• Matthew Fotheringham

🌎 Marching on Merkel | Bleak outlook for U.S. | COVID and cyclone double punch | 3 Things


May 22nd, 2020


Happy Friday!


If you need inspiration this Friday, then just watch the recent Michael Jordan documentary “The Last Dance”. It’s either going to make you feel like a champion or a failure… but at least it’s better than baking banana bread.


Did You Know...


Michael Jordan has a net worth of $1.9B, but there is a little known athlete that has topped his financial empire.


Do you know who?

(Answers below)


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EUR


Germany Can't Get Out Of Its Own Way



If we’ve learned anything from the past two weeks, it's that Germany loves to make problems for itself. First, the German Constitutional court decided to bite the hand that feeds it, now thousands of Germans have decided that it's a great time to form a protest.


Germany’s foreign minister has warned people to “socially distance” themselves from the growing movement after domestic intelligence agencies warned that extremist groups were exploiting fears around the virus to gain support.


German fatalities from COVID-19 sit at a little over 8,000 and have seen their daily cases drop below 1,000. That compares rather favorably with the US (1.6M cases, 94k fatalities). Germany has one-sixth the population, and one-twelfth the fatalities. In other words, their response has worked twice as well as the US. Maybe because their leader has a PhD in Physics?


It’s not all been bad news out of Europe as lockdowns are starting to be eased. Germany and France recently banded together to announce a €500bn ($545bn; £448bn) European recovery fund to be distributed to EU countries worst affected by Covid-19; representing a big change for Frau Merkel. Merkel has usually rejected the idea of nations sharing debt (perhaps because it could be rather unidirectional).

EUR has steadily fallen against the USD for the last 2.5 years, losing 15% of its value. Annual volatility is low, as expected for a majors pair. Hedging costs are less than 1%, favoring selling EUR/buying USD.



USD


How Sick Is The US Economy?



Another week, another increase in Americans applying for unemployment insurance. Despite an easing in lockdown measures, the U.S. added another 2.4 million unemployed to its roster, now sitting at a whopping 39m.


There is a silver lining, it's down from the peak weekly job loss of 6.6m at the start of April, although no one will be patting themselves on the back as the official unemployment rate sits at 14.7%.


Amidst unemployment levels unseen since the great depression, states have begun to ease lockdowns. Although this may not have an immediate effect, given polls have shown that the majority of Americans are worried about returning to work and could dampen hopes for a quick and painless economic recovery.


This news comes after Federal Reserve Chairman Jerome Powell said on Thursday the U.S. economy is “now experiencing a whole new level of uncertainty”. The US currently has a $24.95 trillion debt burden, which Powell hinted could grow as the Fed will ‘spend whatever needed in this crisis’. However, the Fed has held firm on its response to the question of negative rates and will only consider utilizing this at the last resort and after all other stimulus avenues have been exhausted.


Even some of the more optimistic economists have started to taper their expectations of a bounce back. As the bad news starts to pile up in the US it could lead to a change in investor sentiment and steady move out of the greenback and into the countries further up the recovery road.


The Dollar index has been oscillating about its 100 mark for the last few weeks. Long-term trends have been to appreciate against the basket, but this trend seems to be running out of steam.


US Dollar Index

INR


Bay Of Bengal Hit Hard By The Cyclone Amphan



As if a global pandemic wasn’t enough for emerging market infrastructures - try throwing a cyclone in the mix. India and Bangladesh have seen just that as they have been devastated by a powerful cyclone which has killed 84 people so far.


Amphan hit land on Wednesday leaving roads flooded and 14 million without power. In Bangladesh, tens of thousands of homes have been damaged or destroyed. Many villages are submerged by 10-16 feet storm surges in low-lying coastal areas like Khulna and Satkhira. The government fears about $1.5bn worth of damages.


Authorities have been working hard to repurpose the quarantine facilities into 15,000 storm shelters for the 2.4m people that have been evacuated. Not exactly ideal for social distancing. India had reported more than 100,000 cases with 3,163 deaths and Bangladesh has nearly 30,000 with 408 deaths.


The Bay of Bengal is known as an untapped resource for oil, gas, mineral ores and fish and attracts a lot of investment interest from India, China and Japan. It is also a major energy trade route into East Asia and was picking up steam with Australia.


Surprisingly, annual volatility is not very high, just 6%. However, the recent weakening is a continuation of a long-term trend. In 2011, USDINR was at 45. It has steadily depreciated more than 60% in the last 9 years. Hedging costs are fairly high, 5.3%/annum, favoring USD sellers/INR buyers.


In Other News



Feature Article


The Questions You Need To Ask When Investing Overseas


You found an investment opportunity that you think is perfect! You love the potential returns and maybe your financial advisor has said you need diversification or possibly your friend Dave has told you “it's a sure thing”. The difficulty is, that this opportunity is domiciled in a foreign territory and furthermore denominated in a foreign currency... READ MORE


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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


According to Yahoo finances athlete rich list, Ion Tiriac is worth $2B.


Romanian billionaire Ion Tiriac was a star in more than one sport. He competed in the 1964 Olympics as a member of the Romanian ice hockey team and was inducted into the International Tennis Hall of Fame in 2013 with a total of 23 career titles. Since retiring as an athlete, Tiriac has become a business tycoon — he founded Banca Tiriac in 1990 and expanded his business empire to include numerous companies under Tiriac Holdings. All we know is that, is a billion-dollar moustache.




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