The economic consequences of Brexit

[sealtt]

shakotan said:

...and in doing so made their competition's pricing more attractive.

It seems a rather unusual thing to do if not opportunism. There is never forward visibility on currency, so it seems odd that they'd react different now to a dip than they did to a similar dip in February. Presumably once the GBP is back where it was before June 24th, they'll recind the increase?

No, probably not...

I'm sure Dell make extensive use of forward contracts to secure their currency rates, they don't just convert all their sterling into dollars at the market rate on the day and move prices around on that basis. So it's likely that the new forwards they are entering into have become notably more expensive, and that cost is being passed on hence the price increase.

So even if the spot market is only down a touch vs previous lows, the market is very concerned about longer term risk as things play out and hence securing a forward rate is going to be an expensive thing to do. In effect by using forwards they have 100% forward visibility on currency as it's guaranteed (so long as their counter party doesn't go bust).

[Mario149]

shakotan said:

Mario149 said:

don4l said:

jjlynn27 said:

shakotan said:

I have seen it, and yet Dell didn't see reason for a 15% price increase in February when the dollar was at 1.38/£.

How surprising.

I'll try to explain differently. This price increase is result of Dell's view where the pound is going to go. In other words, they see that result of brexit will push pound down. I'm not sure why you are surprised by this. And they are not going to be the only ones, of course. Hence need for calming the markets and getting on with things.

The Pound is currently rising.

Do you agree that Dell have got it wrong?

At the risk of putting words into jlynn's mouth, they made a long term judgement (probably 6+ months I'd imagine with suppliers and what not) and it doesn't matter whether Dell have got it wrong, the end result is still the same: their product just got 15% more expensive for us to buy.

...and in doing so made their competition's pricing more attractive.

It seems a rather unusual thing to do if not opportunism. There is never forward visibility on currency, so it seems odd that they'd react different now to a dip than they did to a similar dip in February. Presumably once the GBP is back where it was before June 24th, they'll recind the increase?

No, probably not...

I think you're looking at it on a micro scale. The Out vote was a defining and in theory permanent change. Most people around the world think the UK economy is in for a pretty substantial slowdown and that the £ is going to get weaker against the $. If that comes to pass as expected, everything priced in US$ is going to get more expensive. Yeah, they may cost a bit more than their competitors at the moment, but many will likely want, or be forced, to follow suit. The dip in Feb would seem pretty meaningless, this dip is due to the long term prospects of the UK now not looking as good as they did a few days ago.

[sidicks]

sealtt said:

I'm sure Dell make extensive use of forward contracts to secure their currency rates, they don't just convert all their sterling into dollars at the market rate on the day and move prices around on that basis. So it's likely that the new forwards they are entering into have become notably more expensive, and that cost is being passed on hence the price increase.

So even if the spot market is only down a touch vs previous lows, the market is very concerned about longer term risk as things play out and hence securing a forward rate is going to be an expensive thing to do. In effect by using forwards they have 100% forward visibility on currency as it's guaranteed (so long as their counter party doesn't go bust).

12month forward seems to be suggesting a slight appreciation in GBP relative to spot.

[sidicks]

Mario149 said:

I think you're looking at it on a micro scale. The Out vote was a defining and in theory permanent change. Most people around the world think the UK economy is in for a pretty substantial slowdown and that the £ is going to get weaker against the $. If that comes to pass as expected, everything priced in US$ is going to get more expensive. Yeah, they may cost a bit more than their competitors at the moment, but many will likely want, or be forced, to follow suit. The dip in Feb would seem pretty meaningless, this dip is due to the long term prospects of the UK now not looking as good as they did a few days ago.

Who is most people?

What are the market forwards actually saying....?

[crankedup]

Mario149 said:

shakotan said:

Mario149 said:

don4l said:

jjlynn27 said:

shakotan said:

I have seen it, and yet Dell didn't see reason for a 15% price increase in February when the dollar was at 1.38/£.

How surprising.

I'll try to explain differently. This price increase is result of Dell's view where the pound is going to go. In other words, they see that result of brexit will push pound down. I'm not sure why you are surprised by this. And they are not going to be the only ones, of course. Hence need for calming the markets and getting on with things.

The Pound is currently rising.

Do you agree that Dell have got it wrong?

At the risk of putting words into jlynn's mouth, they made a long term judgement (probably 6+ months I'd imagine with suppliers and what not) and it doesn't matter whether Dell have got it wrong, the end result is still the same: their product just got 15% more expensive for us to buy.

...and in doing so made their competition's pricing more attractive.

It seems a rather unusual thing to do if not opportunism. There is never forward visibility on currency, so it seems odd that they'd react different now to a dip than they did to a similar dip in February. Presumably once the GBP is back where it was before June 24th, they'll recind the increase?

No, probably not...

I think you're looking at it on a micro scale. The Out vote was a defining and in theory permanent change. Most people around the world think the UK economy is in for a pretty substantial slowdown and that the £ is going to get weaker against the $. If that comes to pass as expected, everything priced in US$ is going to get more expensive. Yeah, they may cost a bit more than their competitors at the moment, but many will likely want, or be forced, to follow suit. The dip in Feb would seem pretty meaningless, this dip is due to the long term prospects of the UK now not looking as good as they did a few days ago.

This is all on the supposition that other major factors in the World economy remain relatively stable and no other siesmic changes occur within the EU ? The truth is that whilst economists and politicians have their own 'take' , as do us interested mop's , nobody knows outcomes at the moment and it's all fairly academic but interesting.

[sidicks]

crankedup said:

This is all on the supposition that other major factors in the World economy remain relatively stable and no other siesmic changes occur within the EU ? The truth is that whilst economists and politicians have their own 'take' , as do us interested mop's , nobody knows outcomes at the moment and it's all fairly academic but interesting.

What he's claiming is demonstrably wrong.

[Mrr T]

sidicks said:

12month forward seems to be suggesting a slight appreciation in GBP relative to spot.

FX forward rates are nothing to do with where the market thinks the currency will be in the future. The forward rates are set by the interest rate differences between the relevant currencies.

[sidicks]

Mrr T said:

FX forward rates are nothing to do with where the market thinks the currency will be in the future. The forward rates are set by the interest rate differences between the relevant currencies.

Indeed, that's the theoretical starting point. And if 'Most people around the world' thought that GBP was going to depreciate further, they wouldn't trade in the market to implement that view?

And if so, what would happen to the forward rate?

[Fittster]

Good chance of and end to austerity

Bye Dave, remember to take Gideon with you.

[sidicks]

Fittster said:

Good chance of and end to austerity

How so?

In any case, wouldn't we have had to have austerity, before it could 'ended'?

Fittster said:

Bye Dave, remember to take Gideon with you.

Its actually 'George'.

HTH

[sealtt]

sidicks said:

12month forward seems to be suggesting a slight appreciation in GBP relative to spot.

I didn't look at that, will be interesting to see what happens. There might be other factors of them cancelling GBP projects, etc which means they have less natural demand for GBP than before and are converting more back to profit than being used for future investment. Either way though 15% is a huge move.

[Mario149]

sidicks said:

Mario149 said:

I think you're looking at it on a micro scale. The Out vote was a defining and in theory permanent change. Most people around the world think the UK economy is in for a pretty substantial slowdown and that the £ is going to get weaker against the $. If that comes to pass as expected, everything priced in US$ is going to get more expensive. Yeah, they may cost a bit more than their competitors at the moment, but many will likely want, or be forced, to follow suit. The dip in Feb would seem pretty meaningless, this dip is due to the long term prospects of the UK now not looking as good as they did a few days ago.

Who is most people?

What are the market forwards actually saying....?

I'll put my hands up, I'm not going to go dredging through t'internet finding all the articles I've read in the last few days. We can start with the fact our chancellor thinks we're going to take a hit. If you've got info saying everything economy-wise is going to be fine over the next year or so, I'm happy to read the links, but I've not seen anything.

Just did a search and the 6 month forward rate seems to be about $1.34

[Fittster]

sidicks said:

Fittster said:

Good chance of and end to austerity

How so?

In any case, wouldn't we have had to have austerity, before it could 'ended'?

Fittster said:

Bye Dave, remember to take Gideon with you.

Its actually 'George'.

HTH

I thought leavers were pressing F5 on the daily mail website continually.

"Theresa May pledged to abandon George Osborne's austerity agenda as she launched her leadership bid on another highly dramatic day in British politics this morning.

She became the clear front-runner to replace David Cameron as Prime Minister today after Boris Johnson sensationally quit the leadership contest.
In a robust speech this morning she promised to lead the effort to take Britain out of the EU, ruling out a second referendum, declaring: 'Brexit means Brexit'.

Significantly, she said she will no longer aim to reach a budget surplus by 2020 if the Tory party elect her leader on September 9.
But at the same time she insisted her priority would be to avoid tax rises as it would disrupt the economy by hitting consumption, jobs and investment.


http://www.dailymail.co.uk/news/article-3667613/Th...

[afrochicken]

sealtt said:

sidicks said:

12month forward seems to be suggesting a slight appreciation in GBP relative to spot.

I didn't look at that, will be interesting to see what happens. There might be other factors of them cancelling GBP projects, etc which means they have less natural demand for GBP than before and are converting more back to profit than being used for future investment. Either way though 15% is a huge move.

Ignore the forward rates. As another poster has said, it's just the spot rate plus a little bit to cover the interest charge for borrowing money. Futures contracts do not predict future prices, they are just a way of buying or selling something in the future. It'd be a free money arbitrage trade otherwise.

[sidicks]

Mario149 said:

I'll put my hands up, I'm not going to go dredging through t'internet finding all the articles I've read in the last few days. We can start with the fact our chancellor thinks we're going to take a hit. If you've got info saying everything economy-wise is going to be fine over the next year or so, I'm happy to read the links, but I've not seen anything.

Just did a search and the 6 month forward rate seems to be about $1.34

$1.342

And the current spot rate?

The point is that, through the forward rate, a strong view on future GBP-USD depreciation (or appreciation) would impact the spot rate (to ensure that arbitrage-free pricing still works, based on the interest rate differentials) and hence the current spot rate effectively already factors in current views on where GBP-USD will price in the future.

Edited by sidicks on Thursday 30th June 15:28

[sidicks]

Fittster said:

I thought leavers were pressing F5 on the daily mail website continually.

"Theresa May pledged to abandon George Osborne's austerity agenda as she launched her leadership bid on another highly dramatic day in British politics this morning.

She became the clear front-runner to replace David Cameron as Prime Minister today after Boris Johnson sensationally quit the leadership contest.
In a robust speech this morning she promised to lead the effort to take Britain out of the EU, ruling out a second referendum, declaring: 'Brexit means Brexit'.

Significantly, she said she will no longer aim to reach a budget surplus by 2020 if the Tory party elect her leader on September 9.
But at the same time she insisted her priority would be to avoid tax rises as it would disrupt the economy by hitting consumption, jobs and investment.


http://www.dailymail.co.uk/news/article-3667613/Th...

Where does that say anything about ending 'austerity' / increased public spending?

[sealtt]

afrochicken said:

Ignore the forward rates. As another poster has said, it's just the spot rate plus a little bit to cover the interest charge for borrowing money. Futures contracts do not predict future prices, they are just a way of buying or selling something in the future. It'd be a free money arbitrage trade otherwise.

Yes, of course because otherwise the CP can just cash out the profit today in the spot market, less the cost of carry. Doh. But for Dell specifically I am guessing their hedging costs have got to have increased with this volatility, other than just the drop in FX, maybe they are just taking a view on it dropping further? Though I have never dealt with corporates (nor FX or Derivatives in general!!) just speculating on the motives for that 15% price increase.

Edited by sealtt on Thursday 30th June 15:52

[sidicks]

sealtt said:

Yes, of course because otherwise the CP can just cash out the profit today in the spot market, less the cost of carry. But for Dell specifically I would imagine their hedging costs have got to have increased with this volatility, other than just the drop in FX, maybe they are just taking a view on it dropping further. Though I have never dealt with corporates (NOR FX or Derivatives in general) to really know how they work, just a guess.

Edited by sealtt on Thursday 30th June 15:48

As above, using forward contacts they can look in their position in 3m, 6m, 12m at a better FX rate than current.

[berty37]

Carney just said 'probably have to ease policy over the summer' -..wonder where those spot rates are now....

[berty37]

Carney just said 'probably have to ease policy over the summer' -..wonder where those spot rates are now....