Daily Brief – British Pound

British Pound

Seemingly moribund in a narrow trading range, Sterling could be due for a lurch downwards in the next 2 months. At present the market is expecting interest rates to rise by 25bps by year end, but if that fails to materialise or even sentiment changes and it looks as if it will not materialise, Sterling looks vulnerable. The market of course is awaiting the US-Iran deal and will be particularly interested in the detail and likely sustainability of the deal which is a factor for Sterling-perversely a workable deal could be bad for Sterling since it will reduce the argument for that interest rate hike. Then there is the largely known unknown of the new UK Prime Minister and what he will say and do when he returns from his holiday. Overall, it is unlikely that either the PM or his new Chancellor will be dispensing cheer and economic growth measures in the next weeks.

GBP/USD 1.3466.

Oil: Pipelines and Pinch Points

Saloon Bar bores have recently enjoyed holding forth about oil pipelines that either do or will make the Strait of Hormuz an Iranian irrelevance. Unfortunately, much of what has been proffered as hard facts are at best half baked. Starting with what does exist today: the Iraq-Turkey Kirkuk to Ceyhan which requires oil to be trucked 500 miles (think London to Geneva) from Basra to Kirkuk. A new pipeline from Basra to Baniyas, Syria of almost 1000 miles (think London to Florence) with a shorter spur to Tripoli, Lebanon has been agreed in principle but has no date for commissioning let alone completion. Secondly, there is an East West Saudi Arabian pipeline from Abqaiq to Yanbu on the Red Sea. Talks are in place to link that 900 mile (think London to Barcelona) pipeline to Kuwait and expand the existing capacity which is estimated for completion in 2030/2031.The third and shortest pipeline runs from Habshan in Saudi Arabia to Fujairah which bypasses Hormuz but that needs expanding and is due for completion in 2027. As for the pinch points, apart from Hormuz which is currently being negotiated between Oman and Iran, there is the uncomfortable proximity of Yemen and the Houthis to both the entrance to the Red Sea and to Yanbu more than halfway up the Red Sea where ships will subsequently need to pass through the final pinch point which is the entry to the Mediterranean via the Suez Canal.

Brent Oil USD 82.31.

Reservoir Dogs

As the days and weeks of dry weather (mostly) continue, and in the absence of the recently refreshed leadership of the UK Government blinking and appointing a Minister for the Drought, SGM-FX has looked at the water levels of UK reservoirs in the expectation that this will provoke downpours across the UK. As ever, the picture varies regionally and even intra regionally but: Overall; 72-75%; Scotland, Wales and Northern Ireland well stocked – must be all that devolution talk; North and West England 66% of capacity. Not surprisingly parts of Southern and Eastern England “notably” and “exceptionally low.” Notably low Clatworthy(Somerset), Blithfield (Staffordshire), Ardingly (W.Sussex) and Clywedog (Powys.) When it comes to exceptionally low: Blagdon and Wimbleball (Somerset) and Hanningfield (Essex). To give an idea of the effect of just one week of the sort of temperatures that the UK has been experiencing, last week reservoir levels fell 4%.

EUR/GBP 0.8570.

Silly Season

What does Hampshire have in common with Manchester? The county of Hampshire is sometimes known as Hog County given its historical association with wild boar hunting and more attractively is also called Jane Austen’s County since the author wrote many of her matchless novels there. This week Hampshire has captured more than its fair share of the silly season with the tale of a deranged man from Totton near Southampton who was described as a “blood drinking Satanist” and who saw himself as a vampire but who fortunately restrained himself to lambs rather than humans. Rather charmingly when sentenced he wanted people to know that he did not represent a threat to the public. The second story featured 2 Mancunian men old enough to know better(48 and 52) who came up with a cunning plan to rob a Derbyshire convenience store disguised as Scousers armed with a fake gun and with Liverpool FC scarves wrapped around their heads. The subterfuge was less than effective perhaps explained by what the police found in their house when they caught up with them (very) shortly after the botched heist: 9 bottles of Jack Daniels.

EUR/USD 1.1542.

Message in a Bottle

This day in 1977, The Police appeared at the Red Cow at 157 Hammersmith Road, West London. Then the pub was renowned as a cool place to catch music acts, now it still exists as a pub but somewhat less trendily as the Latymers. Admission that night cost 60p and to put that in perspective, a pint in August 1977 cost just 28p which meant that for the price of just over two pints, you got Sting, Stewart Copeland and Andy Summers.

Just a castaway, an island lost at sea, oh
Another lonely day with no one here but me, oh
More loneliness than any man could bear
Rescue me before I fall into despair, oh

I’ll send an SOS to the world
I’ll send an SOS to the world
I hope that someone gets my
I hope that someone gets my
I hope that someone gets my
Message in a bottle (Yeah)
Message in a bottle (Yeah)

A year has passed since I wrote my note
I should have known this right from the start
Only hope can keep me together
Love can mend your life, but love can break your heart

I’ll send an SOS to the world
I’ll send an SOS to the world
I hope that someone gets my
I hope that someone gets my
I hope that someone gets my
Message in a bottle (Yeah)

Have a Great Weekend!

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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