Tuesday, 11 November 2008

Walk Before You Run

Sterling is seriously worrying. First because I've got some - not as much as last Spring when sent to spend it, and found that the best thing to buy in London turned out to be Euros (for the kinds of sums under discussion and the benefits to lifestyle etc.), and second because the steady departures of infinitely larger sums currently at walking pace, are threatening to speed up. Which is bad news for a much wider spectrum of sterling holders.

According to the FT, 'outflows from UK fixed instruments since September 10 this year have offset around 75 per cent of the inflows seen since the start of 2004.'
Simon Derrick at BNY Mellon said a shift in what investors are worrying about is underway; from concerns on the economic outlook causing abandonment of UK financial stocks, to how government support for the economy – whether from the bail-out of the banking industry or a UK fiscal stimulus package – would be paid for. This focus-shift has occurred over the past two months, due to the growing scarcity of pools of international capital that the UK government might hope to draw upon to finance its spending plans. Both Russia and China are looking to their own uses for their reserves. Certainly, after all the cheek from New Labour over the summer, Russia will not be particularly interested in doing any favours. China announced its own $586bn fiscal stimulus package over the weekend. Neither will be impressed by Brown's grandstanding on the new world order either.

'Mr Derrick said the test of the UK government’s plan to launch a package of tax cuts funded by increased government spending would come in the bond market.' (FT)

“The evidence from our own data suggests that international investors may have already made their decision,”...“In the circumstances we therefore suspect that the announcement of a stimulus package will provide investors with a fresh reason to sell sterling.”

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