A number of our clients both private and corporate are asking us what the outlook for GBP is with the differing probabilities of outcomes on Brexit: No Deal is given a probability of 30%, a Deal by 31 October 15%, a delay to the 31 October date 30% and a General Election 30%. NB probabilities do not add up to 100%
So in the event that one of the three 30% probabilities above indeed transpire and GBP moves lower/higher on hard Brexit, delay, General Election or (even) greater uncertainty, how low is low and more positively though less likely how high is high?
The answer is that we are in uncharted territory and therefore the market has dusted off the history books and lit on the previous low versus the USD which was in 1985 when GBP bought just $1.10. That is the level for hard Brexit. A General Election will mean $1.19 so not much change. Perversely a delay is seen as being a positive on the basis that further talking must be better than no talking so 1.26.
And now for the big one: in the event that Boris pulls it off and there IS a deal by 31 October, then 1.40 is the initial target. But the balance of probabilities does not reflect this outcome.
Following Aston Martin’s poor results last week and it’s share price falling to 468 from its issue price of 1700, Ferrari was the latest super car marque to feel the pinch with Q2 production lower and its share price dropping sharply on Friday. It makes one wonder that if a brand like Ferrari is unable to make the profits demanded by its investors with average prices of just under EUR300,000 for its cars, then what future does the top end of the car market face at these prices for manufacturers? SGM-FX clients buy and sell both super cars and classic cars and judging by the recent opening of the new HR Owen franchise in Mayfair’s Berkeley Square, there is still plenty of interest in owning these cars.
This is the time of year when preparations are being made to submit the first cut of next year’s corporate budgets. This is more than usually challenging for UK Finance Directors with international businesses or those foreign companies with U.K. operations given the uncertainty highlighted above.
We have been preparing these annual budgets for many years and the last time I can recall it being so difficult was in different circumstances 27 years ago in 1992 when the U.K. was teetering on the edge of crashing out of the ERM.
SGM-FX continues to offer assistance to our clients on this key plank in the annual budget process , so if you wish to discuss exchange rate budgeting and or hedging, please contact us.
Discussion and Analysis by Humphrey Percy, Chairman and Founder