You know how sometimes you have a constant pain somewhere for so long that you almost forget about it until you realise it has gone away? Or a steady ringing in your ears that suddenly stops? How about the dog next door barking constantly, and when it finally lets up, you realise how quiet the neighbourhood is?
That’s how many of us felt during last week: the first week in months with no Brexit noise. Unfortunately this isn’t going to last, of course. The first hurdle is whether Britain will field candidates for the European Election that’s going to start from May 23rd. There are more hurdles after that. I’m sure we’ll hear more, and more, and more.
While it’s starting to seem less likely that we’ll crash out without any agreement, the alternative seems to be a general election at which the Labour Party under the Jeremy Corbyn has a good chance of getting in. Whatever your political views, for currency markets, the following formula is being applied: Brexit + Corbyn = GBP parity.
Amid declining G10 FX volatility, last week saw price action for the Pound to Euro exchange rate constrained between €1.15 at the lower and €1.16 at the upper bound with Sterling snapping a four-week losing streak to climb marginally.
Despite a number of key economic data releases on the schedule last week, GBP/EUR failed to settle on a direction.
Pound Sterling Speculators Brace for the Return of Brexit
Last week started off on a positive footing for the British £ with the latest round of ONS employment statistics indicating the UK’s labour market continues to operate at or above full capacity. On the wages front, the Average Earnings Index printed at 3.5% reflecting the fastest pace of wage growth in over a decade. Meanwhile, unemployment held steady at the multi-decade low of 3.9%.
Despite the reaffirmation of solid labour conditions, expectations for a pre-emtpive Bank of England rate hike remain subdued while the spectre of Brexit continues to cast a pall over UK economic activity.
Developed markets economist, James Smith of ING wrote “Skill shortages in the UK jobs market have continued to boost pay growth, but with Brexit uncertainty set to persist, we now think it’s unlikely to be followed up with a Bank of England rate hike later this year.”
Wednesday’s round of UK inflation data failed to meet consensus forecasts with headline consumer price inflation printing unchanged at 1.9%. Core CPI likewise held firm but failed to register the forecast 0.1% rise, printing unchanged at 1.8%.
Inflation Rate Stable as Consumer Spending Increases
According to the data, lower food prices were offset by higher fuel costs at the pump for consumers leading to the 1.9% print, just below the Bank of England’s 2% target.
Commenting on the impact for UK firms, chief economist at KPMG UK, Yael Selfin said that the figures “will offer some comfort for businesses worried about the extra costs associated with the departure from the EU, as well as the prospects of rising costs of capital.”
For consumers, Howard Archer, chief economic adviser to economic forecasters the EY Item Club said “Any help to consumer purchasing power is particularly welcome as the economy is likely to be hampered by prolonged Brexit uncertainties following the flexible extension of the UK’s exit from the EU to 31 October.”
In line with this view and indicative of consumer resilience, or perhaps apathy, in the face of Brexit Thursday’s UK retail sales release registered a well above-forecast 1.1% increase in the total volume of sales at the retail level, starkly contrasting median forecasts for a 0.3% decline.
EY’s Archer added “Consumers have generally been the most resilient part of the economy and they have been helped by real earnings growth climbing to 1.6 per cent in the three months to February, which was the best level since mid-2016.”
Despite the upbeat figures, British £ exchange rates were little changed – Sebastien Clements, currency analyst at OFX explained “Such (British) data has been pushed into the backseat over recent months, quiet and insignificant, as markets focus instead on the drama of Brexit.”
Brexit Back in Focus for the Week Ahead
For the week ahead, focus is expected to revert to UK politics with Brexit front and centre as MPs return to parliament following their Easter recess to continue efforts to chart a benign course out of the EU.
While cross-party talks have continued in the background, related news-flow hasn’t painted an optimistic picture. According to a report by the Guardian, a source close to the talks said they had stalled with both sides failing to find middle-ground.
Although the freshly extended October deadline is several months away, it’s worth noting the current situation has arisen due to an inability by the UK government to find a deal in over two and a half years of focused efforts.
ING economists outlined their rather pessimistic outlook for Brexit negotiations, “we expect these talks to end without success, which could then trigger either another round of indicative votes on different Brexit options or perhaps even another vote on a version of PM May’s deal. Either way, it’s not clear that either process would end in a clear majority for a certain Brexit path.”
CHOOSING THE SAFEST OPTIONS FOR YOUR INVESTMENTS AND SAVINGS
There is still no likelihood of any stability in the near future neither in the UK or the EU. With the focus on the UK, it is easy to ignore the mess that the EU is in economically and how the sudden withdrawal of Britain’s investment will impact it even more. From an investor’s point of view, it’s almost too risky looking for opportunities anywhere at the current time.
However, that can sometimes be a very narrow view to take as there are always anomalies when there’s economic uncertainty. In fact, when there’s market volatility, more millionaires are created than at other times in economic cycles. That said, it is definitely not a time to be greedy in terms of expecting high returns without any risk exposure. These opportunities seem to exist everywhere but they are absolutely worth avoiding, particularly if you are investing for a particular milestone such as buying a home, funding university or retirement.
At Investor Live, we are always looking for the kind of anomalies that represent safe and sound investments when there’s any kind of instability. From my point of view, it is important that the opportunity to cherry-pick exciting investments with a low-risk profile is not restricted only to those with bulging bank accounts. I represent the “normal” investor and on that basis, any recommendations I make are purely based on independent judgement.
Fixed income opportunities that are backed by tangible assets are the safest possible option for your investment strategy at the current time. You want to be sure you’ll be receiving a determined amount back for your investment and that there’s something underpinning it of significant value. One of the things to consider is not how much the asset you’re invested in is worth but how much of it is owned by the issuer behind the investment opportunity.
Investment over the short-term is always a better idea when markets are volatile and there are a few opportunities to enter the British hotel and hospitality sector for 1- to 2-year terms. One such opportunity comes from Liverpool-based hotelier Signature Living which has a proprietary investment vehicle called a Secured Partnership Investment (SPI). You can find out more about how to invest in this award-winning hotel brand that is rapidly expanding its portfolio of heritage hotels by contacting Investor Live.
About the Author
Amanda Wright is a former risk analyst at Bankers Trust, with specific experience of mergers & acquisitions and corporate finance. As a contributor to Investor Live, Amanda provides valuable insights into the technicalities of fundamental analysis in a way that is easy to understand, to provide retail investors with the tools to make considered investment choices.