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Euro-Pound Parity Call Chimes as Morgan Stanley Joins HSBC

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Euro-Pound Parity Call Chimes as Morgan Stanley Joins HSBC

This article by Anooja Debnath for Bloomberg may be of interest to subscribers. Here is a section:

“In euro-sterling we’ve had a very strong conviction and it’s one of the biggest forecasts I ever remember making on a major currency,” David Bloom, HSBC’s London-based global head of currency strategy said in an interview last week.  That’s “a 20 percent move and that’s quite something. It’s very unusual that we make such, what was at that time, an outrageous forecast” but “we are roughly half way there and we believe in it,” he said.

Bloom first made his parity call a year ago, when the euro was around 83 pence. HSBC predicts the euro and the pound ending this year at $1.20, which are both “strong views,” he said.

Euro-sterling was little changed at 0.9085 as of 9:20 a.m. in London on Tuesday, having reached 0.9119 on Aug. 11, its strongest level since October. The pair reached a record 0.9803 in December 2008.

Diverging Politics

Since France elected pro-European leader Emmanuel Macron in May, risks of the currency bloc fragmenting have diminished. In addition, euro-region economic data are showing signs of improvement. In contrast, Brexit negotiations are far from clear and that’s weighing on the pound. That’s the main concern for Standard Bank’s Barrow.

It all “depends a lot of how the Brexit negotiations go,” he said. “On euro-sterling previously we thought the 90-92 area might be the peak, but obviously now I no longer do.”

While Morgan Stanley’s parity call is partly due to a bullish-euro outlook, the U.K. currency is “likely to weaken in its own right, driven by weak economic performance, low real yields and increasing political risks,” Hans Redeker, head of foreign-exchange strategy, wrote in a client note dated Aug. 10.

 

Eoin Treacy's view

Parity in foreign exchange markets represents about the biggest round number there is so little wonder when traders look at the trend of the Pound’s decline against the Euro that they think of the 1:1 ratio as the most logical target.

 

Chinese automakers covet FCA

This article by Larry Vellquette for Automotive News may be of interest to subscribers. Here is a section:

Why, after two years on the block, is FCA apparently drawing interest from at least one potential Chinese buyer now?

The answer: FCA's global network and product — specifically Jeep and Ram — fit the requirements the Chinese government has set for attractive acquisitions.

Quality gap

Chinese automakers have openly dreamed of cracking lucrative North America for a decade, spending millions to display their vehicles at high-profile U.S. auto shows. Early efforts showed that Chinese automakers had a long way to go before they were ready to compete here.

But in more recent years — through knowledge and expertise gained via joint ventures with the world's largest and most successful automakers — Chinese companies have closed the quality gap.

And the automakers feel like they finally have closed that gap enough to start selling their products in the U.S., said Michael Dunne, president of Dunne Automotive, a Hong Kong investment advisory company and an expert on the Chinese auto industry.

They also are under pressure from the government to expand beyond China, Dunne said. A government directive dubbed China Outbound pushes Chinese businesses to acquire international assets from their industries and operate them "to make their mark," much as Geely has done since acquiring Volvo in 2010. Bloomberg reported last week that Chinese companies plan to spend $1.5 trillion acquiring overseas companies over the next decade — a 70 percent increase from current levels.

 

Eoin Treacy's view

Germanys auto sector has been garnering all the wrong sorts of attention lately with increasingly evidence that the major manufacturers may have colluded in hoodwinking the globe into believing diesel engines are clean. On the other hand, China’s auto manufacturers have been among the best performers this year as they have increasingly focused on partnerships with international brands.

 

Eoin's personal portfolio: commodity position closed at a profit

 

Eoin Treacy's view

Details of this trade are posted in the Subscriber's Area.

 

Diversifying away from Aussie banks

This video from Liverwire caught my attention this morning. Here is a section:

Financials dominate the ASX200, comprising 35.4% of the index. This compares to 14.7% of the S&P500. Andrew Fleming, Deputy Head of Australian Equities at Schroders, points out, they are a big part of the index - because they make a lot of money. Here he questions whether this will continue.

Risks are clearly skewed one way, being down rather than up, from the starting point. The banks are not likely to make a lot more money than they do today in the future

In the short video above Fleming discusses this in more detail and also shares one simple strategy for achieving better diversification when investing in the ASX-listed banks.

 

Eoin Treacy's view

A point I’ve made on successive occasions is that the weightings of Australian and Canadian banks in their respective domestic benchmark stock indices are at levels which have an undue influence on the market.

 

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