Casterrian Weekly Roundup

Good morning and welcome to the Casterrian Weekly Roundup!

News headlines around the world last week continued to be dominated by the growing coronavirus outbreak.

Friday saw the U.K. officially leave the European Union, though it didn’t make any immediate practical difference because of the transition period, which is agreed until the 31st December 2020 and during which the status quo will remain.

Continue reading below to find your usual currency and market commentary and the latest headlines from around the business world.

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Currency and market commentary

Concerns around the spread of the coronavirus in and out of China, and the economic damage being caused by efforts to contain the virus, rattled currencies and markets over the course of last week.

The U.S. dollar and the euro both managed a two-day high against the yen on Friday as the Japanese currency saw some of its safe-haven premium erode.

The U.S. currency is registering as the strongest of the main currencies on the year-to-date, reflecting international demand for Treasuries (the dollar is up by 4.5% versus the Aussie dollar, which is the weakest, and is showing a 0.4% gain on the yen, which is the second strongest).

Momentum has faded, however, with the Fed having backed out of its tightening phase after hiking rates three times last year.

In the U.K. sterling continued its recent rise last week after the Bank of England (BoE) announced that it wouldn’t be changing its headline interest rate. In advance of the decision some market commentators had been expecting a rate cut.

The Bank of England (BoE) left the Bank Rate at 0.75%, with the nine-member Monetary Policy Committee voting 7 versus 2, with Saunders and Haskell repeating their dovish dissent in favour for a 25 bp rate cut for a third successive time.

There had been expectations for a third policymaker to join them in voting for a cut, and the lack of a third dissenter, along with the fact that markets had been discounting about 50-50 odds for an easing, saw UK yields and the pound take a rotation higher.

The BoE stated that the evident rebound in manufacturing and service sector growth in January, in the wake of the election in December, along with the U.S.-China trade deal, played a role in the decision to refrain from cutting rates. At the same time, the BoE trimmed growth forecasts. Outgoing BoE Governor Mark Carney said in the press conference that if economic data continued to improve it may not be necessary to cut rates.

On Friday in commodities:

  • Oil closed at $51.56 (-15.6% YTD)
  • Gold closed at $1,589.65 (+4.8% YTD)

Sources: Commodity prices – Markets Insider, Currencies – XE.

Regulatory changes and new laws for Europe’s biggest energy markets in 2020

S&P Global Market Intelligence reported recently that 2020 will see a host of high-profile regulatory changes and new laws sweep through Europe’s biggest energy markets, impacting everything from coal retirements and new renewables development to grid planning and the M&A landscape.

The countries highlighted specifically in the report were Spain, Germany, France, Italy, and the U.K.

In Spain, the change expected for 2020 was that “new regulated return rates for renewables could spur a healthy market for asset M&A deals in Spain this year, while a new government is expected to pass landmark legislation that could usher in new capacity auctions for wind and solar plants.”

In Germany’s energy sector the key topic for 2020 is the government’s climate package, which the wind industry is watching closely for its implications on the distance requirements for onshore wind turbines.

In France, 2020 will see the restructuring of state-backed utility Electricité de France SA (EDF), which is expected to fully nationalize its nuclear fleet and wrap its distribution networks, renewables and supply business into a separate listed entity.

Additionally, France plans to complete a consultation on a 1-GW offshore wind farm off its northern coast in Normandy by May 2020, which it said would help the country achieve its goal of generating 33% of its power from renewables by 2030. French President Emmanuel Macron said in November 2018 that four offshore wind tenders would take place by 2030, but the next will not take place until after 2020.

Italy ended the decade with a new auction regime for renewables, with results from the first tender expected early this year and six more rounds scheduled for the next two years. Experts predict volumes will be dominated by onshore wind, since solar projects on agricultural land are excluded from the auctions.

In the U.K., where offshore wind has been a success story in recent years, Prime Minister Boris Johnson bumped up the country’s offshore wind development target by 10 GW to 40 GW by 2040.

Click here to read about what Casterrian believe the Renewable Energy Revolution means for international workers.

To read the full report from S&P Market Intelligence, click here.

U.S. Treasury Department Finalises New Rules for Foreign Investors in U.S. Businesses

On Friday, the U.S. Treasury Department finalized regulations (here and here) implementing the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”).

FIRRMA expanded the Committee on Foreign Investment in the United States’ review of transactions beyond “covered transactions” concerning mergers, acquisitions or takeovers that could result in the foreign “control” of a U.S. business.

The regulations include several types of noncontrolling transactions for so-called TID (“Technology, Infrastructure and Data”) businesses involving:

  1. Critical technologies subject to export controls,
  2. Critical infrastructure, such as telecommunications and public utilities, or;
  3. The “sensitive personal data” of U.S. citizens, such as financial or health information.

The final regulations will go into effect on February 13, 2020.

A more detailed commentary on the regulations as published by Mondaq can be found by clicking here.

Watchdog to probe jump in sterling ahead of rate announcement

The BBC reported on Friday that the U.K.’s Financial Conduct Authority (FCA) would “investigate a jump in the pound which took place shortly before the Bank of England’s interest rate announcement on Thursday.”

The value of sterling increased about 15 seconds before midday on Thursday, when the Bank’s Monetary Policy Committee (MPC) made its announcement.

It rose from $1.3023 to $1.3089 against the dollar, and saw a similar increase against the euro.

The rise raised questions over whether the decision to hold the Bank’s base rate at 0.75% had been leaked.

The Financial Conduct Authority (FCA) said: “We are aware of the incident and are looking into it.”

The report from BBC News can be found by clicking here.

Additionally, the minutes published by the BoE after their policy meeting can be viewed here.

Coronavirus cases in China exceed Sars

The Financial Times reported on Friday that the number of people in China affected with the coronavirus has reached 9,811 to surpass the worldwide total of the deadly Sars virus.

The death toll from the coronavirus epidemic that originated in the central Chinese city of Wuhan has risen to 213 with a further 1,527 people in a serious condition, the country’s national health commission said on Friday. 

A day after the World Health Organization declared the outbreak an international emergency, the US state department issued a “do not travel” warning for China and advised its citizens in the country to consider leaving. Japan also advised against all unnecessary travel to China.

China has a further 15,238 suspected cases, while 102,427 people who have had close contact with infected people are being monitored. 

The article on the FT can be found by clicking here.

Disclaimer: The Casterrian Weekly Roundup is a marketing communication and should not be used for any investment research. This document is a general communication being provided for informational purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products.