🌎 Britain’s Negligent Spending Spree | 2 Hot Potatoes | Thai Shining
December 18th, 2020
Today’s #3things go out to Dale. Currently in a long distance relationship due to Covid-19 restrictions, Dale is an advocate for all the couples out there separated by pandemic-related travel restrictions. Since March, tens of thousands of couples globally have been left split apart. Facebook page, “Couples Separated by Travel Bans” number 15K in members, trending hashtags such as #LoveIsNotTourism.
In an effort to reunite with his girlfriend, Dale bought himself a jet ski. The day after making the purchase, Dale ventured off at 8 a.m. for what was planned to be a 40-minute plight from the coast of Scotland to his lover’s nest on the Isle of Man. However, Dale had never ridden a jet ski before, nor was he a strong swimmer. Rough weather on the Irish Sea caused the voyage to become a 4.5-hour survival mission. After reaching dry land, Dale docked his jet ski and marched 15 miles from the coastline into his lover’s arm.
After a romantic reunion and an enjoyable weekend together, Dale was caught by authorities and jailed for 4 weeks.
Did You Know...
Did you know that Scotland has a national animal?
What do you see for the markets for 2021?
2020 was an atypical year, marked by disastrous events. The spread of coronavirus changed the way and how we live our daily lives, changing how we work, study, eat, and shop. Huge shifts in our society have been introduced as part of the fight against the virus, which has had devastating effects on the global economy.
Burning the Sterling: Britain’s Negligent Spending Spree
In the desperate fumble for PPE equipment, politically-connected corporations syphoned billions.
Back in March when the pandemic first made headlines, British government officials went on a shopping spree to obtain PPE, ventilators, and Covid-19 testing kits. Over the next several months, the government subsequently dished out thousands of contracts tailored to beat the virus.
The procurement process appeared to be cobbled together by a group of apprehensive politicians and a roll of Duct Tape. One politician being former investment banker and Conservative Party member, Paul Deighton. The months following, Deighton assisted the government in awarding billions of pounds in PPE contracts to several companies, some of which he has financial interest in, sneaky, sneaky. The Government also secretly funnelled contracts to a list of cherry-picked companies all connected to the governing Conservative Party.
The British government recently publicized approximately 1,200 contracts, totalling almost $22 billion. The New York Times scoured through a large segment, uncovering a dirty secret: $11 billion was paid out to companies run by friends of politicians in the Conservative Party.
Fig 1: Britain’s Covid-19 Spending
Source: New York Times
Just like the dating life of Elizabeth Taylor, government officials were blind to the countless red flags. According to the New York Times, countless companies had big black marks next to their names including tax evasion, fraud, and human rights abuses. A few even declared assets of as little as $2 or $3 — still somehow winning contracts.
There seemed to be an absence of systematic company checks being made out, including for conflicts of interest. Officials rarely documented who recommended a company for a contract nor the reason for it being awarded. Leaning on the pandemic as justification, the government fosbury flopped over the transparency bar, awarding contracts worth billions without competitive bidding. Still, the vast majority of all contracts awarded remain concealed, according to the National Audit Office.
FX | The GBP remains on track to finish the year around mid-2018 levels, around 1.35. The Pound edged higher 1.96% this week, although time is running out for a post-Brexit deal to be done. Both sides, the U.K and European Union, are still expressing doubts that an agreement could be reached.
CHF & VND
"Catch these 2 hot potatoes Mr. Biden"
I like you Switzerland, I like you Vietnam...but you two were naughty little boys. This week the Trump administration chucked two more hot potatoes for Joe Biden to catch in 2021 as the U.S Treasury labeled the European country and Vietnam currency manipulators. That means the U.S Treasury is accusing both nations of improperly intervening in foreign exchange markets to advantage its own exports.
In the Vietnam case, this came after authorities concluded in August that the Asian country had undervalued its currency, the dong, in at least one case involving the export of light vehicle tires, on which U.S tariffs were imposed in November.
For the Swiss franc, the move is the opposite, Switzerland's intervention was designed to prevent the Swiss franc from appreciating against the U.S dollar. According to the U.S report the Swiss’ government has spent an amount equal to more than 14% of the tiny nation’s economic output to offset a weaker dollar.
Both countries defended themselves from “an effort to avoid a destabilizing spiral of price” to “Trump’s administration is obsessed with Vietnam’s trade surplus”.
Nonetheless, as the year draws to an end and with Trump leaving the White House, much of this may end up being in limbo. But one thing is very clear, Joe Biden will have to work hard to undo those Trump’s head imbroglios.
FX | Vietnamese central bank to continue intervening to maintain the Vietnamese dong’s stability. As of present, the VND has almost unchanged its value against the US dollar since January, 2020. The Swissie (CHF) has appreciated 0.76% this week to $1.131/USD against the USD dollar, reaching its strongest level since January 2015.
Thailand No.1 on Bloomberg’s Hottest EM List
Home to crystal clear lagoons and cheap NBA jerseys, Thailand is preparing to open the flood gates to an enormous inflow of foreign direct investment. After the release of Bloomberg’s report, emerging-market investors are now salivating over Thailand’s juicy Foreign Reserves, and slim-waisted Debt-to-GDP ratio.
Fig 1: Top Emerging Market Picks
Bloomberg’s report assessed 17 developing countries on their economic outlook for 2021 based on 11 economic and financial performance indicators. Unexpectedly, China scored rather poorly due to already high parental expectations…*you will be doctor!* As we enter 2021, the Chinese Yuan will be under the microscope for any signs of resistance to a strengthening currency. The CNY is valued the third-highest on the list, and so there exists a looming cliff for an unsettling fall.
The Vaccine Totem Pole
The poorer, developing countries are fearful of being left behind in global vaccine distribution. Given the U.S. and U.K. will be looking to self-medicate their own virus-ravaged economies, the developing countries will be left to fight over the scaps Oliver Twist style.
Although not depressed by high death tolls, emerging economies heavily reliant on tourism spending, such as Thailand or Indonesia, have definitely felt the economic grunt of Covid-19. That said, Bloomberg’s analysts are predicting high GDP growth rates in 2021 for the countries hardest-hit this year.
According to Ziad Daoud, Bloomberg’s Chief Emerging Markets Economist, “Countries that manage to contain the outbreak, introduce large stimulus, have low exposure to the hardest-sectors and aren’t reliant on foreign capital will fare better.” As the world begins to recover, and the US Federal Reserve continues to sport low interest rates, investors will be forced from the nest and sent to explore the new world.
FX | The U.S Treasury also tagged Thailand as a possible currency manipulator. This week the baht fell below 30 against the USD for the first time this year, a level that worries Thai exporters. In general, the baht has appreciated more than 6% since mid-July.
In Other News
Currency Heat Map
This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.
We are a cross-border advisory firm that provides the next generation of innovative FX execution and risk management solutions for institutional investors, investment managers, and multinational corporates.
Quiz of the week