The large FX firms were right! Pound rally just the start of the post-Brexit British business boom
“We immediately bought large exposure and the stock rebounded 12% in 13 minutes. That made us smell blood in the streets!!” said Saxo Bank’s Peter Garnry one week after the Brexit vote, closing 21 aggressive trades and capitalizing on mispricing. Now the Pound is rallying as Britain’s services sector goes from strength to strength after jetisoning the EU’s shackles. We take a look at why London IS the future.
This morning, the British pound shot up in value, which, following the release of a set of statistics showing the booming services sector in Britain, bolsters confidence and sets Britain out as an economic powerhouse post-Brexit which has shed the shackles of a bureaucratic, socialist, non-producing mainland Europe whose fiscal and social difficulties are now no longer a burden on the purse strings of British business.
The Pound rallied in value to 1.3345 against the US Dollar this morning, which is a 0.45% rise from yesterday, and 1.1953 against the Euro, a 0.29% increase.
Britain’s sovereign currency is the most valuable in the world and has been for many years, ever since the adoption of the Euro by Cyprus, signaling the end of the Cyprus Pound which had been the most prized sovereign currency globally for a long time.
The vast majority of City firms, mostly in the institutional and retail electronic trading and brokerage sector, favored the Brexit, with a number of high profile industry leaders having personally backed the campaign, one such notable example being Peter Cruddas, the esteemed CEO and Founder of British electronic trading giant CMC Markets.
Mr. Cruddas, who built CMC Markets up from a start-up in 1989 with just £10,000 that he had saved to the worldwide renowned giant with a market capitalization of $811 million and its own institutional and proprietary technology divisions, has been a consistent proponent of the UK’s intent to leave the European Union, and along with most astute business leaders and FinanceFeeds’ standpoint that a post-Brexit Britain would be a world-class business environment, his perspective is indeed proving to be correct.
Markit’s purchasing managers’ index for the UK services sector hit 52.9 in August, against expectations of 50.0, and up from 47.4 in July. Considering any figure below 50 suggests a contraction, that’s pretty good going.
This is a sure sign that the UK’s highly advanced and productive commercial businesses are now able to flourish in an independent, self-determining land.
Following the referendum results, FinanceFeeds met with Conservative Party senior official Adam Alfriye who categorically explained that the European Union membership had stifled development and ability to innovate.
Mr. Afriyie is indeed a politician who understands the technological industry in Britain. He is chairman of Connect Support Services, an IT support company he set up in 1993. He once owned two-thirds of DeHavilland, a political monitoring company, which was sold to British publishing giant EMAP Publications in 2005 for £18 million.
Mr. Afriyie is a stakeholder of Axonn Media, a content marketing business which produces content for clients. The company incorporates brands such as Content Plus, NewsReach, DirectNews and ReelContent. Axonn turned over £9.4m in 2011 and made a pre-tax profit of £1.3m. Afriyie is the largest shareholder of the firm and he and his fellow directors split dividends of £2.2m in 2010 and 2011 and shared directors’ pay of £3.6m over the last five years.
Mr. Afriyie was selected as parliamentary candidate for the constituency of Windsor in October 2003. He was first elected at the 2005 general election with an increased share of the vote (49.5%) and a swing to the Conservatives of 1.2%
In Parliament, he was a member of the Science and Technology select committee from 2005 until its abolition in July 2007, and has since been a member of the Children, Schools and Families select committee. Since 2010 he has been the President of the Conservative Technology Forum. He has been the chair of the Parliamentary Office of Science and Technology since 2010.
Mr. Afriyie told FinanceFeeds
“One of this Conservative Government’s priorities has been to foster the growth of the financial technology sector within London’s unique financial ecosystem.
“Our regulators have been quick to adapt with programmes such as the Government Office for Science’s review into distributed ledgers, the creation of the Payment Systems Regulator to review Britain’s payments infrastructure, and the Financial Conduct Authority’s creation of the ‘Regulatory sandbox’ to create a safe space to pro-actively test innovative products” – Adam Afriyie, Conservative MP
“The EU’s stifling approach to the digital market often means that legislation is out of date before it is agreed by the 28 member states, let alone enacted. The fact that the UK is quick to adapt and cautious of over regulation will ensure that FinTech will flourish in post-Brexit Britain and it could well be the case that the EU follows our approach in future”.
There have been, during this particular period in which Europe and Britain adjust to their separate futures, opportunities for brokerages with a multi-asset trading environment to strengthen their positions.
Prime Minister Theresa May has stated that she intends to create a “proper industrial strategy that is capable of stepping in to defend important sectors against opportunist bids” however the brokerage sector and electronic venues are bullish.
In the middle of last month, Broker RBC Capital had a price target of 550p a share on BT. Traders reckon any bidder might have to pay a pound more than that – valuing it at around £65billion.
Mike van Dulken, head of research at Accendo Markets, said acquiring BT could make sense for a big buyer looking to benefit from the low pound and a steady income.
Mr. Van Dulken stated said it would be ‘a big old deal’ with any buyer having to take on BT’s £50bn-plus pension fund and its £7.6billion deficit.
Should multi-asset retail brokerages list corporate British stocks on their trading platforms, volatility and potential increases in volumes may ensue with regard to company stock, not just liquid currencies.
Saxo Bank showed that it is a master at exactly this and shared their trading results with FinanceFeeds just one week after the Brexit vote was cast.
Saxo Bank opened 21 aggressive trades – capitalized on post-Brexit wave of mispricing
Saxo Bank’s Head of Equity Strategy Peter Garnry is one such executive, the trading desk over which he presides having made a beeline for capitalizing on the mispricing that occurred in the equities markets following the announcement of the Brexit.
Whilst a number of analysts were concerning themselves with the potential volatility in GBP related currency pairs, company stocks were in the keen sights of Saxo Bank’s equities desk.
One particular example was stock in Spanish oil and energy firm Repsol.
Repsol, which is perhaps more prominent in the minds of the retail audience for its high profile sponsorship of motorsport teams which spans several decades, is publicly listed on the Bolsa de Madrid, a prominent Spanish stock exchange.
“When the cash market opened our first aggressive trade was in Repsol (REP:xmce) that opened 18% down despite energy stocks in Asia on average were only down 2-4% This was the first gross mispricing in the European equity market” said Mr. Garnry.
“We immediately bought large exposure and the stock rebounded 12% in 13 minutes. That made us smell blood in the streets!!” – Peter Garnry, Head of Equity Strategy, Saxo Bank
The company also placed small directional bets on a scenario in which the UK may remain in the EU, one of them being a long Nikkei 225 and also long on UBI Banca, however the firm adapted its strategy following the result and began rapid intraday trading in 21 instruments for the first 90 minutes of the European cash equity trading. This is when the firm began to profit from its Repsol deals.
“We could not send out trading ideas out to clients at that speed as we had to seize the opportunityto take advantage of the exceptional levels of mispricing. We did circulate our activity ad hoc on emails to clients” said Mr. Garnry.
“Our first position was aggressively adding a large exposure in STOXX 50 in the area 2,675-2,700 immediately taking our portfolio from gross exposure of around 100% and net exposure of 7% to around 200% gross and 107% net” – Peter Garnry, Head of Equity Strategy, Saxo Bank.
“When the UK banks opened down 30-35%, we immediately copied our Repsol trade in Barclays and Royal Bank of Scotland” continued Mr. Garnry.
“All instruments provided a gain to our portfolio except a loss in Lloyds Banking Group. Our biggest P/L gains were STOXX 50, Michael Pagee, Barclays, Peugeot, Bellway, and BMPS and our portfolio is up 14% today” said Mr. Garnry.
“Our trading was so aggressive that we went from around 107% gross exposure to around 400% in less than an hour. When trading and the noise settled in the market, we scaled out at around 0845 GMT closing all intraday speculative positions. However, we kept our core trades so the portfolio when back to being almost neutral” he concluded.