If the politics of the West can be summed up in a nursery song I think the Hokey Kokey would be it. We have recently seen quite a lot of “left leg in” parties, politicians and policies. Now it is the turn of the “Alt-right legs” to put their collective limbs into the mix as it seems that we can look forward to a general shift to the far right of centre, across several more elections due to take place in the coming year. As Trump fills his Cabinet with a mixture of seasoned politicians, grizzled former Generals and the very people he claimed to be “draining the Washington swamp” of in the form of Special Interest representatives and les grande fromages of Wall Street. The US continues to expand the gap between debt and GDP. The Fed do not know what a Trump presidency will mean for medium term outlook but it would be reasonably safe to suggest that, short of another unpredictable outcome, it is unlikely that the Trump administration would show effect in the economy until 2018. Do not relax though. The enthusiasm for voters to punish the establishment and the political elites will be felt far further across Europe and that will have more immediate meaning for relative rates of exchange. We have seen a GBP boon with 1.2475 as I write this with potential for more on the short term.
What does this shift mean for Sterling/US Dollar? You can view the graph below on the movements last week: -
Buying USD from Sterling? Try and take advantage of any change in the strength of GBP through utilising market orders. You can contact the trading team to implement these.
Closer to home we have been hearing much about how hard the principal European nations will make the UK’s exit from the European Union. Even the Danish, among our closest of allies, has stated a hard ball intent. That being said, this week is all going to be about UK Chancellor of the Exchequer Phillip Hammond’s Autumn Statement (half year budget review). Whether you can believe all that he says, one thing is for certain. GBP/EUR is going to continue to be beleaguered in the coming months. Whilst we have seen a recent clawback to 1.1720 today there is little to suggest a more meaningful surge. Growth is predicted to slow in 2017, presenting sharp challenges to public finances, which heaps burning coals on the shoulders of the already “eye wateringly high” level of public debt and significant budget deficit, mean there will be no big spending measures in the upcoming Autumn budget.
Are we likely to get any clarity on Brexit issues before the Annual Budget in April? I doubt it. Obviously that then means continued uncertainty and volatility. The Chancellor had to concede that the consensus forecast clearly indicates inflation is back but hopes this is only temporary, as the effects of the GBP devaluation feed through the economy. I am afraid I have little faith in the “temporary” analysis.
Today the Prime Minister delivered a pro-business speech at the Confederation of British Industry and has said that the Autumn Statement will postpone delivering fiscal surplus until early 2020s to allow for targeted, short-term investment; the UK government will deliver lowest corporate rates in the G20 and will announce ‘billions of pounds’ for infrastructure, research & science. I don’t want to sound mean but I can’t imagine that there will be that many billions, especially given the fact that there must be little but lint left in the Chancellor’s coffers!
Following the PM’s speech we have had another shift higher in Sterling/Euro as can be viewed on the graph below: –
We always suggest it is worthwhile getting in touch with a member of the Aston team to discuss your upcoming requirements going into the year end and the beginning of Q1 2017. Have you hedged any of your exposure? If not, how can you guarantee your bottom line is protected against currency risk? For the UK, early next year is certain to prove more challenging than many are willing to admit.
Have a great week and please do get in touch with us if you have any questions or concerns.
Written by Damien Lipman.