Morning Brief – 10th September

In the Green:

The Swedish elections have slipped by with relative quiet. The political risk that elections have brought to the domestic economy had been sufficient in recent weeks to push the Swedish Krone back down to critical lows last seen in 2009. The correlation and price action within major crosses over the past few months strongly suggests that the elections weighed heavily on the domestic currency. Over the weekend, despite highly limited clarity from the elections, the Krone has already begun to find a footing against the Euro and the Dollar. Similarly, the Euro has found secure ground this morning as another contagion risk to the Bloc has subsided slightly. The Pound continues to trade favourably as we approach an informal EU27 summit that could give Barnier a mandate to facilitate a breakthrough in Brexit talks. Friday’s optimistic payrolls data in the US continues to cap EURUSD confidently below 1.16 with GBPUSD trading well off its week-end highs of 1.30.

• GBP: Barnier’s reported newfound malleability surrounding the problem of the Irish border supports the Pound with Friday’s trade weighted gains exceeding 0.5%.

• EUR: An Italian recession is a risk, warns the IMF, but with Swedish elections capping the support of nationalist anti-immigration party, the Swedish Democrats, contagion risk subsides.

• USD: Wage growth hits its fastest rate in 9 years, raising expectations for US economic growth, supporting the greenback.

• EM: Consolidation progress is positive, but waning.

Pound Sterling:

Appropriate Attire:

Straight jacket or suicide vest? Depending upon the importance that you ascribe to politics, your persuasion to the ruling Conservative party and how you feel about blonde floppy hair, the two aforementioned items of clothing could rank quite highly on your chosen attire for the foreign secretary, Boris Johnson. Defaming the controversial Chequers Brexit plan that has already precipitated the departure of former Brexit secretary David Davis, the Foreign Secretary has landed himself in hot water once again by comparing the UK’s leading advice to “a suicide vest around the British constitution”. The news has been largely disregarded by markets this morning as it is overwhelmed by reports of leniency surrounding the Irish border and vigour within the EU Council.

The Euro:

Deadly Recession:

Recessions are just a part of the business cycle, evident since the Greek’s study and creation of οἰκονόμος (economics). However, given a banking crisis, double-dip recession, 2008 financial crisis and European Sovereign Debt crisis, we’re all too aware of their prevalence. The International Monetary funds has cautioned that the impact of “only a slight recession” could be devastating to the Italian economy; an eventuality that seems almost given irregardless of the outcome of fiscal negotiations. Sweden is out of the way officially, however, weeks, even months, of political deadlock threatens to weigh on the Eurozone.

The Dollar:

$267bn:

Trade war is still centre stage, however, in a rare show of unilateral internal strength, the US economy posted its strongest wage growth rate in nine years. The public consultation period on the next round of President Trump’s trade war has passed, leaving markets waiting to see whether USD 267,000,000,000.00 worth of Chinese exports could face serious US tariffs. Risk sentiment remains fragile; however, safe havens have not gained fever pitch valuations… yet.

Emerging Markets:

Tortoise and the Hare:

A week of consecutive gains in the Rand appears to be continuing this morning. With the rate of changing slowing, the direction holds firm. With the South African economy officially in a recession, the Rand stands between a rock and a hard place; between citizens and international investors. In a little over a week, the South African Reserve bank will meet and publish their latest monetary policy statement, where momentum is building for a rate cut. The central bank is entwined in an existential battle of its own however, the 20^th December decision should show whether the bank stands on the side of domestic monetary responsibility or international credibility.

Discussion and Analysis by Charles Porter

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