Tag Archives: Currency Analysis

UK buildings

Morning Brief – Zhejiang Geely Holding Group

Zhejiang Geely Holding Group

 

Owners of Volvo, Guangzhou based Zhejiang Geely has announced that they will simplify the Volvo range, create transparent pricing and go fully electric by 2030 having already pledged to be 50% electric by 2025. They now join Bentley, Ford and Jaguar, Land Rover that have made the same pledge to be all electric by 2030.

 

UK Banks and Wealth Management

 

The arithmetic is straightforward: UK bank deposits grew by GBP 221 billion in 2020 while lending grew by GBP 53 billion. This in a nutshell explains why the race is on at UK banks to improve their WM offerings. Given the negligible interest rates on offer, depositors will, the banks hope, rush to take up those new products and services. This may prove to be short lived once lockdown ends and savers regain confidence; then it will be likely spent on holidays, entertainment and home improvements-or maybe an electric Volvo.

 

Emerging Markets

 

With net inflows apparently slowing from January’s $55 billion of foreign money going into emerging markets, it was no surprise that only $31 billion was invested in February which was the lowest monthly amount since August last year.

 

We Gotta Get out of This Place

 

It was this day in 1966 that The Animals were due to perform to a packed Coliseum in Ottawa, Canada except…the  venue’s management refused to pay the band up front before the concert. On those terms, The Animals declined to play and after an hour of waiting, their fans rioted with plenty of damage to the Coliseum which left the venue, the band and the fans all out of pocket. Here is their 1965 hit which the Animals would doubtless have played and the venue management equally no doubt wished they had:

 

We Gotta Get out of This Place

 

In this dirty old part of the city

 

Where the sun refused to shine
People tell me there ain’t no use in tryin’

 

Now my girl, you’re so young and pretty
And one thing I know is true
You’ll be dead before your time is due, I know

 

Watch my daddy in bed a-dyin’
Watched his hair been turnin’ grey
He’s been workin’ and slavin’ his life away, oh yes I know it

 

And I’ve been workin’ too, baby (yeah!)
Every night and day (yeah, yeah, yeah, yeah!)

 

We gotta get out of this place
If it’s the last thing we ever do
We gotta get out of this place
‘Cause girl, there’s a better life for me and you

 

Now my girl you’re so young and pretty
And one thing I know is true, yeah
You’ll be dead before your time is due, I know it

 

Watch my daddy in bed a-dyin’
Watched his hair been turnin’…

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – No-taper tantrum

No-taper tantrum

 

There are two critical moments in any public body’s response to an economic shock. The first is the initial reaction – how will governing institutions respond initially to reassure the markets and public alike to preserve as much normality as possible. Whilst the sustenance provided by these institutions throughout the course of an economic shock is important, it is of more marginal significance. The second critical moment arrives once the economic threat is receding or even passed, how do you remove support without spooking the market. If the latter of these objectives is not successfully managed it can have the impact of plunging the market into a renewed state of turmoil. The successful withdrawal of stimulus is as critical to financial stability and preserving economic output as the provision of initial support to an ailing market.

 

Often compared to threading a needle, it is now the prerogative of governments and central banks to identify how they will reel in and eventually withdraw excessive support entirely to allow public finances and balance sheets to consolidate. Often this is an impossible task to withdraw support mechanisms from a market that wants to cling onto its toys like a stubborn toddler. Accordingly, the so-called ‘taper tantrum’ refers to the scenario in which a central bank in particular tapers off monetary support and the market slashes valuations of financial assets in response to the dwindling support. Last week, however, provided something even more concerning – a no-taper tantrum.

 

Messages from Jay Powell’s Federal Reserve, Andrew Bailey’s Bank of England and Christine Lagarde’s ECB have flooded in and continue to proclaim of downside economic risks and the need to sustain crisis-era monetary policy for longer to allow a smooth exit from the pandemic. This comes against a backdrop of analysts’ forecasts and public sentiment that the economy should recover well later this year following the lifting of lockdown restrictions across the planet as the vaccination rollout reaches critical mass. Concerningly, there is no sign of tapering from central banks and even fiscal bodies remain on the front foot evidenced by Sunak’s anticipated speech tomorrow and Biden’s $1.9tn stimulus programme. This commitment to continued economic and monetary support comes despite the obvious signs of a recovering economy, and even in this environment, the market still convinced itself withdrawal of monetary support was coming. With no taper in sight the US treasury market began selling government debt, decreasing its price and raising the yield on longer dated bonds on Thursday night.

 

All of these moves were in anticipation of the rising risk of inflation and the corresponding need to raise rates in the future. Inflation in small quantities is seen as the grease on the wheels of the global economy and is why almost every central bank on the planet has a core commitment to maintain price stability but at a positive rate of inflation. However, too much of a good thing and particularly when coming too quickly and unannounced is damaging and underlies the sharp sell off in US treasuries and the spill over into global fixed income markets that took place last week. The move spooked markets that had been enjoying the earlier half of the week amidst a backdrop of warming risk sentiment. The Swiss Franc and Japanese Yen, two defensive safehaven currencies, outperformed as well as the US Dollar as risk rose.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – St David’s Day

St David’s Day

 

A very happy St David’s Day to all of our Welsh readers. Canonised in 1120AD by Pope Callactus ll, St David died this day in 589AD. St David’s Day is marked by wearing either a daffodil or a leek (or both) and eating Welsh rarebit or cawl which is a broth like soup to the non Welsh among us. SGM-FX’s Operations Executive, Rob “Welsh” Warrington will doubtlessly be sporting a daffodil on the Teams call this morning.

 

Saudi Aramco

 

With oil prices over $60 the pressure on Aramco to repay their outstanding USD 10 Billion loan has eased somewhat. In case you are wondering what a company that has a market worth of in excess of USD 2 Trillion has to pay for a loan, the answer is 0.50% or 50BPs over LIBOR which for 12 months costs 0.28%. So not very much.

 

Walmart

 

News that Walmart is going into FinTech and has hired 2 Goldman Sachs bankers to lead the initiative. A path already well worn by the UK’s Marks and Spencers, Tescos and Sainsbury’s. With over 11,500 stores worldwide and revenues of USD 524 Billion, Walmart has the muscle to make a splash on Wall Street as big as the one they already make on Main Street.

 

Taiwan-China

 

Further ratcheting up of tensions this weekend-this time not in the air, but on the ground: China has banned the importing of Taiwanese pineapples, so the Taiwanese government has appealed to the patriotism of the Taiwanese to take up the slack by eating more pineapples. Taiwan exports 90% of its pineapple production to China so this is significant; not least for the Taiwanese who are consequently getting ready to eat 41,000 metric tons of pineapples.

 

The Byrds

 

It was this day in 1966 that front man, singer songwriter and all round legend Gene Clark announced that he was leaving American rock band The Byrds due to his……chronic fear of flying. The Byrds continued successfully until 1973 and despite a couple of revivals packed it in in 2000 having been a key influence on many bands.

Gene Clark went on to make some epic albums including No Other and Flying High and having lived what in rock and roll circles is known as life to the full, tragically died of a bleeding ulcer at the age of 46 in 1991. Here is the presciently named 1965 Byrds hit written by Gene Clark, I’ll feel a Whole Lot Better:

 

The reasons why
Oh, I can’t say
I have to let you go, baby
And run away
After what you did
I can’t stay on
And I’ll probably feel a whole lot better when you’re gone

 

Baby, for a long time
You had me believe
That your love was all mine
And that’s the way it would be
But I didn’t know
That you were putting me on
And I’ll probably feel a whole lot better when you’re gone
Oh, when you’re gone

 

Now, I’ve got to say
That it’s not like before
And I’m not gonna play
Your games anymore
After what you did
I can’t stay on
And I’ll probably feel a whole lot better when you’re gone
Oh, when you’re gone
Oh, when you’re gone
Oh, when you’re gone

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – US Dollar

US Dollar

 

Despite showing a gain to above JPY 106, USD was at a 3 year low yesterday as the commodity currencies such as the AUD and CAD benefited, as did the EUR posting $1.2230. Copper traded at $9,500 a ton its highest in 10 years and 10 year USTreasuries yielded 1.46%.

 

Asian Markets

 

It was South Korea’s Kospi that set a blistering pace with a gain of over 3% yesterday followed by the Nikki with 1.67% and the Hang Seng with 1.2%. As the end of the UK tax year approaches in just over a month, those reviewing their pensions and investments would do well to look at those Asian markets. While not all those Asian economies are uniformly attractive, nevertheless looking at China and the Greater China dependant economies plus the commodity economies such as Australia, if one subscribes to the view of a healthier global economy in 2021, there has to be a place for a decent amount of Asia in everyone’s portfolio. And this morning…oh dear, all those gains given back, but on the other hand those markets now cheaper for bargain hunting buyers!

 

W.L.Gore and Apple

 

One makes high quality sports clothing and one makes high quality electronic consumer goods; both are of course American. The difference lies in their treatment of customers and especially when there are issues with their products. One has a well oiled machine with its customer interface and the other said: you can make a complaint if you like, but it will be ignored. The first concerned some Goretex gloves (GBP40) that had faulty stitching and the second was in respect of its recently acquired Dr Dre trademark and its top of the range Powerbeats(GBP 222) that failed to re-charge. Moral of the story: when a very large company like Apple loses touch with its original mission regarding customers, consumers need a viable alternative. For me it will be Bose-great service and GBP179.

 

Eric Clapton

 

It was this day in 1997 that Eric Clapton won the Best Male pop category at the 39th Grammy Awards. EC has done good-at the last count worth over USD 450 million and still enjoying playing almost 50 years on from his debut in 1962. This song made it into the top 40 in 20 countries and was in the Billboard Hot 100 for 43 weeks. Here is Change the World:

 

If I could reach the stars
I’d pull one down for you
Shine it on my heart
So you could see the truth
That this love I have inside
Is everything it seems
But for now I find
It’s only in my dreams
That I can
Change the world
I would be the sunlight in your universe
You would think my love was really something good
Baby if I could
Change the world
If I could be king
Even for a day
I’d take you as my queen
I’d have it no other way
And our love would rule
In this kingdom that we had made
’til then i’ll be a fool
Wishing for a day
That I can
Change the world
I would be the sunlight in your universe
You would think my love was really something good
Baby if I could
Change the world

 

Have a Great Weekend!

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – CHF

CHF

 

By the standards of the Swiss Franc, crosses including EURCHF, GBPCHF, and USDCHF are moving alarmingly fast. The sell off the in Franc is not necessarily bad news for either the aggregate Swiss population nor the rest of the world. Alongside the push towards normalisation in real economies and markets alike, the still exorbitantly high prices of defensive assets stands to undermine signals of a durable and credible recovery. The Swiss Franc is one such defensive asset that investors hold onto to ride out troubling economic and financial conditions. With the EURCHF pair having soared to one year highs, it now faces considerable technical resistance levels. In order to demonstrate concrete confidence in the recovery, Swissy and other defensive assets should take out current support levels and continue their decline.

 

The weakening in the past few days in CHF has been violent. On Tuesday alone CHF gained in excess of one cent on its major crosses. This price move has prevailed against a backdrop of rising inflation expectations despite major central bank governors’ best efforts and further outperformance in the commodity space. As a defensive asset, the Franc usually sees investors hold short open positions against it during normal and good times. Throughout the pandemic, market participants particularly in the speculative space have held long positions with considerable open market interest. This market positioning appears to be increasingly unstable and in line with the gains already made this week could see a short squeeze.

 

The Franc also attracts one of the lowest interest rates in the G10 currency space with little sign of changing anytime soon. As the market opens up and risk appetite develops further, the Franc could also earn for itself the status as the go to funding currency to fulfil the market’s rediscovered appetite for the carry trade. This could put further downward pressure on CHF with a sell off towards 1.15 versus the Euro plausible by year end. It is the improving conditions globally with the vaccination trade and Draghi’s technocratic government in Italy that are providing the foundations for a weaker Franc in the present market. Any adverse shocks that disturb the more sanguine outlook than we have been used to in the past 12 months could upset this trajectory.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – UK Unemployment

UK Unemployment

 

Since march 2020 the number of people in work has fallen by 726,000 which is a 5 year high in unemployment to 5.1%-more than 60% of those jobs lost are the under 25’s. Within that overall figure, in Q4 2020 the number of people employed declined by 114,000. The statistic that stands out is that there are (only) 121,000 people actively looking for jobs. Before drawing any hasty and ill informed conclusions on that, this is due in part to the large and one of the worst hit sectors, the hospitality industry where those who want to work simply have no jobs to apply for given that cafes and pubs remain shut. GBP remains buoyant at a high versus EUR at 1.1570 and versus USD at 1.4075 partly on USD weakness and still riding high on the UK’s vaccination programme. Longer term GBP strength will depend on productivity and the overall health of the UK economy.

 

Travel Bookings

 

This week has seen the beginnings of a reversal in the fortunes of travel companies with tour operator Tui reporting a 500% increase in foreign holiday activity on its website. Some caution of course on two fronts: first that increase is from a very low base and secondly that understandably people are cautious given the uncertainty over vaccination passports and the draconian and expensive quarantine regulations upon return to their home countries. While Easter looks to be lost in terms of holiday bookings, hopes are pinned on May and the summer season. Meantime EasyJet and other short haul European airlines are enjoying a flood of enquiries.

 

The Eagles

 

Back on this day in 1976 The Eagles’ Greatest Hits went platinum and this was the first time a band had sold 1 million copies of a record. The Eagles were to stay in the Top Billboard 100 for the following 2 years and this song remains as much of a hit 45 years later: Hotel California

 

On a dark desert highway, cool wind in my hair
Warm smell of colitas, rising up through the air
Up ahead in the distance, I saw a shimmering light
My head grew heavy and my sight grew dim
I had to stop for the night
There she stood in the doorway;
I heard the mission bell
And I was thinking to myself,
“This could be Heaven or this could be Hell”
Then she lit up a candle and she showed me the way
There were voices down the corridor,
I thought I heard them say…

 

Welcome to the Hotel California
Such a lovely place (Such a lovely place)
Such a lovely face
Plenty of room at the Hotel California
Any time of year (Any time of year)
You can find it here

 

Her mind is Tiffany-twisted, she got the Mercedes bends
She got a lot of pretty, pretty boys she calls friends
How…

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – 14 Days

14 Days

 

Bond yields and commodities continue to climb higher at a rapid pace. Commodity indices have now surpassed pre-pandemic levels amidst expectations of inflation around the corner. Commodities in particular are benefitting from analysts’ predictions that the restoration of pre-pandemic demand will outpace supply normalisation in the short-run. The ECB President moved yesterday to caution the market that her Bank was closely monitoring rising borrowing costs in the Eurozone. The bond and Euro market only reacted with a modest deviation in their trajectories, resolved to continue their respective paths higher. The longer run implications of steeper yield curves and economic growth look relatively certain given the inevitable bounce back from the pandemic in H2’21. But with Biden’s $1.9tn stimulus plan expected to be subjected to lawmakers’ votes as early as this week, what could the next two weeks hold in store for markets.

 

So far this year the worst performing currencies have been those of South America. Ranging from -6 to -4% on the year, the Argentine Colombian and Mexican pesos join the Brazilian Real as the worst performing currencies of the year. With limited or no vaccination schedules in place and monetary easing expected to follow, there is little evidence to present to suggest this trend will unwind anytime soon. The best performing currencies are those with strong pandemic responses and often in the cyclical commodity currency space. The best performers so far this year are TRY, GBP, AUD, NZD, NOK all with a considerable exposure to commodity prices. The Lira is the odd one out thanks to stubborn interest rates providing one of the only positive and significant real yields at the currency level on the planet. There is scope particularly in TRY and GBP for progress to be unwound given the fragile sentiment surrounding these currencies, but in the best performers too it seems the trend of higher yield, high beta and cyclical currency outperformance should continue.

 

The big story to watch out for over the comings days and short number of weeks is going to be how the market digests the outcome of the push to pass 1.9tn Dollars of stimulus program over the line. As with recent large fiscal stimulus measures, the sudden flood of new cash in such large volumes into the pool of USD should, by the simple laws of supply and demand, cause its price to fall. In the case of the Dollar especially, given its reserve and safehaven status, the extra fiscal push towards economic restoration and the positive global stillover of the stimulus in terms of trade and investment could release further defensive Dollar demand. In the run up to the vote expect an inverse correlation between the Dollar and the markets perception of the likelihood of the bill passing. The more likely Biden’s bumper fiscal spending plan looks, the weaker the Dollar should trend. This in turn should give space for emerging and commodity currencies to expand into.

 

However, what we could see if the mega stimulus plan gets voted through is potential reversal of this trend in a quasi-buy the rumour sell the news event. Subject to how the fixed income market reacts, if the passing of the bill triggers yet another sell off in US treasuries and the yield climbs even higher in the medium and long dated end of the curve, the reward could attract investors and hot money back to the Dollar. Over the next two weeks therefore, subject to the passing of the stimulus bill, it is going to be critical to monitor other markets’ interpretation of the fiscal package to determine the net result on the US Dollar. Certainly discussions overnight regarding how the US intends to fund the fiscal spending through higher corporate taxation and safe havens could encourage a deterioration of the capital account to the detriment of the Dollar also.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Inflation

Inflation

 

A survey recently undertaken in the USA found that both market professionals and also retail investors when polled, by a significant majority responded that they were not concerned about inflation. Without wishing to rain on that particular parade, we should all remember that only approximately half of the population have any experience of inflation. Apart from increasing productivity or raising taxes, the historic remedy for governments looking to reduce debt has been to inflate their way out. While there has been a barely imperceptible increase in inflation in the past year, it is nothing in comparison to the 1970’s when oil stood at $3.56 in 1973 and reached $39.50 in 1980. An equivalent move in the 2020’s would see oil go to $320 and no-one is anticipating that-thank goodness. However as markets look hopefully for signs of an uptick in inflation, for the other half of the population that do have first hand experience of inflation, it is with some trepidation. UK Inflation stands at 0.5% and in both the USA and the EU it is pretty much the same.

 

South Africa Tax

 

The RSA Treasury is seeking to raise ZAR 40 Billion (USD 2.73 Billion) over 3 years by increasing the country’s income tax rates, but due to the loss of skilled and high earning workers who have migrated overseas, this is looking unlikely-good news in some ways for tax payers, but the less good news for the country is that the tax base is too small for the amount of debt that has been incurred.

 

South China Sea

 

Tensions rose again over the weekend with Taiwan scrambling planes to intercept Chinese fighters that once again invaded its airspace. In addition to the US presence in the area, France separately dispatched an aircraft carrier to the South China Sea for exercises. Unkind suggestions were made that this was to distract from France’s fascination with President Macron’s waistline-he is reported as having increased his previously sylphlike profile from 73 kg by at least 10%. EUR unmoved and trading at USD 1.2120.

 

James Blunt

 

Singer, songwriter, musician and record producer, James Blunt has demonstrated great success in his career from his start as an army officer together with a wide selection of sporting interests. As he enjoys his 47th birthday today, he can reflect on all that plus the no small feat of selling more than 20 million records. Here is one of his best:

My life is brilliant

My life is brilliant
My love is pure
I saw an angel
Of that I’m sure
She smiled at me on the subway
She was with another man
But I won’t lose no sleep on that
‘Cause I’ve got a plan

 

You’re beautiful
You’re beautiful
You’re beautiful, it’s true
I saw your face in a crowded place
And I don’t know what to do
‘Cause I’ll never be with you

 

Yes, she caught my eye
As we walked on by
She could see from my face that I was
Fucking high
And I don’t think that I’ll see her again
But we shared a moment that will last ’til the end

 

You’re beautiful
You’re beautiful
You’re beautiful, it’s true
I saw your face in a crowded place
And I don’t know what to do
‘Cause I’ll never be with you

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – US Employment

US Employment

 

Keenly watched as a barometer of not only the US but also the global economy, initial claims for unemployment benefits was higher than expected this week and compounded by a revision upwards by 55,000 in the claims for the preceding week meant that the market did not like it with USD weakening after two days of gains. The headline figure is that 18.3 million Americans were receiving unemployment benefits at the end of January. The weekly figures can as demonstrated be volatile and this week the release has been exacerbated by the auto manufacturers closing down production on some production lines due to a world shortage of semi conductor chips.

 

Thyssenkrupp

 

The German steel company has called off talks with UK steel company Liberty owned by Sanjeev Gupta. The war of words started immediately with the blame game in full swing last night with Thyssenkrupp accusing Liberty of making a lowball offer and in return Liberty saying it was incomprehensible that Thyssenkrupp had chosen to call it a day. In case you are wondering the gap is quite wide with Liberty valuing the steel division at negative EUR 1.8 billion and Thyssenkrupp seeing it as being zero to minus EUR 400 million. With GBP at a recent high versus EUR, that gap may not be quite as large as it seemed a few weeks ago.

 

Porsche

 

News that VW is contemplating a stock market listing for wholly owned marque Porsche. The argument for doing so is clear cut: VW needs cash (lots of it) to get in the race for electric vehicles properly. Ferrari shares trade on a heady multiple of 32 times earnings which can in part be explained by Italian flamboyance and exuberance; the rest is due to the juicy margins on their cars. A more sober German multiple of for example 20 times Porsche earnings would deliver VW an amount almost equivalent to the value of the whole VW group at present. Porsche already has an EV product in the Taycan, so if you do not fancy a set of flash wheels, keep your eyes peeled for news of the listing. The shares may represent long term value. On the other hand, if you are looking for an excuse, Porsche do produce superb cars…!

 

One Hit Wonder

 

Maybe unfair but Harry Nilsson did only have one number one hit. It was this day in 1972 that the Pete Ham and Tom Evans song released by Harry Nilsson went to number one and was a smash hit. In 1994 Mariah Carey also enjoyed huge success with Without You by staying in the Top 40 for 21 weeks.

 

Without You:

No I can’t forget this evening or your face as you were leaving

 

But I guess that’s just the way the story goes
You always smile, but in your eyes
Your sorrow shows
Yes, it shows

 

No I can’t forget tomorrow
When I think of all my sorrow
When I had you there but then I let you go
And now it’s only fair that I should let you know
What you should know

 

I can’t live
If living is without you
I can’t live
I can’t give anymore
I can’t live
If living is without you
I can’t give
I can’t give anymore

 

Well, I can’t forget this evening or your face as you were leaving
But I guess that’s just the way the story goes
You always smile, but in…

 

Have a Great Weekend!

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Rates

Rates

 

Yields on longer dates US debt have now largely wiped out their post March 2020 collapse. The sell-off in global government debt is yet one more symptom of the so-called reflation trade and the market’s bet on normality returning over the coming months and quarters. On the one hand, with a huge fiscal stimulus plan progressing in the United States and 2021 growth recently forecasted by Morgan Stanley at 6.5% perhaps this move is sustainable. However, with much of the planet still in varying degrees of lockdown, promising yet adolescent vaccination programmes unfolding, this move and stretched price valuations could lead us to at least one more Covid-related market sell-off.

 

So far this week data hard and soft from all corners of the globe have fuelled and sustained the sell-off in treasuries. For the first time since the pandemic began a US 30-year note trades with a yield above 2%. With benchmark interest rates still at record lows, the steepening of the yield curve is driven by market expectations of inflation returning and a stronger economy in the longer run. But higher yields, particularly if ushered in quickly and not at a rate easily digestible by other asset markets can cause severe bouts of volatility. Record low yields in government and corporate paper across developed economies have been a source of rising equity valuations and sustained the stock market rallies we have seen since April last year. This rally in turn has been seen as the barometer of financial stability and market calm despite economic fundamental duress. If the stock market panics about rising yields in the US treasury market and other geographies, the sell-off could create a fear that raises volatility and encourages a correction of market risk appetite.

 

For now, however, yields remain at palatable levels for risk assets with the real yield of much global debt still in negative territory. Any severe rout in the US treasury market would be presumably data driven and therefore we will have to wait and see the impact of 12 months of disaster government spending levels and particularly the fate and effect of Biden’s new stimulus package. So long as stimulus packages serve to plug the consumer output and private investment gap rather and crowd out and over finance the economy the result of fiscal spending should not be overly inflationary. If anything, a little bit of inflation will help governments pay down the extraordinary accumulation of debt they have been forced to amass during the pandemic.

 

Therefore, it’s too early for the market to panic about rising inflation and should rather enjoy the prospects of a rosier economic backdrop around the corner. Immediately for foreign exchange therefore, a better determinant of value and price movement will be continue to be the relative success of a nation’s vaccination program and how quickly they can get their economy back to full output. In the US and the UK over the medium run therefore, higher interest rates at the front end of the curve coupled with strong economic growth could see their currencies outperform.

 

 

 

Discussion and Analysis by Charles Porter

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