Morning Brief – Political Risk Trade

Political Risk Trade

With the unrest succeeded by the wave of rioting in South Africa, markets are looking at ZAR but also other emerging market currencies that are vulnerable to similar political risk. As a strategy it involves buying CHF or USD or EUR against emerging market currencies in anticipation of those emerging markets being caught up in further ZAR weakness. USD/ZAR at 14.46 over the weekend having traded as low as 14.73 last week.

Oil

It’s been a long time coming but yesterday evening OPEC+ finally hammered out a deal. Oil pricing has been nervy in the past week with doubts that OPEC+ could reach agreement on increasing supplies which coupled with inventories in the USA at historic lows suggested an imminent price spike. The agreement is for supply to gradually increase until December this year and then the agreement to remain in place through 2022. The subtext is that Saudi Arabia and the UAE have come to an accommodation which was the main obstacle to OPEC+ agreeing. WTI at $71.16 and for the Chartists among our readers the recent high of $75.25 is the second peak of a perfect double top previously reached on July 2 suggesting further falls now that supply has been agreed and inventories can be rebuilt.

Germany

Armit Laschet who is Angela Merkel’s nominated successor may just have scuppered his chances by being caught on camera laughing while North Rhine Westphalia President Steinmeier gave a press conference on the floods that have devastated Western Germany and caused 184 deaths. Such are the unforeseen but hugely unfortunate events that can completely undermine a candidate who should on paper be a shoe in. Just think of almost certain to be elected UK Prime Minister Neil Kinnock filmed on the eve of the election celebrating his victory just before the 1992 General Election vote. Oh dear.

EUR/USD 1.1805 at the opening in Asia Pacific.

Give a Little Love

It was this day in 1975 that Scottish glam pop rock band the Bay City rollers were top of the UK charts with this song. Despite their (then and now) questionable sartorial taste of sporting mid-calf baggy tartan trousers plus tartan scarves, the lads had a huge mainly teen following and sold more than 120 million records worldwide. Here’s how:

It’s a teenage dream to be 17
And to find you’re all wrapped up in love
And I found that you made a dream come true
Now I do believe in what they say

You’ve got to give a little love, take a little love
Be prepared to forsake a little love
And when the sun comes shining through
We’ll know what to do
Give a little love, take a little love
Be prepared to forsake a little love
And when the sun comes shining through
We’ll know what to do

When I walk with you, there is just we two
And the world goes by but I just don’t care
And I know that one day, I’ll find the way
To be safe and sound within your heart
So until I do

I’m gonna give a little love, take a little love
Be prepared to forsake a little love
And when the sun comes shining through
We’ll know what to do…

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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