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Sturdy sales data pushes pound higher amid Brexit concerns

The pound edged higher on Friday as strong British retail sales lifted sentiment, though investors were considering the consequences of a Brexit vote defeat in parliament for Prime Minister Theresa May.

On a weekly basis, the British currency was set for its third consecutive drop. Analysts said the latest parliamentary loss for the government, although on a symbolic vote, indicates May does not have the support of her lawmakers.

With less than six weeks before the March 29 exit date, May has stepped up efforts to convince the European Union to grant her concessions.

“The constant Brexit can-kicking has also increased the risks of a disorderly exit,” strategists at BNP Paribas said in a daily note.

May has promised that if parliament has not approved a deal by Feb. 26, she will make a statement updating lawmakers on her progress on that day and lawmakers will have an opportunity on Feb. 27 to debate and vote on the way forward.

For a factbox on what happens next, see

The pound was set to end the week on a cheerful note as data showed British retail sales rebounded in January, shaking off some of the recent gloom over the UK economy as the Brexit departure date nears.

After bouncing following the sales release, the pound held near the day’s high of $1.2839 in afternoon European trade, up 0.2 percent at $1.2824.

It performed even better against the euro, rising half a percent to 87.84 pence per euro at one point.

The euro’s decline accounted for much of the move, though. The euro fell after a European Central Bank board member said policymakers were discussing whether to issue new multi-year cheap loans to banks.

RATE HIKE BETS FALL

Dwindling expectations that the Bank of England will raise interest rates this year have weighed on the pound in recent days. Swap markets indicate a 28 percent probability rates will rise, compared with 30 percent earlier this week.

Derivatives markets painted a slightly more cautious picture for the pound, with one-month implied volatility picking up from December lows and rising to 9 vol on Friday.

Risk reversals, a market gauge of the ratio of puts to calls on a currency, indicate investors are leaning towards buying options to protect themselves against further downside in the British currency.

Source: UK Reuters

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Pound falls to 20-month low – time for UK property investors to act?

Following the postponement of a crucial Brexit deal vote by the UK government, the pound has fallen close to its lowest value against the US dollar since April 2017 – and this creates a significant opportunity for international investors to buy UK real estate.

What’s happened?

On Monday 10th December, UK Prime Minister Theresa May cancelled a key vote in the House of Commons on the details of a Brexit deal, outlining the current terms of the country’s withdrawal from the European Union (EU).

The decision was taken after Mrs May admitted that the current deal on offer, one negotiated between her cabinet and EU leaders, “would be rejected by a significant margin” by MPs in Westminster. It means that she must now decide the best of course of action to take, with the UK scheduled to formally leave the EU on March 30th 2019.

Following this decision to postpone the vote, the pound fell to its lowest level against the US dollar for 20 months:

  • After markets closed, sterling was down almost two cents against the greenback, with the exchange rate hitting £1/$1.2562, close to its lowest level since April 2017
  • At £1/€1.059, the pound also fell 1% against the euro and reached its lowest rate since August 2018

What do international investors need to know?

Firstly, it’s important to consider the fundamental reasons for investing in real estate:

  • Long-term growth
  • A regular income from rental returns
  • Decisions based on supply and demand levels in key markets

Then, international investors looking at the UK property market should also remember:

  • Ongoing Brexit discussions does not change the fact that UK property is one of the strongest investments one can make globally
  • 340,000 new homes are needed each year until 2031 just to meet current demand
  • Demand for rental property will reach six million by 2025 – but just 100,000 purpose-built rental properties are currently in the delivery pipeline nationwide
  • Until this shortfall is addressed, property demand will remain extremely high in a sector of low supply

An immediate opportunity to buy UK property

With the pound experiencing a significant degree of volatility, it presents an unmissable opportunity for international investors to buy UK property now.

At Select Property Group, we’ve seen a number of investors in recent years use fluctuations in exchange rates to buy multiple properties, taking advantage of greater levels of affordability.

Strategically choosing to invest and enter the market now means investors give themselves the best opportunity to achieve higher returns in the long-term.

Source: Select Property

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No deal Brexit would cause pound to crash, say Bank of England

The Bank of England has warned the pound would crash, inflation soar, interest rates would have to rise and Britain’s growth would plummet in the event of a no deal disorderly Brexit.

The apocalyptic outcome, contained in the Bank’s analysis of various EU withdrawal scenarios, would also see unemployment skyrocket.

In the event of a disorderly no deal, no transition Brexit, Britain’s GDP could fall by 8%, according to a worst case scenario analysis by the Bank.

The unemployment rate would rise 7.5%, inflation would surge to 6.5% while interest rates would rise as high as 5.5%.

House prices are forecast to decline 30%, while commercial property prices are set to fall 48%. The pound would fall by 25% to less than parity against both the US dollar and the euro, according to the bombshell report.

Prime Minister Theresa May is aiming to convince sceptical MPs to back her EU withdrawal agreement she reached with Brussels. Parliament is set to vote on the deal on December 11 and if the deal is not approved it will see the UK lose the transition period.

The Bank’s doomsday analysis comes hours after the Government released its own impact assessment, which found that withdrawal from the EU under Theresa May’s plans could cut the UK’s GDP by up to 3.9% over the next 15 years.

But leaving without a deal could deliver a 9.3% hit to GDP over the same period, said the analysis produced by departments across Whitehall. And the UK will be poorer in economic terms under any version of Brexit, compared with staying in the EU.

The Bank of England added that in the event of a disruptive Brexit, where there is no change to border trade or financial markets, GDP may fall 3% from its level in the first quarter in 2019.

In this scenario, the unemployment rate will hit 5.75% and inflation rises to 4.25%.

House prices decline 14% and commercial property prices fall 27%. The pound would fall by 15% against the US dollar to 1.10.

However, major British banks have “levels of capital and liquidity to withstand even a severe economic shock that could be associated with a disorderly Brexit”, the Bank concluded from tests of banks’ financial resilience.

Britain’s banking system is “strong enough to continue to serve UK households and businesses even in the event of a disorderly Brexit”, the Bank said.

Source: iTV

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Pound to climb, but pre-Brexit vote rate well out of reach

The pound is set to be stronger by the time Britain leaves the European Union, according to currency strategists polled by Reuters, but in a year it still won’t have come close to recouping its losses since the shock 2016 Brexit vote.

Sterling is due to edge up more than 2 percent against the dollar in six months – just after the March 29, 2019 date when it is scheduled to leave – to around $1.33.

It is then set to climb to $1.37 six months later, according to the poll, taken Sept 28-Oct 3, before Prime Minister Theresa May’s Conservative Party conference speech on Wednesday.

Forecast ranges in the survey were wide, particularly on the 12-month horizon. But just two out of 64 forecasters said the pound would trade higher than where it was before the shock result in the June 2016 referendum at around $1.50.

The 12-month consensus has fallen along with the pound since the April poll, which was the first time forecasts for where sterling will be after the official leaving date were collected. Nearly every strategist has downgraded their view since then.

That latest median 12-month view has the pound languishing about 9 percent below $1.50. More than two years ago, just before the referendum, respondents correctly predicted in the Reuters foreign exchange poll that sterling would fall by about that much immediately afterward.

So the view that Britain leaving the EU will result in a lasting, not temporary, devaluation appears to be holding. Trade and industry data show that depreciation has done relatively little to boost exports or make Britain more competitive in the meantime.

For there to be any recovery in the pound from the current rate, around $1.30, most foreign exchange analysts say there will need to be positive developments on the terms under which Britain will leave the world’s largest trading bloc.

With the Bank of England set to keep interest rates on hold in the interim and mixed signals on economic performance, a steadily-widening gap between UK rates and the U.S. federal funds rate will also keep pressure on sterling.

Still, over 80 percent of strategists polled say sterling will be higher in a year than where it is trading now. Optimists say there’s a lot of bad news – including talk of a “no-deal” Brexit – already priced in.

“Indeed, the negatives surrounding deadlock Brexit negotiations and the UK government’s Chequers plan are largely priced into the currency,” notes Viraj Patel, FX strategist at ING in London.

Chequers, Prime Minister Theresa May’s exit proposal that proposes to stay in the EU’s single market in goods but to diverge in services, is unpopular in her own party. European Council President Donald Tusk says it “will not work.”

In order for the pound to recover significantly, there will also need to be decidedly more negative prospects for the U.S. dollar, which right now is standing tall as near-term prospects for the world’s largest economy look better than its peers.

The last time sterling rallied in the period since the Brexit vote, which took it above $1.43 and left many commentators scratching their heads at the time, coincided with what turned out to be a passing weak period for the dollar.

“Political risks like Brexit and U.S. trade disputes should continue to favor the USD over the GBP for the next three months,” note market strategists at UBS. “A GBP rebound over 12 months remains possible, however. We still expect a benign outcome for Brexit negotiations, but the risk of a cliff-edge Brexit remains significant.”

There does not appear to be much confidence about how sterling will perform in the near-term either.

Asked to gauge the risk that the pound will set a new post-Brexit low against the dollar before the end of March 2019, respondents were evenly split. The lowest point reached so far was just above $1.20 in early 2017.

Against the euro, the outlook for the pound is once again very subdued, with narrow forecast ranges.

Prospects for a decline against the currency of Britain’s main trading partner have recently been held in check as traders fretted over a stand-off between the Italian government and the European Commission over the size of Italy’s budget deficit.

Source: UK Reuters

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Britain’s FTSE falls on trade fears as pound strengthens

The UK’s blue-chip index fell on Friday as investors awaited news on whether the United States would impose new tariffs on Chinese imports while a data breach at British Airways triggered a fall in its owner’s shares.

The FTSE 100 .FTSE fell 0.6 percent at 7,277.70 points, accelerating losses in afternoon trading as the pound rose after EU negotiator Michel Barnier said the bloc was open to discussing other “backstops” on the Brexit issue.

“As it has done for much of the week, the pound came to dominate on Friday, punishing the FTSE in the process,” said Connor Campbell, analyst for Spreadex.com.

Later in the session White House Economic Adviser Larry Kudlow told CNBC that the United States continued to talk with China about a number of trade issues but added that so far China has not met U.S. requests.

The FTSE ended at a fresh five-month low, down more than 2 percent on the week.

Shares in British Airways’ parent International Airlines Group (ICAG.L) fell 1.4 percent after the airline reported the theft of financial and personal data of potentially hundreds of thousands of customers.

Among mid-caps, British pub operator Greene King (GNK.L) surged 7.5 percent after reporting a boost in sales thanks to exceptionally warm weather and the soccer World Cup.

The company, which owns ale brands such as Greene King IPA, Old Speckled Hen and Abbot Ale, said it sold 3.7 million pints of beer during England’s seven World Cup matches.

Shares in Ashmore (ASHM.L) rose 1.4 percent after the emerging markets asset manager published full-year results.

UK-focused oil company EnQuest (ENQ.L) fell more than 13 percent after announcing plans for a rights issue to finance acquisition of an oilfield from BP (BP.L).

Online retail trading platform Plus500 (PLUSP.L) lost 7.3 percent to 15.44 pounds after Playtech (PTEC.L) said it has sold its entire 10 percent shareholding for about 176 million pounds, equating to 15.50 pence per share.

Source: UK Reuters

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Weak pound, higher commodity stocks boost FTSE

The UK’s top share index rose on Monday, starting September on a stronger note as a weaker pound and a bounce across commodity stocks helped British equities outperform continental peers.

The blue chip FTSE 100 .FTSE index was up 1 percent at 7,504.60 points at its close, while mid caps .FTMC were flat in percentage terms.

A rise in oil stocks contributed more than 21 points to the FTSE 100, the biggest sectoral boost to the index.

Shares in Royal Dutch Shell (RDSa.L) and BP (BP.L) were up 1.9 percent and 1.2 percent respectively as the price of oil rose, supported by concerns that falling Iranian output will tighten markets once U.S. sanctions hit in November. [O/R]

UK mining stocks also rose, with Glencore (GLEN.L), BHP Billiton (BLT.L) and Anglo American (AAL.L) up as much as 1.9 percent. [MET/L]

Other major stock markets across Europe were subdued on Monday, however, as investors fretted about an escalation in the trade war between the United States and China, which had also weighed on Asian markets overnight.

“Investors still have mixed outlooks regarding the global trade situation as well as the turmoil in emerging markets caused by the recent Turkish Lira crisis,” Pierre Veyret, technical analyst at ActivTrades, said.

“This means fewer traders are going long on stocks right now.”

A weaker pound was another factor keeping the FTSE in positive territory. A fresh round of Brexit-related headlines dented demand for the currency, as critics at home and abroad ramped up their opposition to Prime Minister Theresa May’s plans for leaving the European Union.

A depressed pound lifted the FTSE 100’s big, dollar-earning constituents on the day.

However, worries over Brexit kept investors cautious on UK equities.

“The UK is a defensive, high-dividend yielding market which might have a problem if bond yields move sustainably higher, and if global equities advance, as we expect,” equity strategists at J.P. Morgan said in a note. They are underweight UK equities.

“We look for a stronger GBP, which will weigh on the performance of FTSE 100.”

Veterinary firm Dechra Pharmaceuticals (DPH.L) was the biggest faller among mid cap stocks, its shares tumbling more than 21 percent. This was their biggest one-day loss since January, 2003.

Dechra Pharma dropped after it said it would implement a plan to navigate a hard Brexit, adding that the measure may result in 2 million pounds ($2.6 million) of additional expense.

Analysts at Investec said that while Dechra’s preliminary results were ahead of their expectations, they were introducing some caution into their forecasts to reflect the potential impact of accounting standard changes, sanctions on Iran and a hard Brexit.

Source: UK Reuters