httpvh://www.youtube.com/watch?v=ywzUSBgdip8

London is starting to clean up the mess the protestors made on Sunday, although it was a mainly peaceful march to protest against the public spending cuts there was inevitably a few hundred people who turned to violence. In retrospect circa 500 out of a quarter of a million is a very small handful of trouble makers, but trouble they did make. There was damage to banks in particular as many Britons are blaming banks for the financial crisis that led to the spending cuts, while other protestors climbed on the roof of Fortnum and Mason where no doubt there was a lovely view. However despite this, the Government will continue to go ahead with the austerity measures and Vince Cable spoke to offer some dubious consolation; ‘We are not going to change the basic economic strategy…no government –coalition, Labour or any other- would change its fundamental economic policy in response to a demonstration of that kind’. The unions continue to say that government measures have gone too far and too fast, something which Labour was quick to jump on to. What is clear is that the government has to borrow more in order to get through this crisis, and borrowing this level of money is extremely difficult with the eurozone struggling with troubles of its own. I doubt this is the last protest we see what with the Olympics/TFL kerfuffle and BA forming picket lines.

Andrew Sentance has been vocal today, saying that he was encouraged by the strength of the recovery. Sentance has been voting for higher rates since last June, and upped his cry for a half percentage point increase in borrowing costs. He believes that the BoE should not wait any longer to raise interest rates as it will mean they have to be raised too sharply in the future. Elsewhere in the Bank of England a research paper has argued that rating agencies need to become more transparent and less dominant if they are no longer going to pose a risk to the financial system.

With the week’s releases including Mortgage Approvals and Nationwide Housing Prices it was unnerving this morning to hear from the Land Registry that House Prices in England and Wales fell 0.8% last month, leaving the figure at 1.7% lower on the year. Definitely not what sterling needed as we continue to remain in the doldrums against dollar and euro, let’s hope GDP tomorrow give us something worth smiling over apart from the lovely weather.  

 Jeremy’s Trade of the Week

This week’s trade of the week is a brand new structure that gives you the ability to outperform the spot market and double your gains whilst keeping you hedged and protected at all times. This new structure is called the ‘Leveraged Window Convertible Accelerator’  and allowed our client to hedge himself though Q2 and Q3 of 2011

With a GBPEUR forward rate for 6 months at 1.13 we were able to give the client a hedge at a level of 1.12. This structure gives you a protection rate to buy EUR at 1.12 on the settlement date and if spot is below 1.1200 you are completely protected. If the spot rate is higher than 1.1200 on the expiry date of the contract, you benefit in double the difference between the rate on the day and 1.12. For example if GBPEUR is trading at 1.1550 then you would receive 1.19. However, if spot touches 1.18 in the month prior to each expiry this bonus is lost and you must buy 1.5x the notional amount at 1.12.

This strategy is premium free to the client and is great for currency pairs that are stuck in a range (as GBPEUR is at the moment) As there is a potential further weakening for sterling against the euro given the run it has had of late, it provides a balanced upside for this potential, while guaranteeing a tight worst case rate and the ability to benefit handsomely should a recovery emerge.

For full details of this structure please contact one of our options traders on 0207 801 9050