David Cameron has become the first western leader to visit Egypt since Mubarak was evicted from power. He arrived in Cairo today and has been preparing for several meetings with the acting government, at a time which he hails as a “great opportunity for Egypt”. It was a bold move from our Prime Minister as it has only been 11 days since the military council took power and there is doubt in the country over if their demands will actually be met. His quick-paced visit could embarrass President Obama as he already was under criticism from his weak reaction to the protests, only finally deciding to back the protestors late in the day. But Obama could be playing it safe, as Cameron has had to wave off views that the visit is legitimising a military regime. When the subject of the ‘massacres’ in Libya was broached, Cameron commented that it was “completely appalling and unacceptable”.
Back in Britain the focus is on the coalition’s ideas for a reform in the public sector. The changes would mean that almost all of the public services could be opened up to private companies and other entities, and the government believe this is the only way to improve standards for users. This is being met with some stiff opposition from the public sector unions as they trial a very English version of middle-eastern protests, by voicing their pay-freeze and redundancy worries. This wind of reform from Egypt has not stopped at the public services, as many are still enraged over the NHS overhaul. Ed Miliband has been pretty clear about his objections to Cameron’s plans, he believes an attack on the health policy will curry favour in the lead-up to the next election. He said that the NHS was “too precious” to be left to the market, and that it was not a “commodity to be bought and sold”.
Bonus backlash continues in the Capital as Barclays comes under fire from Labour MP Chuka Umunna, he criticised Barclays by saying that they paid less corporation tax than was fair. He also spoke out against Bob Diamond’s whopper of a pay out a few weeks ago. Protestors are planning to create a series of rallies in Barclays Branches throughout the country, the turn-out is likely to be small at under 1000 but it draws attention to the resentment still felt towards the banks.
Jeremy’s Trade of the Week
This week’s trade of the week is a ‘Participating Forward Plus’. This differs from the usual participating forward in that, for an increased risk, your strike improves from 1.5750 to 1.5900. The client decided to hedge his next 6 months of exposure via this trade.
The client will benefit in 50% of any upward movement i.e. should GBPUSD be 1.67 on expiry, 8 cents better than the strike rate, the client receives 1.63, 4.00 cents better than the strike rate. Should the GBPUSD rate be below 1.5900 and above 1.5300 on expiry they are able to buy dollars at 1.5900, if it is below 1.5300 however, then for every percentage point below 1.5300 they lose the same off their strike of 1.59.
This strategy is premium free and allows a hedge with a nominal WCR of only 2.5 cents from current market price while a normal participating forward would see a WCR at least 1.5 further cents lower. It is also relevant for buyers of sterling and sellers of other currencies.