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

Despite buoyant domestic expectations (or at least hope) football will not be coming home after the England football team lost on penalties to Italy in Sunday’s final of the Euro Championship but Sterling is arguably coming home, albeit slowly. The GBP/EUR cross has this week traded mostly above 1.17, a level which has proven hard to break. GBP/EUR is up about 0.6% since late-June, in line with our modestly bullish view, and we expect further modest appreciation in the remainder of Q3 (see “<a href="https://www.smartkarma.com/insights/sterling-leads-euro-1-0-at-half-time-in-dull-encounter-but-could-extend-advantage" target="_blank" rel="noopener">Sterling leads Euro 1-0 at half-time in dull encounter but could extend advantage</a>”, 29th June 2021).The catalyst for Sterling’s outperformance versus the Euro has arguably been the widening differential between UK and Eurozone CPI-inflation, the Bank of England’s more hawkish rhetoric relative to a still very dovish European Central Bank and markets upping their pricing of Bank of England policy rate hikes. The recent hawkish pivots by Monetary Policy Council members Ramsden and in particular Saunders may not yet enjoy consensus support. However, it is increasingly clear, in our view, that the MPC is divided (and vocally so) as to if and when it should prematurely terminate its QE program and when it should start hiking its policy rate. The rates market, which is now pricing in 21bp of Bank of England hikes by mid-September 2022, is seemingly siding with the hawks which is in turn providing some ammunition (even if still a little blunt) to Sterling bulls. We expect reasonably robust UK GDP growth in coming months to push headline CPI-inflation above the Bank of England’s “peak forecast” of 3% yoy. We are thus sticking to our view that the gap between UK and Eurozone growth and CPI-inflation will widen further and see the Bank of England becoming increasingly hawkish, in absolute terms and relative to the ECB.Finally, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.

Despite buoyant domestic expectations (or at least hope) football will not be coming home after the England football team lost on penalties to Italy in Sunday’s final of the Euro Championship but Sterling is arguably coming home, albeit slowly. The GBP/EUR cross has this week traded mostly above 1.17, a level which has proven hard to break. GBP/EUR is up about 0.6% since late-June, in line with our modestly bullish view, and we expect further modest appreciation in the remainder of Q3 (see “Sterling leads Euro 1-0 at half-time in dull encounter but could extend advantage”, 29th June 2021).The catalyst for Sterling’s outperformance versus the Euro has arguably been the widening differential between UK and Eurozone CPI-inflation, the Bank of England’s more hawkish rhetoric relative to a still very dovish European Central Bank and markets upping their pricing of Bank of England policy rate hikes. The recent hawkish pivots by Monetary Policy Council members Ramsden and in particular Saunders may not yet enjoy consensus support. However, it is increasingly clear, in our view, that the MPC is divided (and vocally so) as to if and when it should prematurely terminate its QE program and when it should start hiking its policy rate. The rates market, which is now pricing in 21bp of Bank of England hikes by mid-September 2022, is seemingly siding with the hawks which is in turn providing some ammunition (even if still a little blunt) to Sterling bulls. We expect reasonably robust UK GDP growth in coming months to push headline CPI-inflation above the Bank of England’s “peak forecast” of 3% yoy. We are thus sticking to our view that the gap between UK and Eurozone growth and CPI-inflation will widen further and see the Bank of England becoming increasingly hawkish, in absolute terms and relative to the ECB.Finally, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.

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>Unemployment disappointed consensus expectations but matched our forecast of 4.8% in May-21. Bullish biases from lockdown surveys and support schemes are unwinding. We still expect the former to drive a slight rise to 4.9% in June.</li>
<li>About 10% of employees either remain out of work or on furlough, with ~3pp of those on part-time furlough where usage has been sticky and clogging up clearing in the labour market. Rapid headline wage growth is mostly about base and mix effects, though.</li>
<li>Residual restrictions are reinforcing behavioural changes that spread activity differently to pre-covid and the reallocation of resources between sectors, companies and areas should cause frictional weakness. We still forecast a UR peak of 6% in Q4.</li>
</ul>


Unemployment disappointed consensus expectations but matched our forecast of 4.8% in May-21. Bullish biases from lockdown surveys and support schemes are unwinding. We still expect the former to drive a slight rise to 4.9% in June.
About 10% of employees either remain out of work or on furlough, with ~3pp of those on part-time furlough where usage has been sticky and clogging up clearing in the labour market. Rapid headline wage growth is mostly about base and mix effects, though.
Residual restrictions are reinforcing behavioural changes that spread activity differently to pre-covid and the reallocation of resources between sectors, companies and areas should cause frictional weakness. We still forecast a UR peak of 6% in Q4.


<ul>
<li>UK inflation surged again in Jun-21 to 3.9% on the RPI and 2.5% on the CPI. The outcome was far above economist expectations but closer to the market fixing. Although imputation bound as we expected, upside risks broadly crystalised, joined by new ones.</li>
<li>Car prices are belatedly tracking alternative indicators, which we now incorporate into our baseline. UK clothing prices appear to have temporarily stepped away from Europe.</li>
<li>Rising underlying inflation pressures reduce stimulus’s dovish cover but probably won’t bring a premature end. We expect the CPI and RPI to slow in July to 1.9% and 3.5%.</li>
</ul>


UK inflation surged again in Jun-21 to 3.9% on the RPI and 2.5% on the CPI. The outcome was far above economist expectations but closer to the market fixing. Although imputation bound as we expected, upside risks broadly crystalised, joined by new ones.
Car prices are belatedly tracking alternative indicators, which we now incorporate into our baseline. UK clothing prices appear to have temporarily stepped away from Europe.
Rising underlying inflation pressures reduce stimulus’s dovish cover but probably won’t bring a premature end. We expect the CPI and RPI to slow in July to 1.9% and 3.5%.


<ul>
<li>UK GDP growth in May-21 was half the consensus forecast as it slowed to 0.8% m-o-m despite the ongoing relaxation of lockdown restrictions. Declines were widespread among sectors still below pre-covid peaks, offsetting the arts and hospitality rebound.</li>
<li>As with the re-opening last year, an initial surge in output has rapidly lost momentum. We remain pessimistic about the damage done to the economy during the lockdowns, which will become clearer as the recovery slows this year.</li>
<li>The UK’s relatively long and strict lockdown has made it a global laggard, and daily mobility data imply the recovery is also now underperforming. The change in health secretary may reduce risks of further damage in Q4, but legacy costs will remain.</li>
</ul>


UK GDP growth in May-21 was half the consensus forecast as it slowed to 0.8% m-o-m despite the ongoing relaxation of lockdown restrictions. Declines were widespread among sectors still below pre-covid peaks, offsetting the arts and hospitality rebound.
As with the re-opening last year, an initial surge in output has rapidly lost momentum. We remain pessimistic about the damage done to the economy during the lockdowns, which will become clearer as the recovery slows this year.
The UK’s relatively long and strict lockdown has made it a global laggard, and daily mobility data imply the recovery is also now underperforming. The change in health secretary may reduce risks of further damage in Q4, but legacy costs will remain.


With England due to play Germany in the last-16 round of the Euro Championships in a few hours time, now is a good time to revisit the Sterling-Euro exchange rate. 
Football fans will be hoping for a pulsating sporting encounter rich in history while traders will be hoping that the GBP/EUR cross, which is currently trading in the middle of a narrow 7-week range of only 1.4% and has exhibited very little volatility, will throw up some excitement of its own in the second half of the year. 
Our core scenario is that the GBP/EUR cross will fall short of setting the FX world alight but will appreciate slightly in Q3, for three inter-connected reasons.
First, international travel restrictions in the UK and Eurozone, while admittedly fluid, are likely to result in far smaller net outbound tourism from the UK this summer than compared to previous “normal” years, in our view. 
If this holds true, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which will could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.
Second, we think these respective travel restrictions will help boost the UK economy, particularly if as per our core scenario the British government lifts all, or at least most remaining social distancing restrictions on 19th July. The UK is on track to have double-vaccinated 80% of its adult population by mid-July, with Eurozone countries on average still about six weeks behind according to our estimates.
The upshot is that the GDP growth differential between the UK and Eurozone as measured by the Composite PMI, which has narrowed in the past two months, will widen again in coming months and push GBP/EUR higher, in our view.
Finally, as a result of this (expected) relative pick-up in growth and inflation dynamics in the UK and Eurozone we think the risk is tilted towards the Bank of England’s monetary policy stance becoming increasingly less dovish relative to the European Central Bank’s.

With England due to play Germany in the last-16 round of the Euro Championships in a few hours time, now is a good time to revisit the Sterling-Euro exchange rate. 
Football fans will be hoping for a pulsating sporting encounter rich in history while traders will be hoping that the GBP/EUR cross, which is currently trading in the middle of a narrow 7-week range of only 1.4% and has exhibited very little volatility, will throw up some excitement of its own in the second half of the year. 
Our core scenario is that the GBP/EUR cross will fall short of setting the FX world alight but will appreciate slightly in Q3, for three inter-connected reasons.
First, international travel restrictions in the UK and Eurozone, while admittedly fluid, are likely to result in far smaller net outbound tourism from the UK this summer than compared to previous “normal” years, in our view. 
If this holds true, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which will could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.
Second, we think these respective travel restrictions will help boost the UK economy, particularly if as per our core scenario the British government lifts all, or at least most remaining social distancing restrictions on 19th July. The UK is on track to have double-vaccinated 80% of its adult population by mid-July, with Eurozone countries on average still about six weeks behind according to our estimates.
The upshot is that the GDP growth differential between the UK and Eurozone as measured by the Composite PMI, which has narrowed in the past two months, will widen again in coming months and push GBP/EUR higher, in our view.
Finally, as a result of this (expected) relative pick-up in growth and inflation dynamics in the UK and Eurozone we think the risk is tilted towards the Bank of England’s monetary policy stance becoming increasingly less dovish relative to the European Central Bank’s. 

Sterling Leads Euro 1-0 at Half-Time in Dull Encounter but Could Extend Advantage

United Kingdom

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

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

GBP (GBPUSD CURNCY)

Sterling’s Coming Home…albeit Slowly

GBP/EUR has inched higher, in line with our bullish view. We expect further gains. UK recording faster growth and inflation than Eurozone and Bank...

Olivier Desbarres

UK: Jobs and UR Distortions Unwinding

Bullish biases from lockdown surveys and support schemes are unwinding. We still expect another unemployment rate increase to 4.9% in June before...

Phil Rush

UK: Inflation Jumps with Underlying Lift

Rising underlying inflation pressures reduce the BoE's dovish cover for stimulus but probably won’t bring a premature end. We expect the CPI and...

Phil Rush

UK: Recovery Loses Momentum Early

UK GDP growth in May-21 was half the consensus forecast as it slowed to 0.8% m-o-m despite relaxing restrictions. As with the re-opening last year,...

Phil Rush

Sterling Leads Euro 1-0 at Half-Time in Dull Encounter but Could Extend Advantage

GBP/EUR in narrow range in past 7 weeks as UK has lost macro & social distancing lead over Eurozone. But GBP/EUR could rally in Q3 as summer...

Olivier Desbarres

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)