• Matheus Zani

🌎 Weak U.S dollar | Japan’s ‘Mr. Fixit | Merkel under pressure to drop Russian gas pipeline


September 04th, 2020


Happy Friday!


The summer is officially over and time really flies when you are on lock down.


For all our American readers we hope you enjoy your long weekend. We know you’ve earned it. A recent study of 3000 companies showed that PTO requests for the year were down by nearly 50% compared to last year. This has pushed employers to rethink their PTO policies and mandate vacations for fear of employees burning out. Team Deaglo spent their time off fishing, camping and exploring the local outdoors. Turns out there is more to a staycation than an aggressive Netflix binge (we didn’t say better).


Here are a selection of our fave shows and movies

Kingdom - Netflix

The Stranger - Netflix

Anything with Charlize Theron

Bubble Guppies - Amazon Prime



Did You Know...


That we now spend more time watching Netflix than spending time with our family. (Apparently watching a show together doesn’t count as bonding). How many hours of Netflix does the US watch a month?


(Answer below)


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USD EUR

Weak U.S dollar a boon for exporters



The greenback has started to decline dramatically in value from 25th May, and so far the US dollar Index is down about 9% since its March peak. Such a descent below 93 is based on key fundamental drivers which have started to weigh against the US Dollar. With the Federal Reserve having lowered interest rates to 0.2% in an effort to boost economic recovery and also to give global USD liquidity, this act has likely raised supply to the point where it is no longer a constraint against further fall in the USD.



The pair EUR/USD on Tuesday touched 1.20 for the first time since May 2018, while some celebrate this recent maxim others not so much.


The European Central Bank Chief Economist Philip Lane said the ECB don´t look at the exchange rate, but the 1.20 level in EUR/USD does matter. The main reason for this concern is that a Euro stronger tends to raise the cost of goods and services produced in the Eurozone on the international market. Therefore, the rally in the currency's value could be viewed by the ECB as working against the region's economic recovery and is utterly unwelcome.


The flip side of it is that a weaker U.S dollar makes imports more expensive, cutting family budgets and increasing business costs. Also, the weaker dollar may hurt companies investing overseas. But, on the other hand, more expensive imports should generate a new demand for U.S local industry, which helps US manufacturers and the employment recovery. In addition, a devalued currency means that exports are suddenly cheaper for buyers abroad.


It certainly benefits the American exporters like those of farmers, machinery, fuels, and other products to sell more goods at lower costs than we’ve seen in the previous months. That could be a boon for the US economy as it continued to manage the spread of coronavirus.


FX

After a huge rally over the summer, EURUSD peaked the week of 2 Sept 2020 at 1.20, a level where the ECB may be getting uncomfortable with Euro exchange rates strength. EUR/USD has been recovering after stock sell-off and ECB’s concerns. Support: 1.1760 / 1.17 Resistance: 1.1850 / 1.19



First Look


6 Things CFOs should consider when working with offshore bank accounts



Offshore banking is often regarded as a complex and cumbersome part of a cross border transaction and can deliver considerable headaches to CFOs and their financial teams. In this article, we explore some of the key points to keep in mind when considering a banking partner for your next foreign investment.


Read More Here


Visit our Intelligence Center

JPY


ah Suga... ah Honey Honey…. Japan’s ‘Mr. Fixit,’ Yoshihide Suga, set to succeed Shinzo Abe as leader



Japan’s ruling Liberal Democratic Party rigged the vote to replace outgoing Prime Minister Shinzo Abe to ensure the premier’s right-hand man, Yoshihide Suga, takes over.


Party officials decided on a system (invoking an “urgency clause”) that would give more weight to lawmakers in the party over rank and file members, LDP General Council Chairman Shunichi Suzuki told reporters. The system decreases the influence of regional voters, who want a rival, the former Defense Minister Shigeru Ishiba. “They are really going to try to get Suga to replace Abe and continue the Abe government without Abe,” said Koichi Nakano, a political science professor at Sophia University in Tokyo.


The 71-year-old Mr Suga has been a central figure in Shinzo Abe’s government as chief cabinet secretary for the past eight years, remaining unflappable in the face of serial ministerial resignations and scandals. The party’s rapid convergence on Mr Suga signals that it wants continuity as Japan struggles with the Covid-19 crisis.


Although Mr Suga still has to win a vote among 535 LDP members of parliament and regional party chiefs, to be held on September 14, endorsements from four of the five largest party factions give him a powerful advantage.


FX

USDJPY is a relatively stable currency pair, with only 7% volatility (= about 10% VaR)


EUR USD


Merkel under pressure to drop Russian gas pipeline after Navalny’s poisoning



Chancellor Angela Merkel is under pressure from within her own party to drop support for the Nord Stream 2 pipeline from Russia, after links point to the Kremlin in the poisoning of Russian opposition leader Alexey Navalny. Merkel said that tests showed “unequivocally” that Navalny was poisoned by the military-grade nerve agent Novichok, and called on the Russian government to provide answers. By the way, this is the same agent (developed by the Soviet Union during the cold war, and banned under the Chemical Weapons Convention) used in the assassination attempt against former Russian spy Sergei Skripal in the United Kingdom in 2018. Moscow has denied involvement, saying he fell ill from a metabolic disorder or diet-related condition. Nothing to see here - again…

“After the poisoning of Nawalny we need a strong European answer, which Putin understands: The EU should jointly decide to stop Nord Stream 2,” Norbert Roettgen, head of the German parliament’s foreign affairs committee said Thursday on Twitter. “Diplomatic rituals are no longer enough.” The project has divided the European Union, with some countries warning it will undermine the traditional gas transit state, Ukraine, and increase the bloc’s reliance on Russia for energy supplies. The United States also opposes the pipeline and has targeted some firms involved with sanctions.


Merkel had been unwavering in her commitment to the project which includes Uniper Wintershall DEA, Royal Dutch Shell, Engie and OMV; so lots of economic pressure. Just last week she said that Navalny’s case should not be linked to the pipeline. Has Merkel found her spine?



FX EURUSD has made a spectacular recovery since March, rocketing past levels not seen in two years; it’s up more than 10% since May. Still, volatility remains reasonably low, and hedging costs are nil.


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


Answers


According to “Kill the Cable Guy” there are 63.7m US based Netflix subscribers watching an average of 3.2 hours per day. Which equates to a whopping 6.1 billion hours a month.


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