Best Peforming Currency Of The Year...

Currency Exchange Rates Update

The Pound was the best performing G10 currency in the first half of 2023. It’s now in a race against the Swiss Franc to finish the year in first place.

Last week, the Pound performed well. Hitting a 12-week high against the Euro. A 13-week high against the US Dollar and a 14-week high against the Canadian Dollar. But only after the markets started to take the Bank of England’s (BoE) ‘higher for longer’ mantra seriously. And now expect both the ECB (European Central Bank) and the US Federal Reserve to cut EU and US interest rates before the BoE does in 2024.

There is every chance the Pound will be the best performing major currency of the year.

What’s In The News?

Charlie Munger, RIP. Munger was Warren Buffett’s business partner at Berkshire Hathaway and died at the age of 99 last week.

One of Munger’s biggest contributions was to popularise “mental models”. The idea that you need to look at the world in a range of different ways. Some problems are more responsive to certain approaches than others.

In The UK…

Good News

Chancellor Jeremy Hunt unveiled the biggest tax cuts in 35 years in his ‘Autumn Statement’.

The BoE sees the risk of UK inflation persistence and maintains its ‘higher for longer’ mantra. With various members of its rate-setting MPC (Monetary Policy Committee) commenting that UK interest rates need to be held higher for longer than many expect.

A number of global firms including Microsoft and BioNTech have pledged ￡29.5bn to the UK economy at a business summit. The summit’s theme this year is “British Ideas – Past, Present and Future”.

PM Rishi Sunak said the ￡29.5bn of new investment will help create 12,000 jobs. And was “a huge vote of confidence in the future of the UK economy”.

Business and Trade Secretary Kemi Badenoch said “People want to invest in a country with vision, ideas and growth. And our summit showcases all these qualities and proves why the UK is the most exciting and innovative place in the world to invest. The numbers speak for themselves: we have the third highest levels of inward investment in the world at $2.7 trillion.”

The flurry of investment follows the Government’s announcement in November of a new Advanced Manufacturing plan. This will provide ￡4.5bn in funding across eight sectors, including life sciences and clean energy, from 2025 to 2030.

It also comes after Japanese car giant Nissan announced a ￡2bn plan last week to build three electric car models at its factory in Sunderland.

Speaking at a press conference at COP28 in Dubai, PM Sunak announced a “massive” deal has been struck between energy firms RWE and Masdar. This is to invest up to ￡11bn in the UK’s Dogger Bank wind farm. This will be the world’s biggest wind farm.

The November Lloyds Business Barometer posted a second straight monthly rise in business confidence taking it to its highest since February 2022. There were gains in confidence both about own trading prospects and the outlook for the general economy. Services led the way with sentiment at its highest for over two years, retail rose for a second month and manufacturing was at a five-month high.

Meanwhile, the Confederation of British Industry’s monthly retail sales balance improved to -11 in November. Well above market expectations of -30. It marked the seventh consecutive month with negative sales readings. But it’s another positive UK data surprise, another factor behind the Pound’s recent rise against its currency peers.

Not So Good News

The International Monetary Fund (IMF) has warned the UK risks returning to 1970’s inflation crisis. Believing the BoE must keep interest rates high for at least another 12 months to fully conquer inflation.

The OECD (Organisation for Economic Co-operation and Development) chipped in warning the UK economy faces urgent challenges as it downgraded the growth forecasts and expects the rate of inflation to remain high.

According to the OECD forecasts, among G7 nations, only Germany will fare worse next year.

In The USA…

November was the worst month of the year so far for the US dollar as investors bet that the Fed will be easing monetary policy more aggressively in 2024. Expectations for the first interest rate cut have been brought forward to May.

US macroeconomic data continues to paint a mixed picture raising investor hopes that the US economy is heading towards a ‘soft landing’ while at the same time pricing in rate cuts from the Fed.

US consumer confidence rose for the first time in four months last month.

The US economy grew slightly more in Q3 than initially expected, by 5.2% versus the 5% figure expected.

There was mixed news on the inflation front. With the personal consumption expenditures price index, a gauge the Federal Reserve follows closely, increasing by 2.8% for the period, a 0.1% downward revision. However, the chain-weighted price index increased by 3.6%. A 0.1% point upward move, and corporate profits accelerated by 4.3% during the period, up sharply from the 0.8% gain in the second quarter of 2023.

Pending home sales dropped to a record low, even worse than during the financial crisis and the lowest level since the National Association of Realtors began tracking them in 2001.

In contrast to the Dollar, November was the best month for US Treasuries since 1980 with the Bloomberg aggregate government bond index rising by 4.4% during the month.

In The EU…

Consumer confidence in the Eurozone rose to -16.9 in November, the highest in three months and above market expectations with manufacturing PMI, Ifo Business Expectations Index, and the ZEW and Sentix Economic Expectations Indices also turning higher in November.

Eurozone inflation fell to 2.4%, below expectations and providing fuel for expectations of ECB interest rate cuts in 2024.

The latest data from Germany, the EUs biggest economy, paint a mixed picture. First, a report confirmed that the economy contracted in the third quarter. A drop that was driven by a decline in household spending and kicks off what the Bundesbank reckons may be a recession. But a separate report showed business confidence improved for a third month in a row in November, albeit at a level below analysts’ expectations.

Last Wednesday, the Federal Constitutional Court delivered their verdict on a challenge filed by the main opposition conservatives. Calling into question hundreds of billions of euros of financing in special funds. Some of them decades old that are not part of the regular federal budget. Senior officials in Germany’s ruling coalition meeting in Berlin were under no illusion about the magnitude of the task they face after last week’s shock budget ruling by the nation’s top court.

“The house is in flames,” one participant announced grimly at the emergency gathering of deputy ministers, according to people familiar with the talks.

Underlining the drama of the situation, the Finance Ministry has frozen virtually all new spending authorisations for this year as it assesses the broader and longer-term impact for the federal budget.

German exports of motor vehicles, spare parts and engineering products to Kyrgyzstan are up 5,500% since Russia invaded Ukraine. Since Kyrgyzstan’s economy is not enjoying a massive boom, it’s fair to assume that all these exports are actually heading to Russia despite the sanctions against the country following its invasion of Ukraine in 2022.

In Holland, the veteran right-wing politician Geert Wilders won a convincing victory in the Dutch election.

Others

Oxfam has produced a report that in 2019 the world’s richest 1% produced 16% of all carbon emissions globally. That is almost exactly what the poorest 66% globally which numbers 5 billion people produce. Think all those private planes, yachts, luxury motors and energy inefficient palatial homes.

In the past two months Oil prices threatened to reach $100 per barrel, only to fall into the $70s. On one day in October, oil prices swung as much as 6%. And so far in 2023, futures have lurched by more than $2 a day a total of 161 times.

Meanwhile, gold prices have hit a six-month high as traders bet that interest rates have peaked.

Gold, the ultimate safe-haven asset has climbed to $2,009 an ounce and briefly hit a six-month high figure of $2,017.82.

The China composite PMI fell from 50.7 in October to 50.4 in November indicating a slowing in growth. The readings for both the manufacturing and non-manufacturing sectors fell.

In the cryptocurrency world, Binance Holdings and CEO Changpeng Zhao (known in the industry as “CZ”) pleaded guilty to charges of anti-money laundering and violating US sanctions under a sweeping deal with the Justice Department designed to keep the company in business. Binance is to pay more than $4 billion in penalties. While Zhao agreed to step down and pay $50 million in fines. US Attorney General Merrick Garland said “Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed. Now it’s paying one of the largest corporate penalties in US history.”

It marks a stunning fall for one of the last figureheads of the cryptocurrency industry. CZ becomes the second crypto entrepreneur to see his business career end in US courts in November following the conviction of former FTX chief Sam Bankman-Fried on multiple counts of fraud earlier in the month.

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Quote

This week’s quote could only come from Charlie Munger

“Three rules for a career:

1) Don’t sell anything you wouldn’t buy yourself

2) Don’t work for anyone you don’t respect and admire

3) Work only with people you enjoy.”

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