Our last BREXIT commentary was back in August 2017 and it is fair to say that the political discourse on the matter, aside from making rather repetitive reading, has done a fair bit to reassure the markets that something is happening in the halls of power.
It remains unclear what precisely what that something is, but, Mrs May's government is now committing at least to the pretense that it is unified, which is an improvement on six months ago.
One theory running around the Prime Cap offices is that the stories in the press are part of a socialist conspiracy peddled by the tabloid press and designed to force the government to move further to the centre. At a very basic level that isn't a rediculous notion especially if you consider that it is the man on the street in the UK who wants safety in numbers, however, all of the talk is doing damage to this idea of a 'good deal' for the UK.
The term 'fudged' was used to describe the agreement between the EU and the government over the three areas that Mr Barnier said needed to be addressed before discussions on trade could be tackled in earnest.
It is rather fair to say that how the UK treats EU citizens, what form the divide between Norther and Southern Ireland might take and who governs disputes during a transition are all areas that the UK would have had a better handle on negotiating were we any clearer on what trade relationship might be tables with the EU, but, it is also fair to say that the dragging of feet on those issues would have, and a bit did, erode confidence in the good will and decency both sides suggest underpins their approach; but hey, isn't that just all part of negotiation?
'Britain' has a point about saying that trade was the key to unlocking their plans for the other points, but, restricting discussions would have done more harm to Mr May's position and suggested to her global audience that she had few other pillars propping up her approach.
Anyway, with the new year we see a bit more vim and vigour from the pound against a basket of currencies.
Consumer confidence in the UK is high and it could be argued, and no doubt will be by euro-skeptics, that the public are softening to the idea of a 'free' and independent UK.
It has to be acknowledged though that sterling's current price, against EUR and USD particularly, is a weak one.
GBP has risen in value probably as a result of weakening of the other two currencies and not as a result of any particular underlying confidence in UK economic fundamentals.
One thing to quickly say is that you can't account for corporate mismanagement and what effect that might have on confidence or risk appetite.
So, things like the demise of Carillion and other likely damaging releases of the same ilk cannot be forecast. It is interesting to note that main street, although alarmed, has not reacted in any measurable way to this information. The left demonises PFI, but, someone who owns their own house and likes the fact that is the aspirational status quo is not laying the fault of Carillion's collapse at the door of a conservative idealogy per se. This is a welcome shift.
One thing we observe is that BREXIT is still firmly in the political phase of its effects.
Yes, UK growth has been downgraded and yes the government has suffered a number of embarrassments over its preparedness and modelling on the effects of our withdrawal, but, many of the corporate clients we talk to are actually and genuinely excited about what the future holds and where their next client might come from.
They want the conversation to progress and, rather than being resigned to a worse state of affairs, they are all interested in engaged in what may come their way. This is one of the main differences between 2018 than 2017. Real people are bored of the politics, but, so complex is it that they still feel that Mrs May, for all her faults and for all her short comings as a party leader, is still a sincere operator committed to the improvement of the lot of those she governs.
We don't think the same could be said for her opponents on the other side of the chamber.
When it comes to matters of international representation, Mrs May is still seen as more capable than the alternative and that is true of those in the UK and those looking at the UK from an investment point of view. This is a good thing for her and for us.
It is terribly difficult at the moment to have any type of assured view on where GBP might go over the coming months.
Yes, we can draw on fundementals and we can, as many in the capital markets do, look at performance, purchasing managers' orders, unemployment and public sector spending, but, we surmise that the most damaging story for the pound is yet to play out.
Renowned the world over from the stability of our democracy, it would be tremendously naive to think that what is going on in the Conservative and Labour party won't have a significant effect on our ability to focus on replacing the EU as a trade partner.
Mr Corbyn, on principle, dislikes what Mr Trump stands for. That is understandable given their respective political ideologies, but, given that there will be a gaping hole in the UK's balance sheet once we pin down what life on the other side of the canyon will look like, the British electorate need to be told about what a more socialist agenda will do to the silver bullet economic salvation the Tories are seeking.
Prime Cap doesnt vote, but, socialism is not the way to win investment from the rest of the world.
We don't think the Tories will be ousted. However, if they cannot form an orderly queue behind one leader then there is a possibility that self-sabotage will do that which the election last year could not.
If a lot of those who voted in favour of BREXIT are from the political left, then it is totally counter intuitive to vote in favour of socialist policies when we need to be offering the rest of the world the benefit of our full throated capitalist expertise.
The interesting this is that the Labour party seemed to have worked out where their leader is weak and they are taking steps to ensure that when questions of competancy in international statesmanship are asked Mrs May is the only one in the cross-hair.
This stragegy means that Mr Corbyn looks quiet and considered, yes, but is also means the Tories are left in the headlines, neatly erecting the gallows because they cannot agree who they are. If they don't know, then how the hell are we supposed to?
Most people agree that a hard Brexit will be bad for business; but, interestingly, business is, we suspect, planning for just such an eventuality and, if it is, then the modelling and sentiment which is currently floating around the market is likely to be an overestimate of the adverse effects of our withdrawal.
In a weird sort of way this should give us comfort.
For every report you read about a business leaving the UK you need to look at the small print and appreciate that the UK not in the EU is an opportunity for the exact same institution. Yes, they are preparing to keep the rudder steady for their european business, but, if an economy and a country were readying to go it alone, wouldn't you want it to be the world's foremost one in courting international trade and one with a peerless infrastructure and set of skills?
We're starting to sound like brexiteers here. Our view is more to do with lemons and what to do with them is they're what you have.
The lesser reported story, largely because it's public discussion cannot begin in earnest just yet, is about those institutions and businesses that a gearing up to enter the UK market.
Yes, a bank may be planning to move it's operations to France (with all the costs and long terms legislative complications that promises) but, what about those economic rising stars who can now genuinely look to spend their money in the UK. They will no that UK Plc. has capacity. Yes, they may be able to get a bargain but do we care so long as they spend their money with us? I think not.
The Great British PR machine needs to start talking up the BRIC countries and brands.
Our Western imperial economic model needs to be dispensed with and we need to start broadening our horizons and using the platform we have to start cheer leading peers whose presence at our table had previously been restricted.
London is open for business, sure, but is the UK at large and, if so keen to 'big-up' the UK why aren't messes Gove, Johnson, Fox and Rees-Mogg talking about the other markets that will undoubtedly be hammering down our door.
If the tide of public opinion is shifting, then the EU doesnt need to be on our front pages...show them we have other options. It doesnt have to be a formal statutory or policy change, but our press could start working with new advertisers, our companies could publiscise who their potential new suppliers might be, we could shout about how much more money we could make if we redirected current spending in to markets where our activity had been limited...there is a great deal more we can do to fortify the consumer confidence that have surprised the markets.
Sterling's climb against the USD is an interesting one.
As the global reserve currency US dollar can be vulnerable to swings in sentiment that are global rather than purely domestic.
For that reason one has to view weakening or strengthening of the dollar in the context of macro themes rather than pinning it's change in value to any one event or market shock. Of course, those events and markets shocks do have an effect, but those effects tend to be framed in the domestic language of the currency on the other side of the rate of exchange.
As we often say, businesses need to make better use of hedging tools in order to protect themselves from increases in costs.
With a 'high' pound, high relative to the rate one might have achieved last time one was exchanging, buying currency before you need it is a safe and sensible way of extending your ability to use it; but, in times of volatility, buying currency in advance or 'forward' makes sure that you dont have to pay anything more tomorrow. If businesses want certainty then these tools give it. It is not about fractional gains, it is about making sure you're cash flow is understood and being able to operate with the confidence of knowing you won't have to pay more tomorrow regardless of movements in the rate of exchange.
We're of the opinion that BREXIT should have made forward contracts more popular; the trouble is that BREXIT has actually only really served to enhance the profile of a businesses bank for other aspects of financial activity.
Prime Cap isn't able to penetrate new markets any more successfully because the UK is leaving the EU. If anything, uncertainty has seen a retrenchment towards the more mainstream financial institutions and it is almost as if all the energy banks have put in to their own rehabilitation after 2008-2010 was spent knowing or expecting there would be this return to the big brand. This is a shame, but it has actually meant that those banks have a clearer idea of worth they need to extract from that returning customer base.
What we mean by this is that certain banks who have done well by changing their outward approach have also benefited from greater internal clarity...and, foreign exchange is one of the areas on which these institutions have come to realise they don't need to focus.
We recently spoke with a commercial banking manager at a UK high street challenger bank. He knows his employer cannot compete on rate and, what is more, he is perfectly happy to refer his customers to a specialist precisely because he knows the infrastructure of his bank is not set up to service that client's needs effectively; Brexit has forced some banks to consider and consolidate where they should, can and will make the bulk of their money from...and has driven them to focus on that, which in turn benefits the likes of Prime Cap.
If you would like to discuss any of the themes mentioned above or get a firmer grasp on what we think might end up moving or shaping the trajectory of the currencies you deal in, as a business or a private client, our brokers are ready and waiting to hear from you.