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BBH's Chandler: Slow Money Entering Market Boosts Pound (Audio) · Bloomberg Intelligence

• 0:00
  Speaker 1: The Brexit vote coverage on Bloomberg Radio Brexit Latest, Paul
• 0:07
  Speaker 1: suggests that perhaps the Remain vote has just barely edged
• 0:12
  Speaker 1: out the Leave vote. In fact, Nicholas Frost, who has
• 0:16
  Speaker 1: been one of the leading voices saying that UK should
• 0:18
  Speaker 1: exit the European Union, is conceding that it looks like
• 0:21
  Speaker 1: the vote to remain is just barely winning the day.
• 0:25
  Speaker 1: Well Mark Chandler joins us now here on taking stock
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  Speaker 1: on Bloomberg Radio. He's global head of currency strategy at
• 0:31
  Speaker 1: Brown Brothers. Haraman. So, Mark, I guess at the very
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  Speaker 1: least we can figure if if it's just if this
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  Speaker 1: is overheading, that the pound sterling, which has already had
• 0:42
  Speaker 1: a pretty good move higher, should continue to do so, Daniel,
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  Speaker 1: I think, Kathleen, that would be the sort of the
• 0:49
  Speaker 1: knee jerk reaction in the sense that the British looked
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  Speaker 1: very close to coining the polls and then the very
• 0:54
  Speaker 1: last minute, like what Winston Churchill said about Americans once,
• 0:57
  Speaker 1: he said, you can always kind of America to do
• 0:59
  Speaker 1: the right thing after they've exhausted the alternatives, and so
• 1:03
  Speaker 1: here the UK last minute, they're gonna do the right thing.
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  Speaker 1: It looks like but I want to say that the market,
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  Speaker 1: and I'm pricing this in for about a week now.
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  Speaker 1: Sterling last Thursday was treading almost at one point four
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  Speaker 1: zero against the dollar, and just now we tested one
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  Speaker 1: point five. This is a very large move and I
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  Speaker 1: think this is I try to make a distinction between
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  Speaker 1: fast money, the leverage community hedge fund speculators in the
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  Speaker 1: futures market. These people have been already buying sterling and
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  Speaker 1: by when the slow money, which are the people who
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  Speaker 1: are managing our pension funds, retirement money. We want them
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  Speaker 1: to be taking considered views. We wanted them to take
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  Speaker 1: off risk ahead of this great unknown, and so they
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  Speaker 1: will be slower to return into the markets than these
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  Speaker 1: hedge funds and these leverage community people. Mark Chandler, what
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  Speaker 1: if you could tell me a little bit about the
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  Speaker 1: yen in the context of the EU referendum in Britain,
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  Speaker 1: Because the end is dropping right now as describe a
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  Speaker 1: haven demand declines down about the half a percent. Yeah,
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  Speaker 1: you know, DA mean, I think you're right. You know,
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  Speaker 1: I think people like media have underestimated for how long
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  Speaker 1: the referendum has been hanging over the market's head. This
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  Speaker 1: is one of the factors that if the uncertainty, it
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  Speaker 1: seems to be one of the factors they encouraged. This
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  Speaker 1: is a great strength of the yen, and now it's
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  Speaker 1: being unwound. So the dollar and the yen are both
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  Speaker 1: weakening against all the major currencies and all the emerging
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  Speaker 1: market currencies. Well, if you're Mr Corona, governor of the
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  Speaker 1: Bank in Japan, you're very happy to see this, right.
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  Speaker 1: And of course central banks were uh letting us know
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  Speaker 1: that they were ready to step into currency markets if
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  Speaker 1: the Brexit vote passed, the pound got hammered. If the
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  Speaker 1: end serves so, I guess they can just all sit
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  Speaker 1: back now and you know, have their dinner or go
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  Speaker 1: to bed. Mark. Uh. Where does this leave if the
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  Speaker 1: if the if the Brexit vote is defeated, Uh, then
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  Speaker 1: is it just a repricing back to uh where we
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  Speaker 1: were before bregg really heated up. I think it was
• 3:03
  Speaker 1: in some ways Keting right. To beyond that, I think
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  Speaker 1: that the for example, the Setial Reserve has stided the
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  Speaker 1: Directxit as one of the things leading to the international uncertainty,
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  Speaker 1: and they would if I had to make a like
• 3:15
  Speaker 1: a little like a list of the stactors, they would
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  Speaker 1: get the settle reserve to move sooner rather than later.
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  Speaker 1: I'd say a rote with the UK stays in the
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  Speaker 1: EU and the global capital markets UH, do not go,
• 3:27
  Speaker 1: do not become unstable, especially on the downside. It seems
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  Speaker 1: like officials like us with the investors, we prefer volatility
• 3:34
  Speaker 1: upside rather than the downside. One consequence is federal reserve policy.
• 3:39
  Speaker 1: You want you imagine that you want volatility to move
• 3:42
  Speaker 1: to the upside, all right, Well, you get people more
• 3:44
  Speaker 1: excited and interested in in in trading. Um. One person
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  Speaker 1: I imagine who was interested, of course in the results
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  Speaker 1: is Prime Minister David Cameron. Didn't he try to change
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  Speaker 1: and to some extent he did change the rules for
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  Speaker 1: UK United Kingdom's membership in the European Union, for example
• 4:02
  Speaker 1: things having to do with migrant welfare payments, but also
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  Speaker 1: UH protection for the City of London, the financial services industry.
• 4:10
  Speaker 1: I think that the best thing that the UK has
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  Speaker 1: done for this financial service industry is to if this
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  Speaker 1: is the case, to vote inside to stay in in
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  Speaker 1: the EU. I think that the for me, I think
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  Speaker 1: that there's still going to be a circle problem for Cameron.
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  Speaker 1: He had thought that the left in London was going
• 4:25
  Speaker 1: to dream the Tory Party back together, but instead just
• 4:30
  Speaker 1: thinking about the tone and the Uh. It seems to
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  Speaker 1: me that zal the Tory Party apart and it won't
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  Speaker 1: surprise me then as Cameron faces a leadership challenge still
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  Speaker 1: later this year, and Osborne, who has delivered a budget
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  Speaker 1: that was quickly rejected and then came up with like
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  Speaker 1: a gap budget in case of Blexit, I think he
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  Speaker 1: might end up leaving, having to leave the champ of Exchequer,
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  Speaker 1: which is sort of like the U S. Treasury Secretary.
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  Speaker 1: So I still think that the politics in the UK
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  Speaker 1: not resolved, and the market is probably gonna have to
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  Speaker 1: overshoot now and this aren't really going to be good
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  Speaker 1: levels for to be chasing the market, I think in
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  Speaker 1: terms of this move, uh, the yen um, you know,
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  Speaker 1: pulling back from the highs, the dollar rising, Will this continue?
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  Speaker 1: Will because the dollar keep rising absent another industrate increase
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  Speaker 1: in the FED, I think? So I think that's the
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  Speaker 1: global market stabilized. I think one of the pressures on
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  Speaker 1: the yen, you know. I look at the capital flows
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  Speaker 1: and it's interesting. Uh. Bloomberg tracks the weekly data from
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  Speaker 1: the Ministry of Finance and last week that is the
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  Speaker 1: data that came out earlier today in the US would
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  Speaker 1: be Thursday. Uh, I'm sorry, yeah, Thursday morning in the US,
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  Speaker 1: the Japanese recorded for the first week since the end
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  Speaker 1: of March, foreigners did not buy Japanese bonds and and
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  Speaker 1: so I look at these flows, and so where's this
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  Speaker 1: big demand from end coming from. It's not only the
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  Speaker 1: portfolio flows. Yeah, speculators are long end, but it's not
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  Speaker 1: really it's not really inside it really would move the
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  Speaker 1: spot market necessarily. It seems to me that the Japanese
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  Speaker 1: themselves repatriating, So was the profits and dividends or hedgings.
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  Speaker 1: I saw one essiment that suggested that Japanese companies can
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  Speaker 1: have as much as UH five hundreds a billion dollars
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  Speaker 1: in overseas earnings a B thanks very much, Mark Chandler,
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  Speaker 1: Global head of Currency Strategy of Brown Brothers Harriman. More
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  Speaker 1: coverage of Brexit continues