Morning Brief – British Pound

British Pound

Famed for his big calls on the US Treasury Bond market, ex Pimco guru Bill Gross has come out over the weekend with a case for GBP recovering in a scenario where the USD has become over valued and GBP, having depreciated by 14% is now under valued. Other forecasts have set a range of GBP/USD of 1.05-1.10 which given its current level of 1.1580 is by historic standards for GBP moves, cautious. Worth keeping an eye on GBP/EUR which has remained unchanged at 1.1540 after the USD retracement at the end of last week. What that suggests is that despite EUR being considerably weaker in the past few weeks, GBP has not managed to decouple from that EU weakness in the eyes of the market.

USA

The Federal Reserve’s skills are about to be very visibly tested as the pace is stepped up and QT (Quantative Tightening) increasingly replaces QE (Quantative Easing). Having managed interest rate expectations to the extent that it is pretty much discounted that the Federal Reserve will raise rates by 75bps in just over a week’s time, attention is now turning to how the Fed will be able to reduce its colossal balance sheet. Flooding the monetary system with liquidity is less of a scientific exercise than withdrawing it: too slow and markets will not like not seeing a visible end to the process, and too fast will tilt the economy into a sharp recession. Tomorrow the August US Consumer Price Index is released and markets will be watching that avidly and expect to see further signs of inflation being contained and reduced. EUR/USD 1.0030.

Canada: The Great Retirement

The USA had the Great Resignation at the time of the pandemic, but as we know, workers there have flooded back and the US labour market remains tight. However in Canada, the problem is the Great Retirement which has seen resignations rise by a whopping 31% in the past year from the previous one. That means that Canada is suffering from a skills shortage as experience floods out of the work force and cannot be readily replaced. Unusually, Canada with an aging workforce has 1 in 5 workers aged over 55. Canada is ramping up immigration but with one of the largest workforces percentage wise of the overall population, Canada has little surplus capacity to draw on. The result is that Canada is suffering from a double whammy since wages are rising sharply and productivity is suffering. USD/CAD 1.3025.

Strawberry Tree Honey

It sounds both interesting and tasty, but for those of you who do not know, it is the former only because it is unexpected, but taste wise,

“The scent is pungent while its flavor has aspects of green ivy, coffee dregs, leather, burnt, and bitter herbs. The taste is sweet initially but rapidly reveals its strong complex bitter flavor, gradually subsiding into an astringent finish with a mild, distinct aftertaste.”

It is also expensive at EUR 16 for a small jar and is produced in Italy and Albania. Usefully, while tasting filthy ( descriptions of burnt caramel are a wild exaggeration) it does have some medicinal qualities including as an anti inflammatory, anti oxidant and an anti asthmatic. And the strawberry bit? The fruit looks a bit like a strawberry!

Those inclined to give Strawberry Tree Honey a go, should have a palate cleanser close to hand. A spoonful of sugar will definitely be needed to make that medicine go down!

EUR/JPY 143.05.

Bob Dylan

Known for his voice that David Bowie sounded like “Sandpaper and Glue”, Bob Dylan had a very succinct riposte for those who accused him of plagiarising if not outright stealing other artists’ lyrics this day in 2012 when the 71 year old singer told Rolling Stone magazine: “Wussies and pussies complain about that stuff.” Here is one of his greatest songs from 1963 Blowin In The Wind :

How many roads must a man walk down
Before you call him a man?
How many seas must a white dove sail
Before she sleeps in the sand?
Yes, and how many times must the cannonballs fly
Before they’re forever banned?

The answer, my friend, is blowin’ in the wind
The answer is blowin’ in the wind

Yes, and how many years must a mountain exist
Before it is washed to the sea?
And how many years can some people exist
Before they’re allowed to be free?
Yes, and how many times can a man turn his head
And pretend that he just doesn’t see?

The answer, my friend, is blowin’ in the wind
The answer is blowin’ in the wind

Yes, and how many times must a man look up
Before he can see the sky?
And how many ears must one man have
Before he can hear people cry?
Yes, and how many deaths will it take ’til he knows
That too many people have died?

The answer, my friend, is blowin’ in the wind
The answer is blowin’ in the wind

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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