Good morning,
Admittedly, the majority of the articles that I have produced recently have focused on the rapid deterioration of the pound in the face of continuing political pressure with regards to no-deal Brexit, snap elections and the single market.
For the majority of readers, this has been glum news indeed; but for those not holding sterling, to quote a client of mine yesterday, “It keeps getting better and better, thanks for the good news!”.
Whilst it is hard to disagree with them in regards to the sharp downtrend in the sterling, it is always, regardless of market sentiment, critical to consider both sides of the prices. Our account managers are trained to offer a reasoned and weighted response which is focused on making the best of the market and discussing risk on both sides of the coin.
As the global trade war escalates on a seemingly daily basis, with additional tariffs being placed on hundreds of billions of dollars’ worth of goods between the world’s largest economies – the USA and China – other economies are now being dragged into the fight.
Essentially, as more goods are covered by additional tariffs, more countries in the respective countries supply chains are affected, which has been seen by the international slashing of central bank interest rates across the board in quick succession. Even when taking the USA’s most recent cut and China’s currency devaluation; New Zealand have issued a 50bps cut, India has issued a 35bps cut and Thailand has issued a 25bps cut. The Norwegian Krone is now at it’s lowest levels since the 2008 financial crisis due to falling oil prices.
Trade wars rarely impact just the two countries at ‘war’.
As far as data goes to back up the sentiment, Chinese exports rebounded strongly, posting a sizeable year on year increase of 4.6% off the back of a weaker yuan, following its devaluation. The notable decrease is imports – down 1.3% as the domestic market withdraws from importing consumer goods produced by huge companies such as Apple.
As mentioned earlier, as global trade and monetary flows are being severely impacted, it is now more important than ever to develop an understanding of your foreign exchange risk on both sides of the price – give your account manager a call or drop them an email. There is always value in making hay while the sun shines, if even for a portion of your exposure.
Have a great day.