• Matthew Fotheringham

🌎 Another Coup In Africa | OZ Secure Potential COVID Cure | Fish Stand In The Way Of Brexit Deal

August 21st, 2020

Happy Friday!

The S&P 500 is up nearly 5% this year! As the global economic situation continues to dwindle on, opportunistic investors have been piling money into the public market hoping to capitalize on one of the worst market drop-offs in history. Did you time the market?

Did You Know...

...that the S&P’s 10 largest components (2%) comprise 21% of the index.

Any idea which firm comprises the largest portion?

(Answer below)

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Another Coup In Africa

Caymans in the dog house

And here we go again. Following military coups in 1968, 1991 and 2012, this year after months of protests and a mutiny at a base in Kali, soldiers arrested the president, Ibrahim Boubacar Keita. A contested election in May piled onto existing public discontent over poverty, lack of employment and frustration over corruption.

The coup is likely to further destabilize the region and jeopardize counter-insurgency efforts led by France (the ex-colonial power in west Africa) and the United States. Mali shares borders with Burkina Faso and Niger - all three countries have struggled with the growing presence of Islamist groups.

Given the instability in the Sahel region, observers fear that if Mali falls further into chaos, the dominoes will fall hard and fast, potentially unleashing unrest as far afield as coastal west Africa -- where the United States has economic and strategic interests -- and beyond. The main US base of operations in the region is in neighboring Niger, but US President Donald Trump has threatened to close the $110 million airbase, leaving France holding the bag.

The coup leaders have not yet nominated the person who will be in charge during the transition period. Let’s hope they nominate someone who will avoid the mistakes of prior presidents.

The West African CFA franc (XOF) is the currency of eight independent states in West Africa: Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo (all of France’s ex-colonies). It shows relatively low volatility for an EM currency, which is good because there are no hedging instruments for XOF.



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Australia Will Provide COVID Cure for Free if the Aussies Want it


Australia has secured a deal with AstraZeneca to supply a potential Covid-19 vaccine to its entire population free of charge, becoming the latest country to lock in supplies of the drug should trials succeed (AstraZeneca has also agreed to supply 400 million doses of AZD1222 to Europe through the Inclusive Vaccines Alliance (IVA), set up by Germany, France, Italy and the Netherlands).

Under the deal, the Australian government would manufacture the vaccine and offer free doses to all citizens.

Speaking to a local radio station, PM Scott Morrison said Australia would have a target of 95% vaccination. That’s so refreshing, compared to US attitudes... 50% to 70% of Americans would need to develop immunity to COVID-19 – either naturally, or via a vaccine – in order to stop the spread of the virus, Unfortunately, the anti-vaxxers are influential enough to prevent reaching those levels.

The AstraZeneca deal comes as Australia continues to grapple with its coronavirus outbreak and the impact on its economy. “We estimate deficits of $95 billion, 4.8% of GDP, for 2019-20,” Westpac Chief Economist Bill Evans wrote in a research note this weekend. All Australian states and territories are now closed off from each other, with hard border closures that leaders warn will stay in place for months to come.

AUDUSD is a rather volatile major pair, nearly 10%/annum. Fortunately, hedging costs are presently near zero. The Aussie is trading in a fairly tight band of 0.7240 to 0.7140 (It tested this level on Thursday morning).


So Long, and Thanks for All the Fish

On Wednesday this week, the UK and EU entered their seventh round of negotiations, and despite remaining confident of a resolution in time for October’s deadline, the UK has been hedging their bets by contemplating an extension of negotiations to December.

So what seems to be standing in the way of a deal?

Fishing Rights - the UK would like full access to the EU market to sell its fish and the EU want full access to the UK waters to fish in return.

Irish Border - Will the land border between Ireland and Northern Ireland remain as it is now?

Enforcement - How will the deal be enforced and what will be the role of the European Court of Justice?

So what happens if a deal can't be struck? Well, we have time on our hands, where have you heard that before? The transition period ends on the 31st December, if a deal has not been secured by then, then the UK would have to trade with the EU on World Trade Organization (WTO) terms. This would not be ideal, as it would mean that most UK goods would be subject to tariffs until a free trade deal was agreed upon.

The UK’s Chief Negotiator, David Frost, previously said in July that although he felt a deal could be struck in September, there was a distinct possibility that it also might not be. It sounds a bit like when you ask your kids to clean their room… we all know the outcome there.

With most of Europe on holiday at the moment, even if it is in their own homes, it's unlikely that a deal will be struck at all costs and there still seems to be a long way to go to reach a resolution. It will be interesting to see if anyone gets to eat their cake and have it too.

The pair that matters here is EURGBP. 8% annual volatility is fairly high for a major pair. Hedging costs are well under 1%, favoring selling EUR. Clear support comes in at the psychological level of 0.90 with a resistance band at 0.9380.

In Other News

Currency Heat Map

This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.

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Quiz of the week


Be honest who guessed Apple? It's none other than Bill Gates’ baby Microsoft… making up 5.6% of the index. The rest of the top five of the S&P are.

  1. Apple

  2. Amazon

  3. Alphabet Class C

  4. Alphabet Class A

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