Yesterday was a reminder of the moves that panic and fear can cause a market to make. Thanksgiving was not particularly a day to be thankful.

The fallout from the announcement that Dubai World, the creator of property developments such as “The Palm” and “The World”, had asked bondholders if it could delay repayment originally scheduled for December until May. This caused investors to sell equities and other risky assets like they were going out of fashion with any investment that had close ties to the region doing particularly poorly.

In currency land this meant bad news for sterling with it breaking below the 1.10 level against the euro. GBP was moved lower as banking shares, in particular HSBC who are particularly exposed to the Mid-East, fell dramatically. Should we see the banking sector end up in the red again today there is a strong likelihood sterling will be lower as well. Key levels on GBPEUR are 1.0960, 1.0875 and 1.0820 and against the USD would be 1.6260, 1.6160 and 1.60.

As per my email last Friday and Alex’s email on Tuesday we believe this could be the beginning of a significant move lower in December. Sterling, on average, loses 4% against the euro and 2% against the dollar (1.0549 and 1.5995 respectively)  in the month of December and we believe this could be the minimum decline i.e. sterling losing more ground than average. Also, and at the risk of sounding like a broken record, while we believe  a recovery in the New Year is realistic it will not be a simple upwards line. Jan, Feb, March of this year saw 5-10% shifts every fortnight and this was with bad news priced in! We certainly believe that these levels are still suitable for hedges extending until March covering 100% of your exposure and 50% of the following 3 months.

Should you have any question on this feel free to call me on (0207) 801 2350 or the Dealing Team on (0207) 801 9050

Have a good weekend.

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