As autumn arrives thoughts turn to Halloween costumes, conkers, and an active sporting schedule. But that contagious excitement from little ones has been calmed this week by surprising moves in the currency markets.
The pound hit 31-year lows this week following the announcements from the government at the Conservative Party Conference. Markets are fearing what is known as a ‘hard Brexit’ as that sparks uncertainty, particularly around trade. Comments from European leaders have also suggested a tough negotiation. This morning the pound dropped a further 6% against the dollar, before rebounding to be down 1.4%. This volatility is quite shocking and the reason unclear; some pundits are citing human error, but the fact that the pound hasn’t fully recovered suggests there is more activity on the horizon. I’d recommend you stay calm; if you haven’t already booked your half term holiday it might be sensible to stay in the UK.
Deutsche Bank has received a $14 billion fine from the US Department of Justice to settle an investigation into faulty securities. The Department of Justice want to have this closed off before the US election so it can go down as a win for the current administration. Deutsche Bank is fighting this, we can expect an announcement soon, but other banks have agreed settlements for less than half of this amount. German corporations have shown a willingness to help, in the shape of raising capital, this would have the impact of reducing uncertainty. This is yet another example of why banks, across the world, need to re-look at their business models. They need to reduce their cost base to become more efficient; becoming a digital business would help to remove unnecessary cost.
There was also concerning news from the International Monetary Fund. Their report on global debt shows that the world is re-leveraging, there is now more debt in the world than there was in 2008. Despite claims of austerity across the world the impact on debt is negligible. We have reached a new normal, a world with a lot of debt. Investors everywhere should remain cautious and stick to their investment plan, now is not the time to be overly brave, as historically, a world with a lot of debt has limited growth.
If you have any questions on this week’s topics, or anything else you have seen in the financial news, please get in touch. This column only works if it helps you.