httpvh://www.youtube.com/watch?v=93yV-Or4tIU

The G20 summit meeting last week was a bit of a damp squib; although the outcome could have been a lot worse it was clear that the re-spun words on familiar topics did little to provide any substance to the meeting. The one meeting which did cause some ripples across the economic pond, was the BoE Inflation report last week. Many commented on the over dramatic nature of the response, especially with the rise in bond yields thrown in the mixture.  The report seemed to have changed very minimally since August, the most obvious alteration being the near-term inflation forecast, which was revised higher. It is also important to not let the seemingly upbeat comments on growth blind us to the fact that the report showed the MPC still believing that the risks are pointed to the downside. Mervyn King’s attitude seems to be losing him some faith in the markets, and that people simply do not see that inflation can fall to the level promised in the to year time frame. The question is, what happens now? The answer as always is a complicated one, what is almost assured is that if the inflation expectations do rise the topic of quantitative easing would be swiftly replaced with interest rate issues. However, if the inflation levels remain low we would expect to see more QE coming in to play.

The minutes of this meeting are being released on Wednesday and will likely show that all but two members voted to leave policy as is. On Tuesday the inflation figures are being revealed and it looks as if we should expect a rise in CPI Inflation which will cause another apology letter from King to the Chancellor explaining the missing of the 2% target figure.

Persimmon have broken more news this morning to us that autumn’s home buying levels were not up to the usual uplift expected round this time of year. They said that both prices and margins had held for the 19 weeks up until today, and that the forecast is a better than expected year end net debt of under £80million. Apparently autumn is as important as spring for home purchases so it does not bode well that the months have done very little to spark any recovery hope in the housing market.

A panel of voters has found that David Cameron did not communicate his vision for economic recovery and should deliver a nation address to properly explain the needs for the spending cuts. On a happier note the group also found that they were willing to embrace public service reform including the overhauling of welfare.

Jeremy’s Trade of the Week

This week’s trade of the week is a Convertible forward with the client wanting to protect a 6 month budget over the coming Christmas period. He buys euros and sells sterling.

The client was able to achieve a worst case rate of 1.1550 on his option which allows the client to benefit all the way up to a rate of 1.23. This rate increases by 1 cent every 2 months i.e. months 1 and 2 have a barrier of 1.23, the 3^rd and 4^th have 1.24 and the 5^th and 6^th have 1.25. Should the rate touch the barrier level during the window period (1 month before the expiry date) then that month’s structure reverts to a forward at 1.1550

This strategy requires no premium, and is also relevant for buyers of euros and sellers of other currencies. As there is a potential further strengthening for sterling in the future, it provides a balanced upside for this potential, while guaranteeing a tight WCR.

Have a great week