutschland-the ultra right wing party particularly in Eastern Germany is causing concern not just with Mrs Merkel but more widely in Europe. 30 years after reunification, there is a marked discrepancy in wealth between East and West regions of Germany. The AFD has struck a chord especially in Eastern Germany which is particularly intolerant of Islamic immigration which they blame Mrs Merkel for encouraging. European politicians are asking themselves if this is a wider trend.

 

 

 

The UK Housing Market and Mortgage Finance

 

Those who have mortgages that are interest only are growing in number all the time. While more “risky” since there is no capital reduction, this method of borrowing is driven in large part by non affordability of capital repayment mortgages of the size necessary to buy property. In 5 years time there will be 250,000 of these mortgages up for renewal and in 10 years, that number will be almost 900,000. That is not an issue if interest rates remain low but if not, there is a risk of negative equity and a financing crisis. If those without such mortgages or with no mortgages think this is not their problem, they are wrong as it will affect the market as a whole. Having said that, there is a solution to this and that is inflation, however unless carefully controlled, that has ramifications that go far beyond the housing market. In the near term, there have never been so many low rate interest only mortgage products on offer.

 

Why is this relevant? The answer is that the overseas housing market owned by Brits is very largely financed by savings and….the withdrawal of equity through mortgage finance from their UK properties.

 

 

 

 

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Thursday 25th

INDYREF-eree!

 

Yesterday’s confirmation by Scottish First Minister Nicola Sturgeon failed by rain on Sterling’s parade. Sterling finished the European trading session yesterday 0.3% up against the Euro and 0.2% against a strong US Dollar. Whilst the Pound eventually lost the battle against the US Dollar in New York trading hours, it did manage to hold its ground against most other currencies throughout the evening.

 

The 300-year partnership between Scotland and the United Kingdom was last put to the polls in September 2014 where the Scottish people, by a margin of more than 10% opted to remain a member of the United Kingdom. In fact, in this referendum, only four domestic councils in Scotland voted with the motion to become an independent country.

 

The people of Scotland account for a little over 8% of the total population of the United Kingdom with a comparable contribution to output on the economic front. The referendum was divisive on both sides of the Scottish border and whilst the direct impact upon the Pound is difficult to measure, you’d be far stretched to find a Sterling trader in the City of London that wouldn’t have listed the referendum as an important risk.

 

The second attempt at independence that Nicola Sturgeon has pledged to pursue before May 2021 will be another shadow of uncertainty due to hang over the UK political economy in the years to come. The margin between the Scottish Remain and Leave votes was two and a half times larger than the somewhat more infamous Brexit referendum and, without question, doubts surrounding the validity of a ‘do-over’ referendum will be raised.

 

A more imminent threat to Sterling was partially avoided yesterday evening. The 1922 Committee, a prominent and pervasive group of Eurosceptic MPs within Westminster, was pushing to change Conservative Party laws to undermine an internal party rule that its governing leader cannot face more than one leadership challenge within a 12-month period. This rule amendment has been rejected, however, the Committee is still calling for May to put a deadline on the premiership that she herself has promised to terminate following the successful negotiation of a Brexit deal. To bolster Sterling support further, the fiscal 2018/19 deficit weighed in at only a little over half the size of the previous year, making it the lowest deficit in seventeen years.

 

The US Dollar continued its triumphant advance. At the open of play yesterday the US Dollar on a trade weighted basis was already trading at a 22-month high. The previous trading session only added to these levels with the Dollar breaking the Euro down through key resistance levels. Meanwhile, several US equity markets also continued their unabating rally.

 

A dovish interest rate guidance by Bank of Canada’s Governor, Stephen Poloz, reminded markets of the interest rate disparity between the later-cycle United States and the rest of the developed global economy. The Canadian Bank removed a reference to the need for rates to return to a neutral range, stating also that a degree of accommodation must remain in Canadian rates of return. The Loonie weakened alongside these headlines, reinforcing the stronger Dollar.

 

Amidst broad-based Dollar strength, emerging markets including the Rand and Lira have become increasingly cheap in the past two days. Challenges to Istanbul’s election results in particular have weakened the Lira to levels not seen since last month’s elections.

 

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Wednesday 24th

Markets

 

Have started the week in a positive frame of mind with the Dow recording a record high and its best performance since last September, oil firm with WTI at $64.04 and USD strong and unchanged.

 

 

In the Beginning… (Genesis) or Beresheet in Hebrew

 

The Israeli Beresheet moon mission ran into trouble resulting in a 300 mph “hard landing” on the Mare Serenitatis on the surface of the moon. Mission over this time but Israel has pledged to try again.
Never mind Arnie and “I’ll be back”. This is Aaron and he will be back!
SGM-FX’s Shekel desk are standing by when the Israelis shell out for the next spaceship with USD/ILS presently trading at 3.58….

 

 

Crossrail

 

Londoners in particular but visitors to the South East also will take comfort from the news that there are now 3 cases for the opening of the line as opposed to a news vacuum on the launch of the long awaited service as we wrote last month. Best case is that it opens in a year in Spring 2020; middle case is for Summer 2020 and worst case is Spring 2021. Great to see that there is now some accountability on the timing for this the largest infrastructure project in Europe. 17 minutes from Paddington to Canary Wharf means no more excuses for being late at your SGM-FX desk, Richard!

 

 

 

 

 

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Tuesday 23rd

A lot of sunburned Brits will be headed back to work today after the long weekend. All four nations of the United Kingdom enjoyed their hottest Easter Mondays on record, with Saturday also stealing the 2019 crown for the hottest day so far this year. My thanks go to the Met Office for these statistics that seem to justify my belonging to this universe of work-bound, sunburned, individuals.

 

Easter Sunday across the globe brought with it an unfolding series of devastating news from Sri Lanka. The suicide bombings that targeted three churches and four luxury hotels leaves at least 310 people dead and many hundreds more injured. Our private thoughts remain on the terror and destruction demonstrated in the nation this weekend.

 

However, to digest the global impact, let’s examine what this means for a nation that in a little over three weeks will officially mark a decade since the end of a quarter-century civil war.

 

Sri Lanka has a relatively large debt to GDP ratio for its level of economic development. Government debt is approximately 75% of annual economic output and tourism pays an immense part of bolstering public coffers to repay the interest on this stock pile of debt. At approximately $50bn in absolute size, the forthcoming debt problem from any faltering tourist revenues could not be brushed under the carpet indefinitely.

 

The outlook for the economy will therefore be determined by the success the government has in designing appropriate measures that balance public freedom and security in order to preserve the attractiveness of Sri Lanka as a tourist destination.

 

For now at least, with a manipulated exchange rate against the US Dollar, the forex story accompanying the Sri Lankan crisis this weekend is virtually non-existent. However, the long run flight of cash from domestic assets to overseas will put pressure on the artificial valuation and increase the cost to the state owned bank of defending the Rupee’s value against the US Dollar.

 

Sri Lanka’s stock market this morning is depressed, falling several percentage points from its pre-Easter weekend level. Whether or not selling off a country’s assets is right or not in the face of a public crisis is another debate and one that is constantly evolving, however, this morning’s financial realities should not be overlooked.

 

Over the weekend in the United Kingdom, Theresa May faced increasing pressure as cross party talks continue. May’s discussions with the opposition will be held with one eye on the rear view mirror as her own backbenchers launch another surge to oust her as Prime Minister. With markets wary of these risks already, the Pound trades relatively level with its close of trade last week.

 

In the US, President Trump’s decision not to renew waivers that allows certain nations to purchase Iranian oil exports has sent crude oil prices higher once again on supply concerns. With growing tension between the nations, Iran has threatened to close the Strait of Hormuz, a strategic body of water linking the Persian Gulf to the Arabian Sea and Indian Ocean. The Japanese Yen enjoyed a bid in early trading this morning as investors scrambled to price in the tumultuous and elongated weekend.

 

 

 

 

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Wednesday 17th

Exchange Rates

 

We have written previously about the low level of exchange rate volatility in the past year and it is now official: exchange rate swings are at a low for the past 5 years. Euro/USD 3 month volatility is running at a third of the norm over the past 18 years. The closely watched benchmark of EUR/USD has traded in a 4 cent range in the past year. GBP/USD is showing the same calm despite the torrid political shenanigans over Brexit and the Conservative party leadership contest which would normally be more than enough to move the market sharply and frequently. USD and GBP both slightly weaker overnight: GBP on no news Brexit and USD on what POTUS is contemplating giving to the Chinese on trade.

 

 

 

996 versus 945: What DOES this mean?

 

Answer: Asia versus the old world typified by France. Jack Ma the founder of Alibaba, the Chinese Ebay espouses working from 9AM to 9PM 6 days a week, hence 996. On the other hand the law in France is a max of 35hrs a week or….9AM to 4PM or…. 945…! Jack Ma is worth $40billion and his company just short of $500billion. Enough said…

 

 

 

As English as….Stonehenge?

 

Or rather not…as it now turns out the most famous ring of stones built in 3000 B.C. was constructed by Neolithic man whose roots are confirmed as being Anatolian (modern day Turkey.) The migrating Anatolians set off in 6000B.C. along the Mediterranean coast and up through Western Europe arriving in Britain in 4000 B.C. After a further 1000 years of gathering wild plants and fishing, the Anatolian Neolithic Brits turned their hands to construction: Stonehenge. SGM-FX’s James is currently stocking up his camper van for the Stonehenge summer solstice on June 21 and is looking forward to the normal modern Druid fare of big cigarettes and rough cider.

Following this Stone Age Stonehenge breaking news…Who’s for a kebab? James?!

 

 

 

 

 

 

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Tuesday 16th

Great edifices, like great mountains, are the work of centuries:

 

 

I should think many of you reading this brief right now have visited, seen, or at least heard of the Notre Dame Cathedral in Paris. No doubt too that you have spotted the saddening news of the fire that last night caused as-yet unknown damage to Paris’ iconic Notre Dame cathedral. Yesterday evening through to this morning, admirers of the building stood silent, watching flames climb up the Cathedral’s features. Many even screamed as the spire gave way atop of the 12th century building.

 

 

Yesterday evening’s dialogue and indeed this morning’s papers were anticipated to revolve around France, yet not with headlines as emotive and saddening as “Heart in ashes” – La Croix, and “Our lady of tears” – Le Parisien. Yesterday evening, President Macron was supposed to deliver his “first concrete measures” on national television following two months of public consultations under the auspices of the grand national debate.

 

 

Les gilets jaunes, or yellow jackets, have taken to the streets of Paris and many other French cities every weekend so far this year. The movement originally arose in reaction to rising and unaffordable fuel prices but rapidly grew into an embodiment of discontent in Macron’s presidency and France’s per capita economic struggle.

 

 

Ten thousand nationwide debates and two million online responses had informed the President that some 82% of the population wanted to see a tax cut and at 8pm yesterday evening, those participants as well as international markets were waiting to see what the President would come up with. In hindsight perhaps Le Figaro, a Parisien daily newspaper, might still have run with the headline “Le désastre” – The disaster – albeit with a different picture.

 

 

With the fire breaking out around 6:30pm local time, the President announced he would postpone the announcement. Instead, Emmanuel Macron yesterday evening had the chance to pledge to rebuild the cathedral because “that’s what our history deserves, because that is our destiny”. Resilience and defiance in the face of this national disaster in the long run may do little to protect the French president from a hugely dissatisfied electorate.

 

 

The world’s reaction to last night events (bar perhaps that of Trump’s flying water tankers), is testimony enough that we won’t need another Victor Hugo to save the great cathedral unlike last time. Macron, however, might not count on so much sympathy if his reforms go up in flames.

 

 

 

Oil prices snapped their longest winning streak in three years amidst a report of increased US oil rig activity. The slip in crude oil prices hampered Sterling support through the day. Sterling found more solid footing when Foreign Secretary Jeremy Hunt echoed shadow Chancellor McDonnell’s opinion that cross party talks were more constructive than people have thus far given them credit for.

 

 

 

The Rand continues its impressive march forward this year despite warnings of political uncertainty from the IMF.

 

 

 

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Monday 15th

Markets

 

At the start of Easter week markets are looking to the start of Golden Week in Japan this time with a further holiday period with the new Emperor’s accession. The longest continuous closure of the Japan market since WW2 is causing a few frayed nerves. In the UK currency, credit and equity markets are calm as Parliament this week at least is officially off for Easter although the behind the scenes deal making continues unabated. The USD is a bit weaker following Trump’s call for lower interest rates. Asian markets have opened higher on the back of a positive outcome to trade negotiations.

 

 

European Elections 2019

 

As we prepare for an election that we absolutely definitely were not going to participate in at a cost of GBP100 million plus, it’s worth looking back at the chronology and the results of the last European Election on 22 May 2014. It was not until 20 February 2016 that the then PM David Cameron announced the Referendum which took place on 23-06-16 i.e. two years after that last election. Of the 73 British MEP seats in May 2014, the results were as follows: UKIP 24, Labour 20, Conservative 19, Green 3, SNP 2,and 1 each for Lib Dem, Plaid Cymru, Sinn Fein, DUP and UUP. Voting is on the basis of proportional representation but it is worth remembering that at that time UKIP won the most votes at 4.4 million, so that was twice in 2 years that the UK by implication given UKIP’s manifesto, voted to leave Europe. May 2019 will be a hugely significant vote given its irrelevance (assuming the UK does indeed exit the EU) and will encourage the extremes of each of the Leavers and Remainers. Nigel Farage’s Brexit party having been a likely non event will have the chance to now assume a much greater influence.

 

 

It’s complicated: Worth remembering what Europe really does mean…..

 

 

 

 

Lastly…Just in from the South Coast

 

The UK’s only drag wrestler, one Ollie Burness who fights as Priscilla Queen of the Ring in a fetching silver number, made his hometown debut in Portsmouth on Saturday night. SGM-FX Head of Compliance Alex was considering regulatory implications for such entertainment, but sternly directed that team mates Charles and Graham should stick to their golf…..and not even think about wearing their pants outside their tights.

 

 

 

 

 

 

 

 

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Friday 12th

Market

 

As further evidence of a cooling in the global economy surfaced this week, it was inevitable that a scapegoat would be sought. Not only Europe but also the IMF are getting in on the act to blame Brexit. In currency world this week EUR has weakened versus USD and GBP has held up well bolstered by the belief that the UK is better off having an extension to end October for leaving the EU. Stock markets have fluctuated within a narrow range and the main story remains the strength of WTI Oil at $64+.

 

France and the Big Debate

 

Ouf! Le ( Petit) President himself instigated Le Grand Debat in response to the Gillets Jaunes to discover why there was such widespread dissatisfaction in France. 10,134 meetings each attended by an average of 45 people came up with what the people want: firstly, honesty and secondly, lower taxes. 1,932,881 posts were submitted to a website confirming just that. There is a widely held view that all this was to boost Macron’s flagging poll ratings and were just an expensive PR exercise. Mon dieu-surely not?!

 

Brunei Boycott

 

The UK Police Federation have cancelled their annual awards at the London Dorchester and the Conservative Party have also quietly cancelled an event there. As the anti Brunei movement gathers momentum, watch out for offers at Hotel Eden, Rome and Le Meurice in Paris. Escape Brexit and have a bargain weekend away: Win win!

 

 

Eurovision

 

If you have booked your flight to Tel Aviv for 18 May to attend the Eurovision Song Contest, you are in for a treat with Madonna due to sing two numbers. If like the 180 million other viewers who are estimated to watch it on TV you should make sure that your soundbar is in place with the volume cranked up.

 

SGM-FX’s answer to James Corden, Graham can be heard warbling American Life in readiness:

 

I tried to be a boy

 

I tried to be a girl

 

I tried to be a mess

 

I tried to be the best

 

Phew! Shades of Conchita Wurst, Graham?
 

 

 

 

 

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Wednesday 10th

GBP/EUR

 

 

For all those affected by this currency pair the tendency is to focus on GBP and its changing daily/hourly strength or weakness due to the torrid action in Westminster. As perceptions that a NoDeal is out of the picture, GBP strengthens and then as news emerges that PM May and Leader of the Opposition Corbyn find no common ground other than their well recorded mutual antipathy, GBP weakens. Volatility in a narrow range as reported here last week. Outside in the wider world USD currency traders, Chicago Mercantile Exchange Futures traders and the market community that tracks the EUR see no reason to buy the EUR at present: Germany economic releases reflect a weak and a further weakening position; Eurozone growth is flat; French unemployment is high and not shifting downwards etc etc etc. Net short EUR trades on the Chicago Mercantile Exchange increased last week by $2.6billion and now total EUR positions stand at $13.9 billion short. While this is a small part of the $5 trillion per day global foreign exchange market, it is nevertheless representative of overall market sentiment: there is no good reason to buy EUR at the moment. In summary that means that despite the Brexit negotiations’ negativity of Westminster and Brussels, GBP is insulated from much larger dips by the ongoing greater negativity for EUR…..for the moment.

 

 

 

Brown Shoes in The City of London: Brown in Town.

 

Hard on the heels of the news that Goldman Sachs no longer requires Masters of the Universe and in fact all staff to wear suits, comes the news that a City Law firm partner told the audience to avoid brown shoes with a blue suit. Quite takes me back in time to 1992 when one of my colleagues had rashly cut a dash by wearing a tie, blazer, dark grey trousers and brown shoes for the morning Executive Directors’ Meeting. Looking him up and down my then Investment Bank CEO with a raised eyebrow, said: “ Good of you to come in while you are on holiday.”

 

 

 

 

 

 

 

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Tuesday 9th

Omnishables:

 

Taking the acclaimed title of Oxford Dictionaries word of the Year 2012, “Omnishambles” is a word which is normally deployed in relative proximity to a photograph of the former Foreign Secretary and Vote Leave figurehead, Boris Johnson. To my mind today, it’s an appropriate one-word encapsulation of global politics. The general decay in health and cooperation on the global stage frames the wider picture that we see in markets: highly valued safe haven assets, cheap emerging markets, amidst rising volatility.

 

The bleak impression created by the world’s political economy is undoubtedly down to a core set of big issues, let’s call them magnashambles. The first that springs to mind is the Trump administration’s war on trade. Overnight the White House upped the ante on trade, proposing a series of tariffs on $11bn worth of EU exports. Whilst the value of EU goods in the firing line of Trump’s protectionist politics is only a fraction of the value of Chinese goods already experiencing the tariffs, the White House’s move threatens a European Union struggling with Brexit negotiations, weak growth and forthcoming elections. What happens when you threaten a cornered animal..? I suppose it depends upon the beast.

 

The proposals overnight hurt risk sentiment, exacerbating the trends of overvalued safe havens, cheaper emerging markets, and rising volatility. Defensive Dollar demand in reaction to the threat to global trade has remained limited in good part due to the limited value of goods affected and sanguine words of US trade representative Robert Lighthizer who was forthcoming in suggesting the United States’ aim was sustainable resolution. Treading lightly is perhaps the best policy given that the EU’s subsidies to aerospace champion Airbus were the centre of attention and a primary justification for the move despite and only last month the World Trade Organisation reiterated that the States’ own subsidies to Boeing were similarly illegal.

 

If the tariffs gain traction, we could reasonably expect a weaker Euro, increase in defensive US Dollar demand and further weakening of emerging market assets. More magnashambles for another day.

 

Back to Westminster, where the House of Lords yesterday passed Yvette Cooper’s deal, reducing the risk of a no-deal Brexit on Friday. The three Ms, May, Merkel and Macron, will meet later today ahead of tomorrow’s European summit where they will discuss the UK Prime Minister’s request for a Brextension. Sterling continued to rise against the Dollar overnight with limited progress against the Euro while investors wait to see what life-lines the summit might bring an ailing UK premier.

 

 

 

 

 

 

Discussion and Analysis by Charles Porter

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