Morning Brief – Question

Humphrey Percy
Chairman and Founder
Wed 24 Jan 2024


Without wanting to sound alarmist the question is whether markets have factored in the geo political risks present due to the conflicts in Eastern Europe and the twin conflicts in the Middle East which are overlaid by the vast number of general elections scheduled for 2024. Maybe a better way to express the question is to ask to what extent markets have priced in all those risks and uncertainties. Equity and Debt markets look more than confident on the path of global equities and interest rates in 2024. Energy looks not to have priced in further disruption to supply. So, while in many ways the question is hard to answer given the risk still of a sharp economic slowdown, the likelihood of volatility as a minimum, and potentially a major correction must be there front and centre on the risk dashboard. So if you subscribe to the original question as being somewhere between not enough and not at all, what to do in FX world: do not be caught short of USD and CHF -as a bare minimum.

GBP/USD 1.2680.

Bank of Japan

Much as expected the BoJ maintained its ultra easy policy but somewhere in the sifting through the tealeaves, market analysts picked up the hint that an end to negative interest rate policy was approaching. Without being unduly cynical, we have been here before, but this time maybe, just maybe, it could be different. Seasoned observers may suspect that the BoJ is simply using the market to keep USD/JPY below 150 which as we have seen several times before is a sticking point for Japan.

USD/JPY 147.99.

European Central Bank

At the meeting it is not expected that anything much will happen except for what is said about the global economic outlook. Currently interest rates are expected to be cut in Europe in April and it is the language (as always) that will be especially closely watched. The other item which is most certainly not on the Agenda for the ECB Press Conference on Thursday is the recent ECB Staff Survey. 50% of the ECB’s staff think their President Mme Lagarde is doing a Poor or a Very Poor Job and 53% believe that Mme Lagarde should not be their President. Loyal aides are pointing to how many staff are still proud to work at the ECB, but given the strength of anti-Lagarde feeling, the survey will have to be addressed at some point-both within and outside the ECB.

EUR/USD 1.0865.

Snowball Derivatives

This is the description of retail equity products that have until now been wildly popular in the China market. That was before the market tanked which in turn triggered those products being stopped out. Approximately USD 50 billion has been invested in snowballs and it is estimated that 40% of those contracts have been stopped or cancelled triggering the loss of the investors’ equity. Snowballs sound innocuous-think fluffy-but as investors are belatedly learning, they are not.

USD/CNY 7.1705.

Do You Know Where You Are Going To?

Readers with good memories will remember the 1976 movie Mahogany for which this number was the smash hit theme music and became Diana Ross’ third number one hit this day 48 years ago. Still as good today as it was then:
Do you know where you’re going to?
Do you like the things that life is showing you?
Where are you going to?
Do you know?
Do you get what you’re hoping for?
When you look behind you, there’s no open doors
What are you hoping for?
Do you know?
Once we were standing still in time
Chasing the fantasies that filled our minds
You knew how I loved you, but my spirit was free
Laughing at the questions that you once asked of me
Do you know where you’re going to?
Do you like the things that life is showing you?
Where are you going to?
Do you know?
Now looking back at all we planned
We let so many dreams just slip through our hands
Why must we wait so long before we see
How sad the answers to those questions can be?
Do you know where you’re going to?
Do you like the things that life is showing you?
Where are you going to?
Do you know?

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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