06 April 2009
2
LONDON BRANCH WEALTH MANAGEMENT REPORT
Replace the Dollar? the first time since January indicating investors are becoming
more confident about the market’s advance.
David Reed – Foreign Exchange
As my colleague Philip Rosenberg mentioned in last week’s
Furthermore, for the first time in almost a year the S&P 500
report, there is a debate about whether the US dollar should be
traded above its 100 day moving average – a technical measure
replaced as the world's reserve currency. There are strong
of average prices over a period of time plotted on a graph
fundamental reasons why the dollar will continue to dominate
together with the underlying index. An indicator that the change
central bank reserves for the foreseeable future. These include
in direction is more permanent than a short lived rally.
investor confidence in US policymaking, the liquidity of safe
haven US Treasury markets, the pricing of global trade in dollars
S&P 500 April-08-April-09;
and the untested quality of the euro, the main alternative reserve
crossing its 100 day moving average
currency.
In addition the dollar benefits from America's superpower status.
Several of the world's largest foreign reserve holders are in
countries or regions that shelter under the US military umbrella.
In the Middle East (Kuwait, Qatar, Saudi Arabia and UAE) and
Asia (Japan, Korea, Taiwan and Singapore) are in locations
dependent on that umbrella and thus it is not in their interests to
dump the Treasury bonds of the country that protects them.
This is not an unprecedented situation. From the European
Revolutions of 1848 until the end of World War Two sterling was
the world’s reserve currency (with a brief interlude in the Roaring
1920s when the dollar temporarily replaced the pound). But at
the end of 1945 the UK was essentially bankrupt with
government debt over 250% of GDP. Unsurprisingly, the pound
Source: Bloomberg
was highly vulnerable but Britain’s Empire and Commonwealth
countries decided to maintain their ‘sterling balances’ in order to
So, do markets no longer care about bad news? It is clear that
support the United Kingdom’s position.
investors are more interested in participating in this rally than
paying heed to negative economic data releases from which
Thus the dollar is likely to remain the world’s reserve currency
they are becoming increasingly anaesthetised. As I wrote last
for both diplomatic as well as economic reasons. Foreign
week – we will only know in a few months time if this rally has
exchange participants should therefore discount the debate on
long term legs. The corporate earning season which will soon
the dollar’s reserve status and keep focused instead on investor
begin will of course be the initial barometer.
sentiment as the key driver of the dollar.
Strategically we continue to build portfolios of corporate bonds –
Do markets no longer care about bad news?
often issued by companies that one would be tempted to invest
Philip Rosenberg – Wealth Management
in directly through equities. However the risks are more
The writing of this column began on Friday around 24 minutes definable and the cash flows are often very worthwhile
before the non farm payroll figures (an important employment considering.
indicator in the United States) were released. This economic
data release was the major piece of financial news of the week. Given our size and boutique nature we are well positioned to
A week that crowned recent rallies in world equity markets as help you to construct diversified portfolios of modest sizes. The
the ever increasing positive sentiment buoyed share prices – yields achievable vary greatly depending on risk profile.
especially amid the confirmation that the G20 has more money
to contribute to artificially stimulate economies. The NFP For clients looking to invest in equities we provide quick and
numbers were of course worse than expected but markets didn’t cost effective execution, however at this juncture we feel that for
pause (too much). This morning further to positive comments long term strategic allocations to equities, clients are mostly
from the chairman of the FOMC, markets in Europe and Asia better off investing through dedicated specialists – for which we
continue their rally. are exceptionally well equipped to advise. Please feel free to
get in touch to discuss your requirements.
Our own chancellor (UK’s finance minister) is due to make
downbeat comments about the recession later this week when The Wealth Management Report will not be published next
he unveils his budget – but I wouldn’t worry too much as markets week for the festive break – although we are very much here
appear to be on a roll. and available to continue serving clients during Passover.
Please note our offices will be closed for bank holidays this
The VIX index – that measures the volatility of the S&P 500 (also coming Friday (10th April) and Monday (13th April) of next week.
known as the fear gauge of US stock markets) - fell below 40 for
We wish all our readers a .
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