Tags: international | investors | uk | pound

UK Might Have Scared Off International Investors

UK Might Have Scared Off International Investors

By    |   Friday, 07 October 2016 07:16 AM


Back in June, the UK referendum offered, simplistically said, two visions of the United Kingdom.


One was essentially an anti-migrant view; the other was that the UK, freed form its association with the EU, could be enabled to engage as a global leader. The balance of these two views was reflected in the pound sterling, which like any currency can be thought of as a signal of the attractiveness for investing in an economy.

Sterling fell after the June 23 EU membership referendum result because the lack of free access to EU markets was seen as making the UK less attractive as a place in which to invest.

Sterling benefited in some sense of a fragile stability because international investors seemed to believe that other aspects of the UK like the labor market and skills, were sufficiently attractive to balance the negatives.

This week, the British pound has been the worst performing currency in the world, especially after UK Home Secretary Amber Rudd suggested this week that companies could be required to publish lists detailing foreign employment, with the suggestion that employing foreigners was "questionable" to a certain degree.

International investors are rethinking the attractions for investing in the UK as they appear less inclined, for understandable reason, to invest in a country where the government has been signaling that foreigners could be treated differently.

In the world of economics, this is known as a "signaling effect."

Overnight the pound sterling did drop at one point by as much as 6.1 percent against the dollar, which put it at a 31-year low against the greenback and what was even worse, but that was not highlighted in most of the media, sterling has (on a trade-weighted basis) barely ever been lower.

The reason for the sudden spectacular drop was almost certainly caused by a computer glitch (algorithms?) or a similar issue.

Nevertheless, and this is important for investors, sterling has not recovered to pre-glitch levels yet.

A 6 percent move in a major currency is not normal, but the excitement around that should fade rapidly as attention shifts to the United States and the upcoming employment report.

The U.S. employment report is the most watched data release in financial markets. More economists forecast non-farm payrolls than any other number on the planet.

The irony is that the report is not especially accurate. It is reviewed and revised regularly.
The changing structure of the workforce means that it may indeed become even less accurate over time.

Nevertheless, markets remain addicted.

Today the consensus expectation is for an improvement in the payrolls number after a relatively low gain of +151,000 last month and of course, there is always the prospect of revisions to the previous month.

Average hourly earnings tells us probably a lot less about the state of the U.S. labor force these days, but it should not be dismissed.

Nevertheless, that’s probably not going to be a focus.

One thing that is quite likely is that the labor market report will be used in the forthcoming U.S. presidential debate this Sunday. Much ink has already been spilled over what matters and what doesn’t matter in the debates, but with voting already underway in the United States, it’s a bit more than the bread and circuses of just political entertainment.

Besides all that, the IMF jamboree in Washington D.C. this weekend is likely to rise more substantive comments on economics than a town hall style debate in St. Louis.


If an IMF get together has more substance, you know things about.

An important number of central bankers will be vocalizing over the weekend. Look for comments on the support for negative rates as a policy tool and also for questions around the independence of central banks, which has been a topic somewhat of late. 

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

© 2021 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
HansParisis
International investors are rethinking the attractions for investing in the UK as they appear less inclined, for understandable reason, to invest in a country where the government has been signaling that foreigners could be treated differently.
international, investors, uk, pound
662
2016-16-07
Friday, 07 October 2016 07:16 AM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved