VAT is now also an impediment to both EU and UK business - EU retailers selling online to UK now find that their customers have to pay an extra 20% to cover UK vat and that customs declarations have to be completed - many have decided to suspend sales to UK for the time being.
Likewise UK sellers now find that their EU customers are hit with extra vat in their home countries - now those customers are effectively importers - easier just to concentrate on the home market for now.
For these reasons freight ferry crossings between GB (island of Britain) and the EU have been drastically cut due to lack of demand since Jan 1st.
UK has new rules that freight trucks cannot enter port areas without the new documentation thus the freight companies are stacking at depots - one customs agent with 30 years experience in the trade commented Friday that the new rules are so complex he has difficulty understanding them.
The UK PM commented Christmas eve that the devil is in the detail, the leader of UK opposition called the agreement ‘thin’ - there is truth in both these comments.
The market’s first glance was not what was in the detail but rather what was left out - services.
There are two types of services - the smaller type that affects ordinary people like phone providers or health care but doesn’t much impact on the market and then there is the biggie - Financial Services.
Will post more tomorrow.
Edit: what’s the thing about services and GBP - why is it important to market thinking?
The answer - from the UK House of Commons Library (UK Parliament) dated Jan 6th 2021: In 2019, the service industries accounted for 80% of total UK economic output (Gross Value Added). Services accounted for 82% of employment in July-September 2020.
I posted that it was difficult to understand why/how FS was left out and why UK didn’t give it priority - and instead fishing was allotted the available time. The thinking was that London’s strength in this sector would prevail.
BOE chairman last week confirmed this thinking when he commented that “Particularly on financial services, because we’re a global financial centre.”
Likely the EU approach is to let the market evolve - both sides are still negotiating on Financial Services - London exported £25bn FS to EU for 2019.
FT reports that on day 1 of trading around 6bn of EU share dealing shifted from the City to EU locations - long way to go yet - like I said talks are contnuing.
It also appears that UK broker houses are transferring EU accounts to new European subsidiaries. Not substantive in impact but certainly indicative of a change.
Yeah, since we both posted the UK have confirmed that talks ‘begin this week’ on FS - it’ll be a long drawn out process so likely no immediate market impact.
These are the formal talks although BOE unhappy with the behind the scenes talks that have already taken place - according to Bailey last Wed to select committee.
Today GBP has risen on comments by BOE chief re negative rates being controversial.
The market has reacted accordingly - on the ground High St banks have written to account holders where necessary before Christmas informing them of a change in their T&C’s - allowing the banks to apply negative rates.
On DEC 4th past the boe reported that around £50bn of cash is unaccounted for in the economy - various possible reasons offered including covid (less cash spending) and brexit with it’s uncertainty - one law maker commented that imagine what negative rates will do.
Good point - the BRC (British Retail Consortium) report today that for 2020 Retail Sales were ‘worst for 25 years’.
Question the boe must ponder is whether negative rates will stimulate spending or cause more hoarding.
One other comment from Bailey - he said too soon to reach conclusion re further stimulus - wants to see effect of brexit among other things.
Again on the ground the short term effect re brexit - one carrier that I spoke to today reported that he’d never seen parcel delivery so quiet - likely cause is covid lockdown and big push by many businesses to get goods moved before Dec31st.
Numbers will now dictate GBP direction more that all the headlines - perhaps.
Well, that’s true. The economic conditions have a great impact on how people trade. I have been keeping an eye on the latest news and trends using Yahoo Finance and make my decisions accordingly. This has helped me in making effective trades in the past.
"A crisis of deep human suffering is in plain sight, and there’s no time to waste,"
Pres Elect Biden has been quiet on the impeachment issue, Fox reported during the week that his focus is on covid and it’s effect on people and the economy and does not want Congress time taken up needlessly - looks as though this analysis is correct given the last portion of the above from Mr Biden. Perhaps these are addressed as much to lawmakers as to the public.
The announcement of a stimulus package will be likely welcomed by the market although there will be reservations regarding Govt borrowing from some lawmakers there is nonetheless a good chance of the package being approved.
So what will the market think? - we’ll know the answer to that today.
So it’s back to the norm for USD - let the market dictate price.
From WSJ this evening:
Janet Yellen is expected to affirm the U.S.’s commitment to market-determined exchange rates when she testifies on Capitol Hill Tuesday, and she will make clear the U.S. doesn’t seek a weaker dollar for competitive advantage
There will likely be less talking USD up or down according to the WSJ article - “The value of the U.S. dollar and other currencies should be determined by the market"
Ok - over to indices - Europe morning time usually the FTSE and DAX move in relative tandem, and then later in the day will follow the US indices.
This is a general comment - there is usually a specific reason if the 2 main European indices diverge - today was one of those days.
This morning the Bund had been rising - then it started to fall - and true to form the Dax began to rise - but not the ftse - why?
The answer lies with the BOE who announced their view that the UK economy will "recover rapidly" helped by a "material recovery in household spending".
So what will that do to the likelihood of negative rates?
The reason that the CB are optimistic is the rapid roll-out of covid vaccines - the UK are ahead of the curve at present.
GBP rose on these comments and often as the pound rises the ftse will stall or fall.
While since I posted re current affairs - so time for something new.
The UK are about one month ahead of Europe in the vac race and the market has reacted accordingly.
So what about next week - will the BOE who only a few months ago talked about negative rates (the market largely discounted this because of vacs) now hint at tapering the current QE which is a prerequisite to any raising of rates?
May 6th at midday UK time - expect some movement on GBP.
Edit: I dislike fence sitting - so my own thought is that the BOE will be cautious especially since most of UK just now exiting lockdowns.
Current affairs comes under fundamental analysis and are equally important as technical analysis. This is because the movements in the pieces are affected by social, political and economical issues too. If you have already analysed them, you will get an idea how price can move and then you can trade accordingly.
Current affairs comes under fundamental analysis and are equally important as technical analysis. This is because the movements in the pieces are affected by social, political and economical issues too. If you have already analysed them, you will get an idea how price can move and then you can trade accordingly.
Ok - it’s been a while, time to resurrect this thread.
Current affairs often dictate what is known as risk sentiment in the market - something happening in the world has 3 possible effects on risk - positive, negative or neutral.
Good to remember that risk on is the default - investors already have money and are looking to increase their capital, therefore not a bad idea to approach market risk from their viewpoint.
For short term moves another good thing to take on board - M Scott Peck wrote about a millionaire/billionaire who was a start-up. That particular person in his early days believed that the wolf was at the door, i.e. he could lose his early gained wealth easily.
Peck was surprised to learn that many years and much money later that same wolf was at the door - that’s market risk.
Much talk about the sudden risk off that came with Sept and then since Tuesday past a reversal and it’s risk back on.
I commented on a few other threads in late Aug about the causes of the Sept risk off that often happens and also on another thread re “Turnaround Tuesday” .
There is however a piece of current affairs that formed catalyst for these moves - namely Evergrande.
It’s a long story but has the potential of affecting the market in the same way as the disorderly collapse of Lehman Bros - the key word here is disorderly.
If the Chinese Govt make for an orderly finish for the company then the story goes away, if not then more selling risk.
Signs are that unlike Lehmans there will indeed be input from the Chinese, thus risk back on but worth watching nonetheless.
I’ve often said that there is only one market despite it’s many and varied facets - so here is a thought.
Livemint quoted Fed’ Powell on Sep 23 thus: Federal Reserve Chair Jerome Powell said there is little direct US exposure to debt of the Chinese company Evergrande but said it could impact global financial conditions
Note the word ‘global’ then have a think about the timing of this (headline from BBC this morning) :- Huawei executive Meng Wanzhou freed by Canada arrives home in China
So Canada, US and China - who else? - RBA’s Debelle commented Sep 22 to the effect that likely Chines Govt will manage the EV situation.
Current affairs in a global market at play and it’s effect on risk up ahead - worth a think about imo.
If only new traders spent more time taking in current affairs and formulating a market thesis and less time concerned if they should be using RSI or MACD on a five or ten-minute chart they would likely stay in the game longer - heh they might even develop into a profitable trader.
I am NOT berating trading systems, I even use them myself, but if all you do is follow a few squiggly lines on charts you are missing SO much about trading.
The debate has raged often on this forum as to how to use fundamentals, usually, the argument comes down to things like should I trade when the NFP is out?
That is hardly fundamentals.
And as the world moves more away from one single superpower - possibly with multiple competing powers the need to follow current affairs will become ever more important
I get the fact that beginners need a good grasp of technicals, and can in fact be profitable only using them. But knowing which markets are likely to be the bigger movers and trading them rather than blind adherence to ‘trading the euro’, or ‘Dax’ or whatever - makes you a much better and more profitable trader.
What if George Soros had chosen to just trade moving average crossovers on 4-hour charts? And focus on one FX pair? The idea is laughable.
While I don’t have much admiration for Soros’ political leanings, between him and Jim Rogers they really had the best idea on how to profit from markets.
