Daily Brief – Sterling

Sterling

Regular readers will have been following the almost spooky positive performance of GBP versus EUR. This is down to EUR being undermined by political and economic news from France-firstly the riots and secondly the poor debt position of France that has seen Italian Government Bond Yields at 30bps less than French Government Bond Yields. The action apart from the EUR weakening has been in USD strengthening (see below) due to US rates. Remarkably, Sterling does not (yet) command a Burnham/Healey risk premium, although that could or probably will change in just 16 days when the markets focus on the detail of what is unveiled in the Autumn Budget Statement. Detail has been in markedly short supply in the time since Andy Burnham has taken on his “dream job”. But as long as EUR is weighed down by France, Sterling looks as if it will mostly continue trading in the channel of 1.16-1.18.

Brent Oil USD 104.74.

US Treasury Bonds

With 10 year yields over 5.20% and 30 year yields over 5.60%, not only are 10 year yields 135bps higher but 30 years are also up by 110bps since the beginning of March. Bond market veterans do not like the weather and are concerned by the price volatility. The situation is exacerbated by the hyperscalers (the monster AI companies) that are competing with the US Government for funding. Goldman Sachs estimates that as much as USD 420 billion will be sought by those hyperscalers next year. As buyers grow scarcer and rates increase, there will be an increase in mortgage hedging that means more selling of bonds. The clue lies in the shape of the US Treasury Bond Yield Curve which has a spread of 40bps between 10 and 30 years and implies that longer interest rates will move higher still. US Dollar unsurprisingly strong.

EUR/USD 1.1192.

Marchese Antinori

Those two words will set pulses racing among wine buffs as they immediately associate top wines such as Solaia, Tignanello and Guado al Tasso with the producer. Unfortunately, Antinori also excited the interest of some opportunistic thieves who last weekend broke into the Cortona premises of the merchant that dates back to 1385 and made off with 30,000 bottles including 10,000 bottles of Solaia in a haul valued at EUR 5 million. The thieves filled two large trucks with the wines and Antinori has warned devotees of its wines to be on the lookout for hot wines. Such are the costs of these wines-Solaia has an average price of over EUR300 per bottle that it is most unlikely that Antinori will recover its stolen stock. Meanwhile Italian readers will need to decide whether to examine their consciouses before succumbing to offers of bargain basement Tignanello.

GBP/EUR 1.1818.

Walmart

With over 200 USA supply chain warehouses and 140,000 warehouse workers, it would appear that the management decision to automate warehouses through the use of robots while (colossally) expensive is the right one. The trouble is that robots have a poor reliability record and break down, then the boxes used by Walmart to ship goods have always been too big both for the goods and the robots and lastly, not all warehouse jobs can be performed by robots. The 200 warehouses supply 5,200 stores nationwide and business cannot stop for processes, boxes and robots to be re-engineered. All in all, Walmart management has little choice but to see it through and hope that they can deal with the logistical challenges of automation without cratering the share price.

GBP/USD 1.3228.

Imagine

This day in 2021 this song went 3X Platinum or in other words it notched up 3 million copies sold almost 50 years after it was first released by John Lennon in 1975.

Imagine there’s no heaven
It’s easy if you try
No hell below us
Above us, only sky

Imagine all the people
Livin’ for today
Ah

Imagine there’s no countries
It isn’t hard to do
Nothing to kill or die for
And no religion, too

Imagine all the people
Livin’ life in peace
You

You may say I’m a dreamer
But I’m not the only one
I hope someday you’ll join us
And the world will be as one

Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man

Imagine all the people
Sharing all the world
You

You may say I’m a dreamer
But I’m not the only one
I hope someday you’ll join us
And the world will live as one

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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