The only point we want to draw people’s attention to on the coronavirus is the US Centre for Disease Control’s (CDC) advice for people travelling to Hong Kong. In light of a second death in the country, the CDC has changed its advice for travelers and now says “avoid contact with sick people”. (In a world where you can choose anything, choose common sense)
The big news this week in FX markets has been the fall of the Euro versus the Dollar through levels not seen for almost three years. It’s a double whammy of the dollar picking up in strength with the risk aversion coursing through the markets, but it’s not all one sided; the euro is being picked on somewhat, with just about everyone selling out of it to try and get some yield elsewhere. Holding the currency in cash draws a negative interest rate, whilst holding European sovereign bonds is pretty similar (even a Greek ten year bond has moved below 1% yield this week!)
The flipside to a poor rate of return is that it is incredibly cheap to borrow and therefore being heavily used as a funding currency for trades such as buying equities, or buying currencies that do yield a positive return (US dollar) which then goes on to create a self-fulfilling prophecy; with people selling out and buying into stock markets, the market goes up and if the market goes up more people follow with their money, further weakening the euro. The ECB keep printing money because even though the stock markets are performing, the real world isn’t, so the market takes this cheap printed money and buys more stocks with it!
Sterling isn’t immune to the strengthening of the dollar either though. We’ve seen the Pound come away from the highs it printed after Sajid Javid ‘resigned’ and now the market is really waiting to see if the budget due next month has the potential to boost the economy by more than the sum of the extra borrowing required. Yesterday we saw inflation hit a six month high – ironically driven by higher fuel prices, when oil is at recent lows. The move to 1.8% isn’t likely to get the bank of England talking about rate rises anytime soon, though we have seen expectations for a cut reduce somewhat.
The Brexit negotiating position out of Europe has been delayed as the EU tries to get its head around exactly what France wants out of the negotiations. Emmanuel Macron wants to take a tougher line on the ‘level playing field’ approach, as he fears that us becoming Singapore-on-Thames would have a far bigger impact on France than anyone else (we’d argue that with French corporation tax at 28% and some of the toughest labour laws in Europe, they’ve got less to worry about than say Ireland). This procrastination has also dented Sterling’s appeal, as not only might the division on consensus become wider, but the clock is still ticking.
Google is getting ahead of the Brexit curve though and has decided that UK data won’t need to fall under the remit of the European data regulators. The move will see the UK fall under US data laws – some of the weakest in the developed world – and potentially means easier access to our data for just about anyone! Reuters has the exclusive story and it is well worth a read.
Across the Pond we saw Mike Bloomberg amongst his Democratic rivals for the first time. The televised debate was seemingly an opportunity for every other candidate to vent their feelings at a billionaire fox in their liberal hen house! They’re going at him on three main points; his use of ‘stop and frisk’ as New York Mayor which, as it does here, unfairly and disproportionately targets ethnic minorities. He’s also got a number of NDA’s in place for previous employees around possible sexual harassment and sexist comments, which they’re jumping on. The largest issue that they have though is the one that continues to hurt them – his limitless spending ability! Estimates are at $400m spent already on his campaign and we’re not even at the primaries stage. He’s now in second place in the polls, behind Bernie Sanders, but Bloomberg will be hoping that if he can get Joe Biden to throw the towel in, then his supporters will fall in behind him.
Today we look at UK retail sales (probably a car crash, despite the Boris bounce in consumer confidence) you’ll also be able to get your hands on the new £20 note, which goes into circulation today (20.02.2020 see what they’ve done there)
Have a great day