All this and more is available on our blog at http://www.worldfirst.com/blog.
“It is better to debate a question without settling it than to settle a question without debating it.”
The election starts tonight. Alistair Darling, George Osborne and Vince Cable come together on Channel 4 at 8pm to debate the finer points of the economic car crash we find ourselves in. This is the first opportunity for us to really discover a couple of things crucial to how quickly the UK will come out of recession. Does George Osborne actually have any policies other than ‘we’re better than Labour’? Can Vince Cable expand on his reputation as one of the cleverest men in the Commons? Can Alistair Darling hammer home the uptick in pro-Labour sentiment that we saw post-Budget?
Gordon Brown, echoing a certain Anthony Blair, promised a Labour rally in Nottingham that his top three priorities for the new Labour government were ‘securing the economic recovery, securing the economic recovery and securing the economic recovery.’ After the Budget, polling organisations reported a sharp uptick in respondents who believed that the Labour party were better positioned to deal with the economy.
Darling shied away from giving away any pre-election gifts in an attempt to sugar rush the electorate and instead emphasised that any surpluses seen would be used to pay down the deficit. The increase in National Insurance Contributions due in April next year is expected to coincide with the Labour party’s cuts in public spending. It simply has to be, or if we are not to cut then we need to find some growth and find it soon. And then we need a couple more buckets of growth before everything starts to look less pallid.
Osborne has the most to lose from this debate. He is portrayed by the Labour party as an imbecile; unable to grasp the key points of what is needed to lift a country out of recession. The bar has been set low; the worry is that he meets those expectations. Both David Cameron and George Osborne have been criticised in the past for being vague; giving nothing but flimflam and buzz words without actually telling the electorate what needs to be said. Thankfully this debate won’t let them get away with that. The rules have been set so as to ensure that the answers are not just one 60 second sound-bite followed by another 60 second sound-bite with no opportunity to fight back.
The Tories have announced their intentions to cut IT contracts and civil servants in order to promote efficiencies and generate £6bn of savings. This will be used to reverse the planned increase in National Insurance. We will have to wait to see if there is an overlap with the £11bn of efficiency savings that Darling spoke of in the Budget.
Vince Cable had a good recession. He, more than anyone else, was seen as the voice of the UK up against the pressures of the global economy and his ‘Mr. Bean’ comment of Mr. Brown has gone down in Commons folklore. But one swallow does not a summer make. The Lib Dems are not shackled with the weight of expectation that the two leading contenders are and hopefully this means that they can go out there and put the cat amongst the pigeons. We may also get a hint of his and his party’s reaction to a hung parliament.
The debate comes on the day that S&P have affirmed the UK’s credit rating at AAA with a negative outlook and commented that ‘net UK general government debt burden may approach a level incompatible with an AAA credit rating’. We need these three men to stand up and tell us exactly how bad it could get and not just when on each other’s watch. Hopefully the economics will trump the politics.
Ask The Chancellors; Channel 4, 8pm. Follow our thoughts live on Twitter at www.twitter.com/World_First
Trade of the week
This week’s trade idea is a strategy rather than an option, and is called the ‘ratio forward’. It is a synthetic combination of two existing strategies (the participating forward and convertible forward) which are weighted 50% each. For a seller of sterling and a buyer of Euros, this client took advantage of the combination of safety and potential upside benefits, hedging themselves for 6 months
When combined, these strategies mean that the client was able to guarantee a worst case rate (WCR) of 1.08. If spot at expiry had never traded at or above 1.18, the client was able to benefit in 75% of the favourable movement. If 1.18 is ever touched, then half of the exposure is reverted to a forward at 1.08, and you continue to benefit in 25% of any further favourable movement.
This strategy requires no premium, and is relevant for other currency pairs. As there is a potential strengthening for sterling in the future, it provides a balanced upside for this potential, while guaranteeing a tight WCR.
For full details of this structure please contact one of our options traders on 0207 801 9050
Have a great week
| Please feel free to contact me Jeremy Cook (research@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our: Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.
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| Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice. Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.
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