Tag Archives: Charles Porter

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Morning Brief – Con-te Partiro

Con-te Partiro


Towards the end of yesterday’s European close there was a correction in risk appetite that saw the US Dollar appreciate against the Euro and commodity currencies. The sharp move that was precipitated by little fundamental adjustments or news headlines highlights the still fragile sentiment in global markets, particularly within the Eurozone. As this year has begun, despite the obstacle for Brexit largely surmounted, Eurozone risk has ticked up. This fragility allowed risk conditions to turn around almost instantaneously, translating into real price movements as sentiment ebbs and flows. Eurozone risk is heightened by the political uncertainty in Italy, the Netherlands and Germany, as well as lockdown’s accelerating throughout the Union’s core economies. Last night, the resignation of Italian Prime Minister Giuseppe Conte didn’t move markets immensely with expectations for political uncertainty already priced in.


The spread of Italian yields over German Bunds in a key metric of risk in the Eurozone and bears a strong correlation usually to the Euro. This spread has been rising to three-month highs, bracing for an inevitable breakdown in many Eurozone polities. Last night’s resignation by the Prime Minister was largely expected after he lost the support of former Prime Minister and leader of the Italia Viva party, Matteo Renzi, one of Conte’s coalition partners. However, the resignation was framed as an opportunity to secure a Presidential mandate to form a stronger government within the Senate, possibly without so many coalition partners. Given the near impossibility of holding elections within the nation given the current pandemic, it is thought now that Conte might use the need for immediate and strong governance to his advantage to secure a reformed coalition.


Stepping down ahead of a vote in the Senate scheduled for tomorrow on his own terms is even being interpreted as a potential improvement in European risk. The PM is set to offer his formal resignation to President Sergio Mattarella early this morning having failed to build sufficient support having narrowly survived votes of no confidence in both houses of the Italian parliament last week, saving him from potential embarrassment on Wednesday. The Five Star Movement was quick to reassert their support for Conte in an early sign that a new coalition could be formed. The Euro this morning, now trading within more liquid and voluminous European and London trading hours has shrugged off any weakness that the announcement of his resignation ushered in last night.




Discussion and Analysis by Charles Porter

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Morning Brief – Inauguration



Passed down from Latin, to French and an English sounding ‘al’ stuck on some time in the late 17th century, inaugural is a word that had carried a similar meaning for a long time. The Roman and Greek picture of an inauguration involved an augur (appropriately named) watching out for natural signs like the behaviour of the birds or a change in the wind to see if the candidate had the will of the gods to fulfil the position the people had elected him/her to. It’s a bit of a far cry from ‘JLo’ singing from the podium to an empty crowd. Fortunately for President Biden, her high notes didn’t scare off the birds and force the augur to condemn his election against the will of the gods…


Joseph Robinette Biden Jr. has now been confirmed as the 46th President of the United States. Our modern day augurs appeared to bypass the constitutional requirement for a transition of power at 12pm London time exactly, with Mr. Biden being addressed as Mr. President a handful of minutes before. The pause that followed the short and sweet swearing in process didn’t stop the BBC presenter falling into a state of confusion and disarray as she wondered whether a 10 minute pause was now due and what on Earth she was supposed to do with it.


Following a term of division and recent chaos, the inauguration may have meant much more than usual for many US citizens. Indeed those that have felt the wrath of Trump’s policies abroad may too have focussed on the transition of power more than they usually might have. As expected the hours leading up to the inauguration ceremony were characterised by USD buying. Early session Dollar weakness met strong resistance at 1.37 and 1.215 versus the GB Pound and Euro respectively. The Dollar peaked immediately following Biden’s inauguration as the risk of civic unrest and disturbance subsided. The new President enacted as many as 15 executive orders immediately upon being sworn into office to set the course of his own administration. It is customary for an outgoing President to leave a note for their successor. The White House has confirmed this to be the case in the recent transition but has not released its contents to the public. My bet is on ‘MR Biden, you’re fake news’. Time will tell.


A policy decision at the ECB today will be pivotal to the Euro. No policy change is expected by the market either to interest rates or the asset purchase program (QE). Therefore any signs of deviation or comment on the Euro from President Lagarde could unsettle the single currency. The valuation in the euro however suggested that the meeting in combination with the EU summit presents risk to the Euro that is being reflected in its price this week. The potential for Lagarde to surprise us with an expansion in the QE program or a significant move forward in the bloc’s vaccination program could move the Euro dramatically.




Discussion and Analysis by Charles Porter

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Morning Brief – Two hands on the wheel

Two hands on the wheel


Either the result of a calendar mixup or just a series of unavoidable events, the week ahead is packed with risks that will dominate foreign exchange flows. President elect Joe Biden’s inauguration will take place in Washington on Wednesday. This week members of the European Council, the EU’s executive arm, will also meet. If that wasn’t enough, no fewer than four of the G10 currencies have a monetary policy decision or announcement due this week. All of these events, in conjunction with the less than certain times we live in, should prove to unsettle markets and drive up demand for safe havens. This will create risks as well as the potential for rewards across the foreign exchange market.


Yesterday the market saw heightened and renewed demand for safehaven assets creating direct and indirect flows in foreign exchange. As a result of a flight to safety the world’s largest and most liquid currency, the US Dollar, rallied from a defensive market bid. Other classic safehavens including the Japanese Yen rose in value as investors sought protection from expected volatility from this week’s events. Commodity and emerging market currencies lost some traction as the reflationary cycle took a breather to account for this week’s great number of episodic risks. We could rightly expect these trends to continue to gather pace throughout the remainder of this week as markets continue to be defensive, wary of the potential for widespread change at each scheduled event.


Top of the list of risks is this week’s Presidential confirmation. We have already learned of the heightened security due at the Capitol for Biden’s inauguration. As a result of the violence witnessed last week at least 25,000 members of the national guard will secure the streets of Washington to ensure a smooth transition of power. As a result of a ‘small fire’ yesterday the entire complex was put into temporary lockdown with lawmakers inside told to stay away from external windows and doors. The tensions therefore could not be higher moving into the inauguration, pushing investors into less risky assets.


The EU Summit too will be of particular importance given the scope of potential and planned discussions. With Italy’s Prime Minister teetering on the brink of resignation, the European Recovery fund still facing problems and the vaccination program all up for collective change, risks behind the Euro are mounting too. The ECB is also one of those central banks in the G10 currency space making a decision this week. Given the Euro’s persistent advance the market is still wary of the damage Lagarde and her Board could do with passing comments about the single currency’s strength.


Whilst less is expected from other central banks hosting decisions this week, including banks behind the currencies NOK, JPY and CAD, the overall picture of risks is daunting. This has been driving the wider market to take protection behind USD at the expense of riskier currency holdings. This market positioning and a focus on individual currency pairs will reveal market opportunities as this week unfolds. Our desk would be glad as always to talk you through how to maximise your exposure to these potentially market moving events.




Discussion and Analysis by Charles Porter

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Morning Brief – Governor



GBP has been on a winning streak this week, re-testing 32-month highs versus the US Dollar yesterday. The price level, around the 1.37 mark versus the US Dollar was ultimately rejected once again by markets and GBP sent backing. However, momentum behind the UK pound has not been stalled so much yet as to jeopardise or unwind the recent uptrend. The local currency has been supported by the rise of global commodity currencies this week on the back of firming commodity prices. The expectation of global economic recovery and expansion by Q2/3 this year has led to revised estimates of demand for commodities and therefore the currencies of commodity exporters. The one key element pushing GBP’s performance above the rest of the pack has been comments from Bank of England Governor, Andrew Bailey.


On Tuesday the central bank Governor made his most decisive comments yet on the use of negative interest rates in the UK economy. Fortunately for the value of GBP those comments were particularly pessimistic of their use, citing domestic banking and home owning trends as problematic to their use. The comments forced fixed income markets to make a U-turn. Ahead of the announcement and for most of this year so far markets had been pricing a BoE rate cut into negative territory by the May meeting. That had hampered GBP demand as investors and commercial positions would have to pay for upside exposure to the UK Pound. As a result of Bailey’s speech, the yield curve corrected higher into positive territory for the vast majority of this year. Pushing GBP forward markets lower, the spot market lifted to set GBP on a decisive trend higher.


Momentum was challenged yesterday as markets not only encountered considerable technical resistance in the GBPUSD cross but Covid-19 deaths reached record highs in the UK. Whilst there was some statistical explanation behind the data point, it’s release still fostered pessimism surrounding the UK’s fight with the pandemic. Johnson’s second warning this week about the potential for tighter lockdown restrictions added to Sterling’s setback. Rising infection rates in the US and across much of Europe are also beginning to take their toll on risk conditions once again which could delay Sterling’s next challenge of this important resistance level.




Discussion and Analysis by Charles Porter

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Morning Brief – 2.3M



In the UK, 2.3 million people have received at least one dose of an approved coronavirus vaccine. Compared with a population of 66M or so, and with 3.12M people already having had the virus, that number may seem small. However, the speed of vaccination, particularly keeping in mind that it so far meets the Prime Minister’s own ambitious target is providing an element of support to the UK Pound. It is a long way ahead to economic recovery and the rhetoric remains tilted towards tightening, not loosening measures, however, GBP was optimistic yesterday that the UK’s vaccination efforts are bringing that point closer than it otherwise might have be. Although the domestic outlook may be bleak in the short run, there are movements afoot in the markets that should give us hope of a brighter spring and still yet warmer summer.


Deemed overplayed at the end of last year, the so-called ‘reflation trade’ was losing conviction. This trading pattern that dominated the market attempted to profit from economic normalisation and the expectation that inflation would return to the underlying economy as the health crisis proved more manageable and huge monetary and fiscal support remained in place. With yields still stubbornly low and global infections rising at the end of last year, it looked like the incumbent phase of optimism and reflation could stumble. However, 2021 has started on a more optimistic footing. Whilst by historical standards 10-year yields are still remarkably low, the falling price of US treasury is pushing financial conditions back towards normality. The equity market remains solid with commodity prices continuing to find support. What’s more important is that economic forecasts still point towards recovery in Q2. All of these facts have added conviction to the flagging idea of reflation and normalisation and paints a rosier financial picture of the global economy.


2020 was a year to forget for many and the global economy lost approximately 5% of its annual output. Much of the pain although staved off by fiscal and monetary action has already been produced and felt. Economic activity levels are forecasted to restore and produce additional growth in 2021. We have recently spoken about these indicators and the importance for a smooth transfer of power to foster further progress on these trends. In the longer run, this continues to spell USD weakness that without or even in spite of ECB intervention could see EURUSD retrace the steps it took early on in the millennium, higher into the 1.20s. Commodity currencies should see solid demand into Q2/3 ‘21 with NOK, SEK and AUD the expected out-performers. South American currencies too are expected to benefit from the weaker US Dollar and more robust international aggregate demand.




Discussion and Analysis by Charles Porter

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Morning Brief – Democracy in question

Democracy in question

Following the runoff votes in the state of Georgia yesterday, a mob of Trump supporters stormed the buildings of the U.S Capitol. The invasion of political institutions in Washington forced the suspension of the debate on Biden’s Electoral College victory. A woman lost her life during the violence and was fatally shot. Condemnations flooded in of those who violently and forcefully sought to publicise their support for outgoing President Trump and demonstrate their opposition to the result of last year’s election. Perhaps more forceful condemnation, given his position as President of the United States, was aimed towards Donald Trump.


It took two hours after Trump’s supporters overwhelmed the Capitol, for Trump to order the National Guard to assist in the securitisation of Washington’s public offices. Even during this order he still offered the message to these rebels that ‘we love you’. Trump published a video tweeted around this time urging people to go home, but still fuelling their illegal activities asserting once again in the same broadcast that ‘we had an election that was stolen from us’ and that he would ‘never concede’. Twitter and Facebook suspended @realdonaldtrump, the President’s personal Twitter alias for his incitement and tacit encouragement of violence. Twitter enacted the suspension commenting that Trump had made ‘severe violations of our Civic Integrity policy’.


Following a curfew after a day of unrest and civil disobedience, peace is seemingly restored to Washington and the Capitol. Despite the suspension, the Senate has voted on an Electoral College objection that threatened to stand in the way of Joe Biden’s confirmation as victor of the 2020 Presidential Election. Republican diehards and those that might be thought to follow Trump blindly maintained their support for the challenges to Biden’s victory despite witnessing the chaotic scenes that had arisen earlier that day as a result of violations of democracy. In spite of some opposition, the obstacle was surmounted with 93 votes to 6, pushing President-elect Biden another step closer to the White House.


The unrest in the United States and the international condemnations over the blatant violations to democracy did unsettle risk conditions in foreign exchange markets. A US Dollar that might have been thought to weaken yet further given the blue sweep in the Senate following runoff elections in Georgia, remained firm, reflecting heightened political risk. A demand for safehavens and cash pushed USD higher to the detriment of many emerging market currencies. Only moments ago Congress confirmed Joe Biden’s victory in the 2020 election. It now looks clear for Biden’s confirmation as President later this month and his party will now control the Senate, boosting his ability to effect legal and political change within the United States. The market will have to adjust to this status quo and is likely to do so via a weaker Dollar and stronger EM currencies. However, yesterday was a reminder of just how dangerous Trumpism can be with approximately two weeks of the incumbent President left, which could stave off this shift in the short run.




Discussion and Analysis by Charles Porter

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Morning Brief – Lockdown 3.0

Lockdown 3.0


The UK Pound yesterday succumbed to selling pressure with prices at the 1.37 mark versus the US Dollar rejected. Despite the positive backdrop to the first full trading session of 2021, largely created by the EU free trade agreement late last year, Sterling was hampered by concerns over spiralling cases of the coronavirus. The UK’s current experience of the global pandemic was assessed to be so dire such that strict social measures were thought to be inevitable with considerable economic spill-overs in tow. Bracing for the address that the Prime Minister delivered from Downing Street last night, GBP lost 1.6 cents versus the Dollar peak to trough in yesterday’s trading session. The ultimate verdict by the PM has not yet been met with further GBP selling as the announcement sat in line with market expectations.


With a whisker shy of 0.1% of the UK population being infected with the virus every single day and an R rate still above 1, the lockdown announced by the prime minister yesterday was severe. Resembling the March ‘20 lockdown closely, the slogan returned to stay at home, protect the NHS and save lives – a message not seen since the first weeks of the pandemic. Such a severe lockdown is guaranteed to have a negative economic impact and the PM, as far as England is concerned, did not put an end date on the lockdown measures. Commitments to vaccinate the most vulnerable quintile of our population by mid-Feb if we have ‘wind in our sails’ has given the market expectations of a long and protracted lockdown with Q1 GDP growth marked down once again.


The wider market had begun a relatively sanguine trading day yesterday ahead of the upset in the Pound. A weaker Dollar and stronger Euro initially paved the way for solid risk conditions as markets stretched their legs following the festive period. In the US today the runoff elections in Georgia will determine the composition of the Senate as Biden begins his Presidency later this month. Today’s election result in the state of Georgia is therefore critical to not only the Dollar but to valuations of currencies far beyond the borders of the United States. If Democratic candidates Jon Ossoff and Raphael Warnock both win the ballot then the Senate will be divided 50-50. The Senate is critical to any President’s ability to enact law and make progress and the rules state that within a tied senate, the tie-breaking vote is cast by the Vice President – in this case elected to be Biden’s own running mate, Kamala Harris.


Success for the democrats in the Senate votes today in Georgia will therefore determine the scope of Biden’s presidency. This result will identify whether he is able to enact those policies that we might expect him to pursue given more free will and scope, many of which are thought to be USD-negative. The impact of a weaker Dollar should itself cause trickle down effects in emerging markets, however, the international scope of Biden’s projected policy set will have a direct impact on the shape of global trade and international relations.




Discussion and Analysis by Charles Porter

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Morning Brief – Happy New Year

Happy New Year


Reminders flooded in yesterday from Chief Medical and Scientific Officers, Cabinet Ministers and the Prime Minister himself that New Years Eve will grant the opportunity for most of the United Kingdom for quiet and isolated celebration only. GBP was resilient despite some choppy and illiquid trading conditions as markets hoped that the readings of the Future Relationship Bill and briefings from Downing Street and the Dispatch Box surrounding Coronavirus would not dent risk conditions and Sterling forecasts too much. Ultimately it was the news that the vaccine created between Oxford University and Astra Zeneca had been approved for use in the UK that provided the defining upward momentum for GBP yesterday.


The approval created optimism in the Pound for two reasons. Firstly, it bolster’s the UK’s ammunition against the novel Coronavirus with respect to vaccination. De facto, the approval in the UK yesterday broadens the supply of inoculative doses available to the UK public hopefully, although far from certainly, ushering in a faster rollout of the vaccine. Secondly, as the result of collaboration between two UK entities, this specific vaccine also manifests as a potential UK export, the total value of which is non-negligible to the UK’s current account. Potentially real money flows therefore contributed to the demand for Sterling during yesterday’s trading session. Of course, the UK is the first nation to approve the vaccine manufactured by Astra Zeneca but the approval is presumed to be the first in the line of many.


Ultimately the Future Relationship Bill passed through the Commons smoothly ready for royal assent yesterday evening. On standby in Windsor Castle the Queen gave official assent to the Brexit trade deal meaning that it will be UK law from tomorrow. Condemnation from Westminster’s minor parties including the SNP failed to block the Bill with the Ayes to the Right grabbing 521 votes to 73. The reminder of the sparsity of provisions for services was unwelcome from the Pound’s perspective but the passing of the deal will provide for a better economic forecasts in years to come than might have been presumed under a no-deal.




Discussion and Analysis by Charles Porter

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Morning Brief – Finally



FX markets have begun their first proper trading day secure in the knowledge that the United Kingdom will have a trade deal above WTO standards with respect to the EU-27 come 1st January. So far there hasn’t been a huge sigh of relief evident within the Pound but it is evident that, in combination with Trump signing a fiscal stimulus bill to prevent US government lockdown, markets are embracing less defensive conditions this morning. The Pound did rally upon confirmation of a deal on Thursday afternoon. However, upward momentum was capped and prices ultimately rejected it seems at 1.36/1.115 versus the Dollar and Euro respectively.


The lacklustre move in the Pound comes down to two things. Firstly, the prospect of a deal was largely priced in with the real risks to GBP pricing lurking towards the downside should a no-deal have materialised. Despite GBP being off of its Thursday highs, in comparison with where we might have been trading this morning should a no-deal have become apparent last week, GBP is solid. The second reason is that the deal itself is a hard form of Brexit and provides for tariff free (and limits thin non-tariff barriers to) trade only. The deal does not cover services, including financial services. The deal also makes no attempt to preserve elements of the customs Union and single market that are supportive of economic growth.


The market this morning is also taking note of astronomically high rates of coronavirus infection in the UK and reports that hospital admissions are higher than those in the first wave. With much of the UK already in the highest tier of infection, the expectation of a bumpy road ahead with respect to the health crisis and its knock on implications upon the economy have GBP on the back foot. The deal should still, however, provide a positive backdrop for Sterling for some time to come. The deal whilst not being what all may have hoped for does provide an immensely important legal backdrop and starting point upon which to shape UK trade with respect to the Union whilst respecting the result of the 2016 vote.




Discussion and Analysis by Charles Porter

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Morning Brief – What a Load of Carp

What a Load of Carp


Christmas is Cancelled! Well, not quite yet, but the reality for Members of Parliament is that a few days of their Christmas break could be revoked next week should the United Kingdom and European Union come to an agreement on a trade deal soon. These rumours began to gather momentum on Monday with speculations within Westminster that Jacob Rees-Mogg as Leader of the House of Commons could recall the House from their Christmas holidays to vote on the important trade deal. Cold water was quickly poured upon these rumours by Number 10 Downing Street and the PM’s office who continued to advise the House and public alike that a no-deal was still the most likely outcome and such end-game preparations were far too presumptuous, even erroneous.


As the week has gone on we have learned of progress on many contentious areas of a post-Brexit trade deal. European Commission President Ursula von der Leyen has briefed MEPs of the progress made on the Level Playing Field and role of the ECJ in deal-enforcement obstacles present in the potential post-Brexit trade deal. Purportedly, therefore, the one major area of a deal that remains unsupported and contentious is fishing. Mr Macron, seemingly at risk of being renamed Mr Maquereau, with his hard-line approach to fishing rights in UK waters, embodies the greatest risk to the UK’s potential trade deal.


The sanguine approach of Ms. von der Leyen this week has been partially met by the Prime Minister when he told MPs yesterday afternoon that there was “every hope, every opportunity” to secure a trade deal with the EU in the coming days. Initially shying away from his role in deal ratification early this week, Mr Rees-Mogg is also thought to have briefed colleagues that should a deal be agreed this week, he would pave the way in the parliamentary calendar for MPs to pass emergency legislation to approve the deal.


The bill that has been provisionally dubbed the “future relationship bill” would be expected to get a whistle stop tour of the Palace of Westminster. Starting with one day and one night on Monday in the Commons the bill would be whisked through the Central Lobby and onto the Lords’ chambers for a one day consultation on Tuesday to allow for Her Majesty to grant Royal Assent to the deal the following day, all in time for Christmas Eve. Sterling sits at two-year highs versus the US Dollar on the back of this positive trade rhetoric. GBPUSD has also been encouraged higher by the Federal Reserve’s dovish monetary policy announcement yesterday evening.




Discussion and Analysis by Charles Porter

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