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SocGen's Juckes on Brexit Flash Crash: Lack of Liquidity(Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
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  Speaker 1: Fox on Bloomberg Radio. A tough week for the pound,
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  Speaker 1: A tough night for the pound. The British pound was
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  Speaker 1: already under great pressure this past week, uh sparked by
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  Speaker 1: Prime Minister Theresa's May, Theresa May's timetable for Britain's withdrawal
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  Speaker 1: from the European Union and concerns it might prove to
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  Speaker 1: be a hard Brexit. But then something happened. Just shortly
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  Speaker 1: after seven o'clock Eastern The pound dropped about six percent
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  Speaker 1: in two minutes, sparking Bank of England Governor Mark Harney
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  Speaker 1: to ask the Bank for International seven months to look
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  Speaker 1: and see what happened. Joining US now is Kit Jooks.
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  Speaker 1: He joins US from London, where he's global head of
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  Speaker 1: Foreign Exchange Strategy at Society General. So Kit, I was
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  Speaker 1: sitting I was sitting here on the on the Bloomberg
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  Speaker 1: News set taking part in Dabria Asia for Bloomberg Radio
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  Speaker 1: and Television, and Sherry On from our Hong Kong office
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  Speaker 1: came out and almost at the very top of a
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  Speaker 1: report said the pound, it's down. It was crazy move.
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  Speaker 1: What happened? Well, you know, I was. I was definitely
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  Speaker 1: fast asleep. It's that's that's that's just after midnight our time,
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  Speaker 1: so no chance of my being awake with a seven
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  Speaker 1: am morning meeting here. But the I don't know. You know,
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  Speaker 1: that time of day is when financial market liquidity it's
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  Speaker 1: thin or odd because THEO has just come in, so
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  Speaker 1: people have things to do. But there's not necessarily a
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  Speaker 1: lot of natural liquidity of people who want to say
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  Speaker 1: I'll take the other side. So if someone wants to
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  Speaker 1: sell a currency or anything, um, you know, the market
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  Speaker 1: needs someone to come on the other side and said, yeah,
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  Speaker 1: that looks cheap, I'll buy that lower down and um.
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  Speaker 1: In this instance, whether someone put in a cell order
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  Speaker 1: at the wrong price, whether there was some some you know,
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  Speaker 1: whether a computer program did something to sell something at
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  Speaker 1: the wrong price too low or too much, or whether
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  Speaker 1: just just the weight generally of people being concerned about
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  Speaker 1: the UK use all week and by Friday morning there
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  Speaker 1: just wasn't any what you prepared to bid for something
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  Speaker 1: that someone settling, so the price tumble stumble stumbles, and
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  Speaker 1: then everybody goes, Okay, I'll make you have a coffee.
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  Speaker 1: I'm not going to join this game and it gets
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  Speaker 1: out of control. But they'll they'll they'll look through it.
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  Speaker 1: But I'm you know, we'll call it that. We'll call
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  Speaker 1: it a fat finger or a flash crash. Um. But
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  Speaker 1: they're always the way around that the market was going
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  Speaker 1: before we started that. That's a feature of these flash crashes.
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  Speaker 1: Kit chukes am I to believe that the central banks
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  Speaker 1: around the world, let's just leave the Federal Reserve out
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  Speaker 1: of this for a moment, are trying to devalue the
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  Speaker 1: currencies of their respective regions in order to promote economic growth.
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  Speaker 1: I don't think anyone's trying to devalue their currencies very
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  Speaker 1: much at the moment. They're trying very hard to make
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  Speaker 1: their currencies not go up. Marginally different kind of spin
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  Speaker 1: on that for you. But at this point in time,
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  Speaker 1: you know, the European Central Bank doesn't want the euro
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  Speaker 1: to strengthen it having weakened the I noted that the
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  Speaker 1: authorities in Brazil said they thought it was about time
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  Speaker 1: the FED raised interest. It's as then, we really don't
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  Speaker 1: want our currency, which is the strongest currency in the
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  Speaker 1: last week in the world, to go up any further.
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  Speaker 1: Thanks so trying to get their currencies to weaken, you know,
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  Speaker 1: trying to prevent or hoping or wishing they wouldn't get
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  Speaker 1: any stronger. The reason I put it in that in
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  Speaker 1: that context is I'm wondering whether you can make a
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  Speaker 1: case for the British electorate having done the work of
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  Speaker 1: a central bank by working to devalue the currency and
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  Speaker 1: also helped to stimulate exports and investment in the United Kingdom.
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  Speaker 1: Definitely look you in I'm sure that somewhere in my
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  Speaker 1: undergraduate years, more years ago than I care to think about,
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  Speaker 1: you have looked at the situation and said, if you
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  Speaker 1: had a negative terms of trade shock, which the UK
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  Speaker 1: has decided to vote for in the UK government has
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  Speaker 1: has decided to make happen, you will naturally need fall
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  Speaker 1: in your exchange rate to reach new equilibrium. I'm sure
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  Speaker 1: I can see a picture of that in a textbook
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  Speaker 1: in my mind, and we're trying to make that textbook
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  Speaker 1: work right now, and we're all pulling the same way.
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  Speaker 1: So a week of pound is a necessary outcome of
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  Speaker 1: the terms of trade shock, which is what to me
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  Speaker 1: is what happens if you stick a spanner in the
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  Speaker 1: spokes of the of the wheel of your global trade
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  Speaker 1: partners ruin your significantly damage your biggest trade relationship, and
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  Speaker 1: sit there hoping you can stay on the bicycle without
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  Speaker 1: falling flat in your face. Now, Um, the dollar rally,
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  Speaker 1: and of course that means other currencies are weakening. Uh,
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  Speaker 1: seems even more in place since this job support came
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  Speaker 1: in strong enough to solidify this view of a December
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  Speaker 1: rene hike. But we just had a guest, Uh, Tom
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  Speaker 1: Gimball from La Saul. It's an executive type hiring search firm,
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  Speaker 1: um say, echoed by Ethan Harris, a Bank of America Marylynn.
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  Speaker 1: She's been on an eighteen day trip around the world
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  Speaker 1: that for domestically and for a lot of people overseas.
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  Speaker 1: Now it isn't so much the Fed they're watching in
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  Speaker 1: the next few weeks. It's the outcome of the election.
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  Speaker 1: And the idea seems to be if Donald Trump gets elected,
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  Speaker 1: look out because it's a huge uncertainty what would that
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  Speaker 1: mean for the dollar? Back to front for the dollar
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  Speaker 1: because you're the world's biggest reserve currency. If if if
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  Speaker 1: uncertainty about the economic outlook in the wake of the
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  Speaker 1: of the presidential election results in investors being skittish, scared
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  Speaker 1: risk averse. They'll sell those Brazilian rayale, they'll sell Asian counties,
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  Speaker 1: they'll move out of all the assets that they've been
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  Speaker 1: buying that had higher yields, and they'll revert to the
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  Speaker 1: safest thing they know, which is something at the front
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  Speaker 1: end of the US Treasury curve that that's cash or
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  Speaker 1: cash like, and the dollar will go up, not down.
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  Speaker 1: And that's the feature of the US dollar. So um,
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  Speaker 1: I would I would bet that the Donald Trump presidency
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  Speaker 1: is um is good for the dollar against the whole
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  Speaker 1: load of the world's biggest country, is bad for the
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  Speaker 1: Canadian dollar and the Mexican pay so which between them,
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  Speaker 1: nearly a quarter of the trade had waited the index
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  Speaker 1: of the US or nearly a quarter of US trade
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  Speaker 1: goes up north or south. Thanks very much. Kit Juke's
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  Speaker 1: global head of Foreign Exchange Strategy for Associate General, joining
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  Speaker 1: US from London. This is Bloomberg