Morning Brief – Currencies

Currencies

As headlined here in the past weeks, currencies are seeing some big moves at present with GBP suffering Brexit and Covid nerves, EUR undergoing some pre-ECB meeting nerves ahead of tomorrow and USD seeing a correction. Definitely timely to put protection in place and the deployment of sage of Limit Orders. GBP seeing daily swings of 1%+ and yesterday 2% which is keeping SGM-FX’s newest Client Desk recruit, Edwin not only in his all-terrain Reeboks but on his toes.

SoftBank Call Option Purchase Programme

SoftBank has reputedly bought around USD50 Billion of call options on Technology Stocks with a further USD 4 Billion in the past week. The great thing about very large trades(and this one is a monster) is that selectively leaking news about them makes the price movement self-fulfilling as others scramble to avoid missing out or to cover short positions. The effect on stocks such as Tesla has been nothing short of spectacular. The less great thing is that exiting such positions is far harder. An example of that took place 26 years ago in the fixed income market. A hedge fund had amassed a colossal long position in interest rate futures contracts in the course of 1993 and as the market started turning and their margin calls started increasing, they and also the other market participants who had climbed aboard that trade, decided to sell their long positions. As everyone headed for the exit, prices tumbled and the result was classic bull squeeze carnage. Clearly technology stocks have little in common with interest rate futures, but the lessons of any marketplace apply and for investors in technology stocks while putting their parachutes on may be premature, they should certainly buckle up for what could well be severe turbulence. Yesterday saw falls of almost 3% on Nasdaq, 6.73% in Apple, 3.7% in Alphabet, 4.39% in  Amazon and 4.09% in Facebook.

Oil

Last night WTI Oil dropped over 3% to $38 a barrel to its lowest since July on demand concerns. On Monday Saudi Aramco cut the official October selling prices for Arab light oil which the market took as a sign that demand was stalling. Next OPEC meeting is scheduled for September 17. Forecasts vary widely but the more optimistic market watchers expect WTI to get above $45 by year end in a scenario with Covid vaccine availability and demand picking up.

Otis Redding

Today would have been soul singer Otis Redding’s 79th birthday had his life not been tragically brought to an early close in a plane crash at the age of just 26 in 1967. That year Otis Redding had appeared at Monterey Festival alongside many other stars including Jimi Hendrix and Janis Joplin and just 3 days before his death had recorded “Sittin’ on the Dock of the Bay”-here’s a reminder of one of the all-time great songs released in 1958:

Sittin’ in the morning sun
I’ll be sittin’ when the evening comes
Watching the ships roll in
Then I watch ’em roll away again, yeah

I’m sittin’ on the dock of the bay
Watchin’ the tide roll away, ooh
I’m just sittin’ on the dock of the bay
Wastin’ time

I left my home in Georgia
Headed for the Frisco Bay
‘Cause I’ve had nothing to live for
And look like nothing’s gonna come my way

So, I’m just gon’ sit on the dock of the bay
Watchin’ the tide roll away, ooh
I’m sittin’ on the dock of a bay
Wastin’ time

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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