The Daily Update - Sterling Fed Helicopter money

So 'love it or hate it', Marmite now costs more according to Unilever as the impact of Brexit hits the high street. Could be the foundations of a new Australian trade deal based on the import of Vegemite to sooth the pain to the great British public. Theresa May go get them.

But in reality the cost of Vegemite could also be affected as sterling has hit a 168 year low, according to the Bank of England’s basket of currencies made up from trading peers. Which means the effective value of the pound is less now than the withdrawal from the European Rate Mechanism (1992 and Black Wednesday) and when the UK decided to leave the Gold Standard (September 1931). Unfortunately sterling is now down 17% against the Australian dollar since the 23rd June vote and is the weakest currency this year according to Bloomberg’s basket of Extended Majors, 31 currencies in total. So Vegemite may not be the solution to this latest disaster to hit the UK consumer. So glad Dove anti-ageing moisturising cream bar soap is not a Unilever product!

Elsewhere, the Fed minutes show a committee mixed with a 7:3 vote not to raise rates in September, but it does appear that the voting members are moving closer to a 25bps rise when they meet in December, a move in November is unlikely due to the election, but a Trump withdrawal could open the door here as well; data dependent of course.

Helicopter money, the transfer of cash directly to consumers from central banks, in order to immediately stimulate economies has been looked at time and time again, particularly recently in Japan. The concept has been around for many years since it was first dreamed up by Nobel Laureate Milton Friedman nearly fifty years ago. ECB President Draghi described it as a 'very interesting concept' while Mark Carney called it a 'flight of fancy' and Japan's governor Kuroda has said it is prohibited by current Japanese law; could a change of law be coming then Kuroda-san?

However, according to a survey from ING it would be a waste of time and have limited impact. The study covered 12,000 consumers across 12 European countries and asked what they would do with the money if they were suddenly given €200 per month with no strings attached and no repayment required. 26% said they would spend most of the money and 52% said they would save it, invest it or leave it untouched, while 15% said they would pay down debt. Surprised no one said 'buy UK property', which is so much cheaper now.

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