US$ weakness versus Bitcoin and Carillion
Across the mainstream media, the past week’s finance news was dominated by the collapse of construction conglomerate Carillion and the rapid fall of Bitcoin. However, the investment world was more transfixed by the continued fall of the US-Dollar (US$), which is occurring despite the US economy being the home to strong economic growth and as a consequence the highest interest rates and bond yields of the western world – usually the pre-requisite for a stronger, not weaker currency (see chart at the top which shows the declining value of the US$ against a basket of global currencies over the past 12 months).
Carillion’s collapse: an earthquake or a tremor?
The collapse of construction and services company Carillion has been all over the news this week, with media eulogies mostly highlighting its mismanagement and the issues it presents to taxpayers. It’s a story that has all the ingredients for a good public furore: corporate mismanagement of public contracts, boardroom ‘fat-cattery’, layoffs, and a headline-grabbing ‘bill’ to the taxpayer.
Germany, Europe and the Euro
In his memoirs, Denis Healey recounted a conversation from 1978. A senior German negotiator, state secretary and later finance minister Manfred Lahnstein, told Healey that the Exchange Rate Mechanism (the precursor to the Euro) was designed to prevent an overvaluation of the Deutsche mark “thus keeping Germany more competitive and other countries less so”. Herr Lahnstein – a social democrat and previous union representative – was likely just making an observation rather than revealing a conspiracy. But, in the last few years, Germany has indeed been ultra-competitive at the same time as the Euro has been cheap. Now, the Euro strengthening and undoing some of that cheapness. Let’s look at why.
UK housing update
In its housing market report for December 2017, the RICS (Royal Institute of Chartered Surveyors) said that that activity levels in the housing market remain relatively subdued. House prices nationally have risen, reflecting better growth in cheaper areas, but the number of properties changing hands (Agreed Sales) fell.
Please click here for the full Tatton commentary.