Chief Economist, Heteronomics

Phil Rush

Chief Economist

Heteronomics

Heteronomics represents a different kind of economics. We believe analysis should delve into the details of what is really going on, rather than using overly simplistic assumptions to quick-sell stories. Independence from myopic institutional pressures allows us to focus on the realities underlying your asset allocation decisions, without the conflicts of the old market structures. Heteronomics targets the themes driving UK asset prices, offering the benefits of depth, independence and ultimately price.

UK-centric macro research

Macroeconomics

<ul>
<li>GDP growth beat expectations with a 1.2% recovery in December ahead of the stricter lockdown set to hit activity in January. The proportion of businesses trading implies a fall of about 4% in Q1, which would be consistent with the BoE’s downgraded view.</li>
<li>The trend decline in business responses to the surveys has now extended to a change on the year worth 6.1% of turnover. The ONS assumes respondents are representative, but private-sector pain of non-respondents could be a recession-sized hole in the recovery.</li>
</ul>


GDP growth beat expectations with a 1.2% recovery in December ahead of the stricter lockdown set to hit activity in January. The proportion of businesses trading implies a fall of about 4% in Q1, which would be consistent with the BoE’s downgraded view.
The trend decline in business responses to the surveys has now extended to a change on the year worth 6.1% of turnover. The ONS assumes respondents are representative, but private-sector pain of non-respondents could be a recession-sized hole in the recovery.


<ul>
<li>The BoE MPC voted unanimously in favour of no policy changes. Gilt purchases will continue at the same pace with a bias to slow later. Bank rate remains at 0.1%. Banks are instructed to prepare systems for a temporary negative rate environment.</li>
<li>Disagreement centred on whether instructing banks to rectify the operational hurdles to negative rates could occur without markets misconstruing it as an intent to deliver a cut. The tool will not be ready for at least six-months and remains unlikely even later.</li>
<li>A cut would need to be operationally possible, with stimulus needed and no better way of delivering it. Disappointment in the recovery seems likely relative to the BoE’s bullish view of effectively no permanent damage, but supply destruction isn’t dovish.</li>
</ul>


The BoE MPC voted unanimously in favour of no policy changes. Gilt purchases will continue at the same pace with a bias to slow later. Bank rate remains at 0.1%. Banks are instructed to prepare systems for a temporary negative rate environment.
Disagreement centred on whether instructing banks to rectify the operational hurdles to negative rates could occur without markets misconstruing it as an intent to deliver a cut. The tool will not be ready for at least six-months and remains unlikely even later.
A cut would need to be operationally possible, with stimulus needed and no better way of delivering it. Disappointment in the recovery seems likely relative to the BoE’s bullish view of effectively no permanent damage, but supply destruction isn’t dovish.


Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from the<a href="https://www.bis.org/statistics/eer.htm" target="_blank" rel="noopener">BIS</a> (April 2019) and national central banks (see <a href="https://gallery.mailchimp.com/948838a86ce72ab6d8019a39d/files/15f4d8a9-56a4-46fd-9d78-607e5fd523e6/4X_Global_Research_Nominal_Effective_Exchange_Rates_Monthly_seasonal_patterns.pdf" target="_blank" rel="noopener">Nominal Effective Exchange Rates: Monthly seasonal patterns</a>, 10th January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. Identifying monthly seasonal patterns and why they may break down (significant changes in central bank or government policy, market positioning, macro data surprises and unexpected domestic events) can thus potentially augment investment returns and generate alpha.Unsurprisingly the Covid-19 pandemic – a once-in-a-lifetime “black swan” event – and accompanying measures such as national lockdowns severely disrupted typical monthly seasonal currency patterns in 2020, particularly in March and June (the trough and peak in global risk appetite) but also in Q4, with a few exceptions (see <a href="https://www.smartkarma.com/insights/monthly-currency-seasonality-down-and-out" target="_blank" rel="noopener">Monthly currency seasonality: Down and out?</a>, 4th January 2021). A number of emerging and developed market currencies continued to deviate from their 2010-2019 historical patterns in January 2021. In particular the “normally” strong Brazilian Real and to a lesser extent Colombian Peso and Polish Zloty depreciated. The Swiss Franc, contrary to history and in line with our forecast, also weakened slightly. The South African Rand depreciated 2.1%, five times as much as its 11-year historical average.Conversely the “normally” weak Turkish Lira was the outperformer, with the NEER appreciating nearly 4%. Sterling, the Australian Dollar and Norwegian Krone also outperformed in January relative to their historical seasonal patterns. However, and while early days, about 17 currencies, including the Dollar, Euro, Kiwi Dollar, Mexican Peso and most Asian currencies performed in line with their historical seasonality.Based on 2010-19 data Thai Baht, Norwegian Krone, Hungarian Forint and Polish Zloty were strongest currencies in the month of February while Korean Won was the weakest.

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from theBIS (April 2019) and national central banks (see Nominal Effective Exchange Rates: Monthly seasonal patterns, 10th January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. Identifying monthly seasonal patterns and why they may break down (significant changes in central bank or government policy, market positioning, macro data surprises and unexpected domestic events) can thus potentially augment investment returns and generate alpha.Unsurprisingly the Covid-19 pandemic – a once-in-a-lifetime “black swan” event – and accompanying measures such as national lockdowns severely disrupted typical monthly seasonal currency patterns in 2020, particularly in March and June (the trough and peak in global risk appetite) but also in Q4, with a few exceptions (see Monthly currency seasonality: Down and out?, 4th January 2021). A number of emerging and developed market currencies continued to deviate from their 2010-2019 historical patterns in January 2021. In particular the “normally” strong Brazilian Real and to a lesser extent Colombian Peso and Polish Zloty depreciated. The Swiss Franc, contrary to history and in line with our forecast, also weakened slightly. The South African Rand depreciated 2.1%, five times as much as its 11-year historical average.Conversely the “normally” weak Turkish Lira was the outperformer, with the NEER appreciating nearly 4%. Sterling, the Australian Dollar and Norwegian Krone also outperformed in January relative to their historical seasonal patterns. However, and while early days, about 17 currencies, including the Dollar, Euro, Kiwi Dollar, Mexican Peso and most Asian currencies performed in line with their historical seasonality.Based on 2010-19 data Thai Baht, Norwegian Krone, Hungarian Forint and Polish Zloty were strongest currencies in the month of February while Korean Won was the weakest.

<ul>
<li>UK wage growth surged again in Nov-20 to comfortably exceed expectations, with a further rise in December likely to take the pace to its highest since 2008. Growth is broadly experienced, despite most industries laying off staff.</li>
<li>Lockdown in January has caused vacancies to be withdrawn again as demand for labour disappears. The rise in redundancies is also likely to temporarily reverse, though, amid the return of furlough, which should keep deferring the spike in unemployment.</li>
</ul>


UK wage growth surged again in Nov-20 to comfortably exceed expectations, with a further rise in December likely to take the pace to its highest since 2008. Growth is broadly experienced, despite most industries laying off staff.
Lockdown in January has caused vacancies to be withdrawn again as demand for labour disappears. The rise in redundancies is also likely to temporarily reverse, though, amid the return of furlough, which should keep deferring the spike in unemployment.


<ul>
<li>UK retail sales failed to recover from the November lockdown. Stricter prohibitions on activity in January have caused spending on cards to collapse back to May levels, which will be especially bleak for retailers who never enjoyed a festive consumption binge.</li>
<li>Mobility metrics have also stepped down in the new year, and now indicate a GDP retreat to its June levels. I assume the same in my bottom-of-consensus forecast, where the trough is shallower but is likely to have a flatter recovery than the first lockdown.</li>
</ul>


UK retail sales failed to recover from the November lockdown. Stricter prohibitions on activity in January have caused spending on cards to collapse back to May levels, which will be especially bleak for retailers who never enjoyed a festive consumption binge.
Mobility metrics have also stepped down in the new year, and now indicate a GDP retreat to its June levels. I assume the same in my bottom-of-consensus forecast, where the trough is shallower but is likely to have a flatter recovery than the first lockdown.


United Kingdom

The British Pound Sterling is the official currency of The United Kingdom. 

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UK: GDP Recovery Miscounts Private Pain

The trend decline in survey responses has reached 6.1% of turnover. The ONS assumes respondents are representative, but the pain of non-respondents...

Phil Rush

BoE: Preparing Policy like a Scout

The BoE instructs UK banks to prepare systems for a temporary negative rate environment, as expected, but it does not intend this to be a signal of...

Phil Rush

Currency Seasonality’s Slow Comeback?

Identifying currencies' monthly seasonal patterns and why they may break down can potentially generate alpha. Seasonal patterns broke down in 2020...

Olivier Desbarres

UK: Pay Subsidised Back to Peak Pace

UK wage growth has surged and is likely to hit its highest pace since 2008. Growth is broadly experienced, but January's lockdown has caused demand...

Phil Rush

UK: No Sales Binge Between Prohibitions

UK retail sales failed to recover from the November lockdown. Mobility metrics now indicate a GDP retreat in Jan-21 to its June levels. I remain...

Phil Rush

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