Tag Archives: SGM-FX


Morning Brief – China: The Growth Story

China: The Growth Story


Bizarre really that market analysts are wringing their collective hands because China’s growth for this quarter may dip below 6% after 6.2% in the last reported March to June period. In Europe’s anaemic world, we can only dream about such a figure. Needless to say the headlines will all reflect the impact of the trade war on the world’s second largest economy, but China is still projecting a growth figure of 6.5% for 2019 which is not too shabby. In any case if you have not spotted it, October 1st 2019 is the 70th anniversary of the founding of the People’s Republic of China and why is that significant? Be sure: there will be a lot of celebratory projects and spending in Q4 which will make damn sure that that 6.5% figure is achieved!



Oil and Interest Rates


With WTI Oil now at $58 versus the $55 pre drone attack price, measures taken by the Saudis to restore supplies and a minor drop in the temperature of the US anti Iran rhetoric can so far be judged to have been successful. Markets have moved on to sift through the Fed announcement of the cut in US rates and the BoE report from yesterday which signalled low rates for longer in the UK. What both Central Banks have done is to give themselves flexibility to cut or not cut later-albeit for very different reasons-rather than expend the meagre ammunition that remains to them too early.



UK Retail Sales


A surprise drop of 0.2% in retail sales and a much larger fall of 3.2% in on line sales from the previous month. Never fear, the SGM-FX team of analysts can explain this: canny SGM-FX shopper Graham has been spotted nipping into Costco on a much more frequent basis in recent weeks while his online Amazon deliveries to the office have dwindled to a trickle-just how many widescreen TVs does a man need?! 

Alas these trips to Costco have not been sufficient to keep the whole of UK Retail Sales on an upward trend, but we do understand that Graham has a full freezer of tomahawk steaks and chicken breasts (less than £1 each if you are interested) as well as crates and crates of wife beater(Stella Artois). What a patriot!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter


Morning Brief – Top Trumps

Top Trumps


As eagle eyed purveyors of the foreign exchange market I’m sure each of you reading this would have been keeping a watchful eye over the actions of the Federal Reserve Bank in the United States and UK inflation yesterday. In fact, both events seem like they might go down as the two most important events of 2019 not to have (yet) moved the foreign exchange market. 



UK Inflation


Since the referendum in 2016 wiped out up to 15% of the value of the Pound versus its major peers, inflation has held firm. As a consequence of the United Kingdom importing a high proportion of its consumables and goods in from abroad, the weaker Pound immediately pushed import prices higher, raising the general price level. Due to the economic rule that higher inflation rates are normally signalling stronger economic activity, the Bank of England was able to perform a juggling act presenting above-target inflation as a symptom of a robust domestic economy, not a struggling one.


The three years since the referendum have therefore seen the Bank of England play an accidental role as the defender of the value of the Pound. Whilst politics and global economics might not have been on its side, the role of our central bank in promising higher yields behind the Pound when the rest of the world’s central banks were easing policies saw it claw back and protect the value of GBP. However, the truth behind domestic inflation, particularly within more homeward orientated markets that seldom compete overseas, has been one of relative stagnation. Within importation markets we always see lags whilst reserves are depleted and statistics sort themselves out. Across the world, for example, we measure inflation in year-on-year terms so the observed inflation rate is the price change versus twelve months ago.


A systemically higher inflation rate caused by rapidly inflating import prices is gradually eroded by this year-on-year observation method; higher prices today compared with similarly high prices one year ago in percentage change terms do not show up. Yesterday’s inflation reading of only 1.7%, the lowest since 2016, will worry markets that inflation will continue to fall now that the statistical obscurity has worn out. All this means that the Bank of England, through its use of sanguine language, may not be able to be the defender of the value of the Pound, opening the path for it to move lower if political (read Brexit) developments do not play out in its favour. Yesterday the Pound fell but only minutely reflecting investors’ preoccupation with Brexit and all things politics.


Today the Bank of England will deliver its September policy decision. They are unlikely to follow the US in cutting rates given the one off nature of this data, however, their language will be studied to gauge expectation surrounding future price movements. 





The Federal Reserve Bank in the United States cut interest rates but 25 basis points, 0.25%, yesterday evening. With the president’s scathing reaction to the decision, the broadcast of the Fed meeting could rather have been on Comedy Central under the programming of “The Roast of Jay Powell”. But there’s always a certain joy in watching a central banker explain that all is rosy, couldn’t be better, but we’ve got to cut interest rates once again in a consecutive meeting. 


A hawkish press meeting following the cut decision pushed the US Dollar higher but only marginally, keeping USD within its week-to-date range. The limited price action reflects investors’ distrust in the banking authority but also their distaste to enter alternative currencies and assets – it’s still the best of a bad bunch. However, with the lion’s share of foreign exchange traded in the City of London, more US Dollars are traded in London than in New York. My suspicion is that traders in Europe are unlikely to be impressed by last night’s decision and so steer on the side of caution with respect to Dollar holdings. 




Discussion and Analysis by Charles Porter

Click Here to Subscribe to the SGM-FX Newsletter


SGM-FX View of london

Morning Brief – Windfall or the Economics of the Madhouse

Windfall or the Economics of the Madhouse


To most of us including the Cambridge English Dictionary a windfall is an amount of money that you win or receive unexpectedly. The managers of Eurozone economics view a windfall as being money that they have saved due to lower global interest rates. Now this may seem like semantics but there is a world of difference between receiving money as a windfall and not spending money, and in this case the Eurozone are patting themselves on the back for some creative economics resulting in a “windfall” of EUR 140 Billion. It’s not just the Eurozone that shares this view, it is enthusiastically endorsed by ratings agency Standard and Poors-and we all remember, or do we, what happened the last time S&P and others endorsed the credit boom.


With Greece leading the pack with a debt to GDP ratio of 175% and only six of the smallest countries with ratios of less than 50%, the majority and incidentally the largest save Germany of Eurozone countries have indebtedness of between 50 and 100% of GDP with France, Spain and Italy at, or over 100%. No discussion about paying down some debt, but either productivity has to rise, or Europe as a whole in the future faces the same kind of austerity that Frankfurt and Brussels have forced Greece to endure in the past 7 years.



Smart Meters going the same way as HIPs?


News in, the deadline for every household being offered a smart meter to monitor energy consumption has been quietly (initially) extended for 4 years. Why? Poor rollouts, technology not working, impossible to switch suppliers…the list goes on. 20 years ago it was all about HIPs or Home Information Packs which were mandatory(briefly) for sellers of houses to provide to buyers showing them among other things how energy efficient properties were. Airbrushed out of history to save embarrassment just in case the obvious question is asked: Why, given that a survey is mandatory for any mortgage provider to grant a mortgage, would a HIP add any value whatsoever to those most vulnerable in the housing market? In the same way, would the ability to analyse consumption through a Smart Meter, add value to a household that watches TV, boils a kettle and turns the lights on?! Note that the language has changed markedly from the high pressure sales techniques we have all received from the energy companies: they are now saying that it is of course not compulsory to have a Smart Meter!



Energy Pricing


So leading on from the Smart Meter story, the question is what is happening with energy pricing? We all have a sense of pricing having risen, but from a myriad of complicated UK Government tables breaking it down by region, consumption and billing it is….very hard to say just how much it has gone up. Research on the web reflects a lack of up to date statistics and is confused by the energy companies telling us why prices have risen and not by how much (funny old world) In 2013 it was reported that domestic gas prices for example had increased by 300% over the previous 10 years versus a basket of household costs that had increased by just 30% in the same timeframe. It is not unrealistic given the year on year increases that can be identified(typically 10-12%) that this pattern has continued.


You may ask just how this impacts the currency markets! Much of our energy is imported therefore the price increases have been inflated by a sharp devaluation in GBP: weak GBP=higher energy prices.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter

team discussion

Morning Brief – Crude Responses: Oil and Brexit

Crude Responses: Oil and Brexit


The attacks over the weekend on Saudi Aramco’s eastern facilities have moved foreign exchange markets. Unlike a lot of financial headlines at the moment, this serious threat to the provision of global energy looks as though it could have an enduring impact upon global FX. Throughout yesterday’s European trading session, a demand for security led to a defensive bid for the US Dollar. For decades, the relationship between the value of the US Dollar and the price of oil has been inverted: the higher the cost of energy (usually denominated in USD for additional statistical complication) the weaker the US Dollar would likely be.


Given that Brent Crude (BRN), for example, could be written as an exchange rate between the commodity and the US Dollar in the form of a currency pair, BRNUSD, comparison is challenging. A move in the price of a Dollar de facto changes the analysis of the relative value of a barrel of oil versus a unit of currency and vice versa. However, take my word for it, the relationship is one of the tried and tested gospels of the foreign exchange market.


In recent years it has become widely recognised that the United States is largely energy sufficient and within certain studies is even proven to be a net exporter of oil. West Texas Intermediate, a widely adopted bench mark, represents oil largely which consists of that extracted from the Permian Basin in North America. Having been explored for around a century now, this oil field was unable to provide for the vast oil and energy demands of the world’s most significant developed economy. However, the invention and liberalisation of alternative energies exploration including fracking and shale production have changed the scene. The strong-oil-weak-dollar relationship is almost as significant in some market veterans’ eyes as the law of gravity and a challenge to it has the potential to upset many traditional flows.


Yesterday, as stated above, the Dollar appreciated by around one quarter of one percent (25 basis points) across the board. If the 5.7 million barrels per day of crude oil that have been withdrawn from daily production as a result of the attacks on the Saudi Arabian plant take several weeks to be restored, $100pbl is seriously possible. Given the United States’ relative insulation from this energy crisis and slight positioning towards energy exportation, we could rationally expect the Dollar to continue its advance.


On the other side of the energy crisis, those economies highly dependent upon oil and energy importation have had their currencies severely weakened by the forces within the global foreign exchange market. Turkey and India are particularly vulnerable to energy prices with almost total exposure to foreign energy resources. With worryingly high structural current account deficits, the worsening terms of trade (the relative cost of economic activity and production at home versus abroad), both currencies suffered yesterday.


At market open on Saturday evening, the price of Gold in Dollar terms gapped up and opened above $1500 per ounce, to record an immediate change in price of 1.5%. The Indian Rupee opened 1% down on its price versus its Friday close against the US Dollar and the Turkish Lira traded down by 1% against the Dollar before the European session began.


The other crude response came in the form of Brexit. The Pound threatened to continue its surge at lunchtime yesterday when optimistic reports regarding the lunch time meeting between UK PM Boris Johnson and EU Commission President Jean-Claude Junker surfaced. However, when the request to move a press conference between Johnson and the Luxembourg Prime Minister inside was rejected, Boris’ refusal to take the stand left Pound traders concerned. The value of the Pound fell once again to close 0.5% down against an appreciating US Dollar and 20 basis points down on a trade weighted basis. A lack of progress and workable solutions to the Irish backstop continue to hamper the Pound. Despite the short squeeze that led to last week’s rapid appreciation of the Pound Sterling, short positions as recorded by CFTC data showed the volume bets that would profit from GBP heading downward reach a two year high. This positioning leaves the door open for a sharp correction to the undervaluation of the Pound but is also a perfect indicator for the uncertainty and fragility within the UK economy.




Discussion and Analysis by Charles Porter

Click Here to Subscribe to the SGM-FX Newsletter


SGM-FX handshake montage

Morning Brief – All eyes on Oil Price Today

All eyes on Oil Price Today


The market is expected to send WTI oil up by $5-10 in the wake of the Houthi rebels disrupting Saudi oil supplies amounting to approximately 5% of global oil supplies. What is rattling traders more is the US assertion that the attack in the early hours of Saturday morning was in fact made by Iran. Iran has denied any involvement. If this is not put to bed quickly and or Saudi oil supplies are returned to normal, there is talk of a $100 WTI oil price versus $55 on Friday evening.



GBP Short Sellers: Caught and Short


With both the likelihood of NoDeal Brexit receding and the EU warming to the idea of a further extension plus some mixed but overall positive messages about Northern Ireland, the market took heart on Friday afternoon and those short of GBP ahead of the weekend found themselves facing a very painful Friday: GBP had its best session for a long time. Not even the prospect of the Prime Minister meeting the EU’s Jean-Claude Juncker today could dampen enthusiasm.



Thank you to our friends at Ooba!


Last week saw SGM-FX presenting and participating at the annual Ooba sales force management conference in Sandton, Johannesburg. Ooba has a highly impressive 25% market share of RSA mortgage origination and is celebrating its 20th year in style with impressive across the board growth and profitability figures. SGM-FX is proud to partner with Ooba and looks forward to assisting the Ooba network with foreign ownership property transactions.




Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter

SGM-FX London skyline

Morning Brief – European Central Bank stimulus

European Central Bank stimulus


As expected a fresh stimulus package was approved by the ECB yesterday which saw the deposit rate cut to -0.5% and the restart of EUR 20 Billion bond purchases per month starting November and with no announced end date. Analysts are still sifting through the tea leaves of outgoing Governor Mario Draghi’s speech to see where Europe and its policy makers are heading next. The EUR weakened and stock markets rose following this package.



Brexit: Some good news for beleaguered Britain


The first inkling that while Brussels may be intractable, not everyone in France necessarily shares that hard line: the UK is the single largest overseas market for French champagne-yes even larger than the USA- and last year a whopping 26.8 million bottles were imported into the UK. Champagne producers led by no less a house than Taittinger have announced that the show will go on and they have been stockpiling supplies in southern England to make sure that supplies are uninterrupted by pesky politicians or hard border controls. What IS a concern says Pierre Emanuel Taittinger is the falling GBP/EUR rate which has so far accounted for a drop of over a million bottles imported from the previous year. 



Take me to your leader?!


Scientists using the world’s largest and most powerful radio telescope named Vast for obvious reasons which is situated in Pingtang SW China, have picked up more than 100 FRBs or Fast Radio Bursts which suggest alien life in the outer reaches of the universe. SGM-FX’s James our very own astronomer, is living it and was last seen in Elephant & Castle with his transistor radio clutched to his ear waiting for contact from outer space and small green men on the Bakerloo Line.  Put that down to those after work lagers!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter

UK buildings

Morning Brief – How much?!

How much?!


Outside my window in Johannesburg there is an electronic billboard that, when not tempting me with the nation’s latest trendy tipple, displays an advert claiming South Africa’s best savings rate. On a 60-month fixed term the investment promises returns in excess of 13%. I haven’t been fortunate enough to catch the fine print written obscurely at the bottom but, with compound interest over a 5 year period it’s reasonable to assume this is an average annual return perhaps with a slither of dodgy accounting practice. Before you send money flying over to take advantage of this interest, remember: with great power comes great responsibility! By the way, I was more enthusiastic about this quotation before I googled it and found it’d been lodged in my memory by Spider-Man… 



Mastermind rules:


I’ve started so I’ll finish. The great power behind savings and yield accumulation in South Africa has a corollary: an overwhelming responsibility to repay debt with interest (including interest upon interest ad infinitum) appropriate to the borrowing rate in the economy. As is often the case in developing markets, the latter responsibility is not upheld, creating a lack of demand for the former (deposit) side resulting in a shallow and unbalanced domestic debt market. Sub-Saharan Africa’s most significant economy this morning has captured international financial headlines as it does battle with this issue.


A report from a company called Differential Capital has warned today that 40% of domestic borrowers in South Africa are in default, leaving millions of people in a debt trap. The money borrowed amounts to a collective 225 billion Rand across 7.8 million people (in SA’s 60-million strong population). The debt (just shy of R29,000/capita) is dangerous given that it is un-collateralised. Allowances for these unsecured loans were increased in 2007 to boost domestic activity in a time of global turndown. However, with debt centre stage as South Africa remains at the mercy of Moody’s credit rating advice, the accumulation of debt has the potential to wreak havoc.





Yesterday, South Africa’s daily business newspaper proudly claimed that Moody’s had confirmed it won’t downgrade its debt from its present rating of Baa3, the final rating before the asset becomes classed as junk. Good effort, but that’s not exactly what they said! Poetic licence translated the statement that it’s unusual for the agency to downgrade debt a whole rung on the ladder without first giving it a negative outlook (that it doesn’t presently have) into the certainty of maintaining investment grade for a year to a year and a half (maths made up according to South Africa’s bi-annual debt review schedule).


However, particularly in light of the issues with domestic unsecured debt making headlines this morning, South Africa does stand at a precipice with the potential for financial turmoil and, unsurprisingly, currency turmoil. The market knows it already. Credit default swaps (as mentioned in this briefing before and by Margot Robbie in a bathtub) are a way of pricing the risk of a financial instrument and helpfully allow us to rank the market-perceived credit worthiness of each nation.


In South Africa the insurance against default on sovereign debt over a five year time horizon is twice as expensive as it is regarding Brazilian sovereign debt, a nation which is rated as Junk already (two whole steps behind South Africa). The market is screaming warning signs and it is inhibiting the Rand. The confirmation of Junk status by Moody’s in the coming months (heads up for its first ratings decision this year anticipated on 1st November) will see the Rand tumble below the levels that debt markets currently price the nation.


If that all wasn’t enough, today the European Central Bank will deliver their monetary policy decision. Markets are pricing in rate cuts and anticipate the reintroduction of Outright Monetary Transaction spending plans and strong forward guidance. The event should mark a period of heightened volatility and, as ever, bargains will be on offer when markets function more erratically. The salience of this decision has been heightened even further by a dispute yesterday from Dutch authorities over the nature of tiered interest rates.




Discussion and Analysis by Charles Porter

Click Here to Subscribe to the SGM-FX Newsletter


SGM-FX office view

Morning Brief – WeWork: Nice work if you can get it- they can’t as it turns out…

WeWork: Nice work if you can get it- they can’t as it turns out…


Goldman Sachs had previously advised a pre IPO valuation of $65Billion for the trendy hipster office sharing business. Smaller businesses have been struggling to find office space in all major cities worldwide as WeWork have relentlessly mopped up multi occupancy buildings. Anything less than 500square metres is now much much harder to find.

So far WeWork has burnt through USD 3 Billion and included in that for the first 6 months of 2019 has lost $690 million. Investors have politely told the pointy heads at GS that they must be re-enacting the 1969 summer of love and smoking mind enhancing substances to have come up with such a colossal valuation on a business of this size with such losses.
Result: new suggested Goldman Sachs valuation of WeWork now $20 Billion. Surely a valuation drop of more than two thirds and $45 billion must call for some explanation and calling for some heads to roll at GS?! 

By the way we struggle to see how a valuation of 6 times earnings to justify a price of $20 Billion can be justified when competitor IWG trades at a multiple of 1.3 times earnings. Looks like more red faces at GS in prospect.



Data theft


A new or rather an old in fact a very old take on stealing customers’ data: this time from Japan. In these days of hacking and phishing, it is refreshing to hear of a Japanese clerk doing it the old way: in the moments that customers used their credit cards and input their Pins for purchases in a shopping mall just outside Tokyo, the clerk memorised their details. In fact he managed this 1,300 times. After this feat of memorising 16 digit numbers, he made two purchases of handbags valued at Yen 270,000 or approx. USD 2,500 and was caught. How? Police were alerted due to him ordering the bags to be delivered to his home address! Just brilliant!




Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter

SGM-FX keyboard montage

Morning Brief – Volfefe



The President of the United States of America needn’t exercise all of his 280-character quota (including spaces) to upset financial markets. In fact deploying the full arsenal of a tweet might be too crass for the reserved and presidential billionaire. However, his contentious Twitter account “@realDonaldTrump” moves interest rate; currency and equity markets all to often. In times when the early hour musings of the president can send a currency, it’s stocks and related interest rate instruments tumbling you want to do something to get on top of it.



Introducing: Volfefe


Remember that ill-fated tweet by the President containing the word “covfefe?!”. Still don’t have a clue what he meant? Well, in the absence of clarification or explanation you’re not the only one. As one of the more iconic and less market shaking tweets since he took office, the made up word now forms the basis of a new J.P. Morgan Instrument to measure and track the volatility in (fixed income) markets in reaction to #DJTrump. The study finds that Trump’s tweet regarding the enduring strength of the US Dollar has the strongest effect upon currency markets, trigging a defensive bid for the Japanese Yen and demand for perhaps its greatest substitute, the Euro.


A shaky day in British Politics led to a sharp 1.2 cent gain in the value of one Pound Sterling in US Dollar terms. At market open, the reaction to persistent GBP strength last week saw the value of the Pound track unconvincingly downwards as Europe settled following the weekend. Despite limited successes at a meeting in Dublin with Irish Prime Minister, Leo Varadkar, GBP trudged higher. UK PM Johnson’s counterpart and tricky member of the European Council kept hopes of a breakthrough in Brexit negotiations suppressed. The heated meeting comprised of exchanges over the possibility of direct rule by the UK government and Parliament over Northern Ireland.


A leaked memo increased tensions regarding the Norther Irish Border problem because it suggested political immobility in Northern Ireland would mean Britain would have to take back control of devolved powers. Stormont has been suspended for more than two years leaving the administrative body incapable of making the rapid and salient issues that  would necessarily arise from a hard Brexit. 


With the bill aimed at preventing a no-deal exit having gained royal ascent yesterday afternoon, Sterling rose higher. It was perceived as impossible that the bill would fail following the ratification of the House of Lords last week and Sterling’s powerful rise yesterday was likely a reflection of stronger risk sentiment as opposed to political resolve. USDJPY rallied to claim a healthy 107 handle as defensive holdings of the safehaven Japanese Yen were unwound. The UK Parliament is now officially suspended until October 14th, three days ahead of a pivotal EU summit and less than three weeks from the date that Number 10 still claims will be the do or die Brexit day. 




Discussion and Analysis by Charles Porter

Click Here to Subscribe to the SGM-FX Newsletter


US banner

Morning Brief – Markets, GBP and Brexit

Markets, GBP and Brexit


So much to write about so many different aspects of the political maelstrom in which UK plc is currently being buffeted, but in the end it comes down to just three potential outcomes: 

1. NoDeal Exit. 2. Exit with a Deal. 3. No Exit. 

Such is the frustration caused by all this in the markets, that incredibly and very dangerously, the current perceived “wisdom” is that it would be better/less bad for Boris Johnson’s government to be replaced by a Jeremy Corbyn led coalition government. Unfortunately the collective market memory does not go back 50 years to the decade of 1969 to 1979. If it did, there would be NO flirting with such a dangerous and damaging concept. But that is where we are and while GBP is slightly weaker than the highs of the end of last week, it is unwisely and naively partly buoyed by this latest thinking.



Doha Accord


No nothing to do with trade, but rather to do with the Al Thani rulers being impervious to the practical problems of Qatar hosting the World Athletics Championships by insisting on not relaxing the rule of segregated gyms. As long as female athletes have female trainers, no problem, but all too frequently this is not the case -and vice versa with male athletes. 

It does beg the question of just how footballers will manage in the absence of their very many female gym trainers in pursuit of the World Cup in Qatar in 3 years time.



Wanting and not getting


We wrote at the time of the launch of the Indian space mission Chandrayaan 2 back in July of the quest to put an Indian vehicle on the surface of the Moon. On Saturday morning the lander vehicle probe named Vikram disappeared from monitor screens as it approached the Moon’s surface to the consternation of mission control in Bengaluru. So the quest for India to be the first nation to reach the Moon’s South Pole looks to be over. No chapatis and champagne this weekend and it’s back to the drawing board.





Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter