Britain Worst Placed, Run on Pound, Default Risk - Deutsche Bank
So what could go wrong next?
Simple, according to Deutsche Bank’s credit strategist, Jim Reid:
So if 2009 goes horribly wrong it’s probably because there’s a run on a major currency or a Government bond market than because of wide scale corporate defaults. At the moment the UK remains the lowest hanging developed market fruit. For those of us living in the UK it remains scary how exposed we are to the full force of this credit crisis.
That’s from the latest “Early Morning Reid” - the last this year while the Deutsche man concentrates on his 2009 outlook tome.
Amid a fresh rash of predictionson how deep the UK property slump will be, Reid makes the point that the UK still has one of the most expensive property markets in the world. But against the headline fall of around 15 per cent in 2008, prices are actually down 30-35 per cent in euros and nearly 40 per cent in dollars. So…
If the UK won’t do the adjustment internally, then the currency market is rapidly helping us on our way.
Surprisingly, perhaps, there was very little on the fate of the Great British Krona in the Bank of England’s latest Quarterly Bulletin, published on Monday. In fact, there are just two paragraphs:
Interest rate developments might account for some of the variations in exchange rates. For example, unexpected falls in euro interest rates (relative to those overseas) coincided with a sharp depreciation in the euro. And at short horizons, relative interest rate developments were consistent with a fall in the value of sterling. However in general, the major currencies seem to have moved by more than would be suggested by interest rate news, especially since late October (Chart 16).
Market participants tended to place weight on other explanations for the recent swings in exchange rates. In particular, three interrelated factors were widely cited: a general retrenchment from risky assets as part of the ongoing deleveraging process in financial markets; unwinding of so-called carry trades (which typically involve borrowing in low-yielding currencies to invest in overseas assets with higher nominal returns); and repatriation of investments (especially to the United States and Japan).
And one of the Bank’s incomprehensible georgeous charts…
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