• Matthew Fotheringham

🌎 OECD under the microscope | FDI flees to the U.S. | A bloated UK | 3 Things

June 19th, 2020

Happy Friday!

Soccer players sometimes get a bad name, with many arguing they are overpaid, disconnected from reality and spend more time rolling around on the floor than they do playing soccer.

However, this week Marcus Rashford of Manchester United showed how the wealth and influence of a young sportsman can be very powerful, and change so many lives.

Marcus (22) used his platform to raise £20m and campaigned for a reversal of the UK government's decision on removing the £120m worth of free school meals for children from underprivileged households… kids won’t go hungry this summer thanks to his perseverance.

Did You Know...

The last UN report stated that there are 820 million people suffering from hunger, more than 1 in 9 of the world population.

Can you name the three largest factors contributing to world hunger?

(Answers below)

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How Well Have OECD Countries Responded to COVID?

In 10 years' time, children will be sat in their history classes learning about the COVID pandemic of 2020. The Economist Intelligence Unit has contributed to that history lesson when it undertook to measure how well countries are responding to the pandemic.

Their methodology measured three factors (the number of tests, provision of non-covid healthcare and the number of excess deaths). These were mitigated by three other factors, the share of older pop, obesity, and # international arrivals).

The results, please:

Australia, Austria, Denmark, Germany, Iceland, Israel, New Zealand and Norway top the list.

At the other end, Belgium, Italy, Spain and the UK had the lowest scores.

The US dodged the bullet here: Although it had the highest number of deaths, the mitigating factors of obesity and the aging population got it off the hook.

The Dollar Index has retreated from its brief foray above 100 and now is more in line with the two-year average.

Feature Article

The Implications of COVID-19 on Global M&A

Our CEO Ashley Groves sat down with the team at Sharevault to discuss the changing landscape of global M&A... READ MORE

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Foreign Investors Fancy the US

US corporate bonds have updated their dating profile as Japanese and European investors flock to get a piece of the action. There’s more than $12 Tr of negative-yielding bonds worldwide, making US corp debt look very attractive, no need for hair and makeup.

US Treasury data shows foreign investors purchased a net $11B in April, up from $6.5B in March.

A 7 - 10 yr US industrial bond may yield 1.75%, compared to 1.25% for a similar euro-denominated note. Bottom line is that USD-based credit is more attractive than euro-based credit, even after hedging costs. Fortunately, managing the FX risk of this cross-border investing has rarely been cheaper.

There’s another risk (on top of FX) to be considered though - US companies are growing more and more indebted (US investment-grade issuance will total $1.4Tr this year), and their revenues are under COVID pressure. Unemployment is currently 13%, and the re-opening of the country has resulted in a surge of cases and renewed lockdowns.


Spend Money to Make Money

The UK has acted like most other developed nations in response to the economic impact of the coronavirus - throw money at the problem. This tactic now means that the UK’s debt has reached levels where it is greater than its GDP after the latest government spending spree.

The UK government borrowed a substantial £55.2bn in May, a figure that sits nine times higher than what was borrowed in May 2019, and the highest since 1993. So where does this leave government debt now?

The most recent splurge sent the government debt to £1.95tr - which has exceeded the size of the economy for the first time in 50 years. For comparison, the peak of UK debt as a percentage of GDP was 258%, felt in 1946-47… for obvious reasons.

The Uk has recorded a deficit for both May and April anticipated to be £103.7bn, £87bn more than the same period last year.

Chancellor Rishi Sunak recently said the figures confirm the severe impact COVID-19 has had and will continue to have on public finances.

“The best way to restore our public finances is to a more sustainable footing is to safely reopen our economy so people can return to work”

GBP has been quite volatile for a major, 9% annual vol, which translates to a 15% VaR. Fortunately, hedging costs are minimal, about 0.2%, favoring selling GBP.

In Other News

Currency Heat Map

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

Deaglo Currency Heat Map

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Quiz of the week

Drought - increasingly unpredictable rainfall has consistent crop failures and kills entire herds of livestock

Food is inaccessible - families struggle to get the food they need through: lack of infrastructure, frequent war and displacement, natural disaster, chronic poverty and lack of purchasing power.

Food is wasted - one-third of the food produced in the world is never consumed, contributed by; inefficient farming techniques, lack of post-harvest storage and broken supply chains.

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