WEBVTT - BBH's Chandler: Slow Money Entering Market Boosts Pound (Audio)

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<v Speaker 1>The Brexit vote coverage on Bloomberg Radio Brexit Latest, Paul

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<v Speaker 1>suggests that perhaps the Remain vote has just barely edged

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<v Speaker 1>out the Leave vote. In fact, Nicholas Frost, who has

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<v Speaker 1>been one of the leading voices saying that UK should

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<v Speaker 1>exit the European Union, is conceding that it looks like

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<v Speaker 1>the vote to remain is just barely winning the day.

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<v Speaker 1>Well Mark Chandler joins us now here on taking stock

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<v Speaker 1>on Bloomberg Radio. He's global head of currency strategy at

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<v Speaker 1>Brown Brothers. Haraman. So, Mark, I guess at the very

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<v Speaker 1>least we can figure if if it's just if this

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<v Speaker 1>is overheading, that the pound sterling, which has already had

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<v Speaker 1>a pretty good move higher, should continue to do so, Daniel,

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<v Speaker 1>I think, Kathleen, that would be the sort of the

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<v Speaker 1>knee jerk reaction in the sense that the British looked

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<v Speaker 1>very close to coining the polls and then the very

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<v Speaker 1>last minute, like what Winston Churchill said about Americans once,

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<v Speaker 1>he said, you can always kind of America to do

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<v Speaker 1>the right thing after they've exhausted the alternatives, and so

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<v Speaker 1>here the UK last minute, they're gonna do the right thing.

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<v Speaker 1>It looks like but I want to say that the market,

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<v Speaker 1>and I'm pricing this in for about a week now.

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<v Speaker 1>Sterling last Thursday was treading almost at one point four

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<v Speaker 1>zero against the dollar, and just now we tested one

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<v Speaker 1>point five. This is a very large move and I

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<v Speaker 1>think this is I try to make a distinction between

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<v Speaker 1>fast money, the leverage community hedge fund speculators in the

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<v Speaker 1>futures market. These people have been already buying sterling and

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<v Speaker 1>by when the slow money, which are the people who

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<v Speaker 1>are managing our pension funds, retirement money. We want them

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<v Speaker 1>to be taking considered views. We wanted them to take

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<v Speaker 1>off risk ahead of this great unknown, and so they

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<v Speaker 1>will be slower to return into the markets than these

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<v Speaker 1>hedge funds and these leverage community people. Mark Chandler, what

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<v Speaker 1>if you could tell me a little bit about the

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<v Speaker 1>yen in the context of the EU referendum in Britain,

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<v Speaker 1>Because the end is dropping right now as describe a

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<v Speaker 1>haven demand declines down about the half a percent. Yeah,

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<v Speaker 1>you know, DA mean, I think you're right. You know,

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<v Speaker 1>I think people like media have underestimated for how long

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<v Speaker 1>the referendum has been hanging over the market's head. This

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<v Speaker 1>is one of the factors that if the uncertainty, it

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<v Speaker 1>seems to be one of the factors they encouraged. This

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<v Speaker 1>is a great strength of the yen, and now it's

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<v Speaker 1>being unwound. So the dollar and the yen are both

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<v Speaker 1>weakening against all the major currencies and all the emerging

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<v Speaker 1>market currencies. Well, if you're Mr Corona, governor of the

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<v Speaker 1>Bank in Japan, you're very happy to see this, right.

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<v Speaker 1>And of course central banks were uh letting us know

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<v Speaker 1>that they were ready to step into currency markets if

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<v Speaker 1>the Brexit vote passed, the pound got hammered. If the

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<v Speaker 1>end serves so, I guess they can just all sit

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<v Speaker 1>back now and you know, have their dinner or go

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<v Speaker 1>to bed. Mark. Uh. Where does this leave if the

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<v Speaker 1>if the if the Brexit vote is defeated, Uh, then

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<v Speaker 1>is it just a repricing back to uh where we

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<v Speaker 1>were before bregg really heated up. I think it was

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<v Speaker 1>in some ways Keting right. To beyond that, I think

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<v Speaker 1>that the for example, the Setial Reserve has stided the

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<v Speaker 1>Directxit as one of the things leading to the international uncertainty,

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<v Speaker 1>and they would if I had to make a like

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<v Speaker 1>a little like a list of the stactors, they would

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<v Speaker 1>get the settle reserve to move sooner rather than later.

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<v Speaker 1>I'd say a rote with the UK stays in the

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<v Speaker 1>EU and the global capital markets UH, do not go,

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<v Speaker 1>do not become unstable, especially on the downside. It seems

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<v Speaker 1>like officials like us with the investors, we prefer volatility

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<v Speaker 1>upside rather than the downside. One consequence is federal reserve policy.

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<v Speaker 1>You want you imagine that you want volatility to move

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<v Speaker 1>to the upside, all right, Well, you get people more

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<v Speaker 1>excited and interested in in in trading. Um. One person

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<v Speaker 1>I imagine who was interested, of course in the results

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<v Speaker 1>is Prime Minister David Cameron. Didn't he try to change

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<v Speaker 1>and to some extent he did change the rules for

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<v Speaker 1>UK United Kingdom's membership in the European Union, for example

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<v Speaker 1>things having to do with migrant welfare payments, but also

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<v Speaker 1>UH protection for the City of London, the financial services industry.

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<v Speaker 1>I think that the best thing that the UK has

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<v Speaker 1>done for this financial service industry is to if this

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<v Speaker 1>is the case, to vote inside to stay in in

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<v Speaker 1>the EU. I think that the for me, I think

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<v Speaker 1>that there's still going to be a circle problem for Cameron.

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<v Speaker 1>He had thought that the left in London was going

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<v Speaker 1>to dream the Tory Party back together, but instead just

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<v Speaker 1>thinking about the tone and the Uh. It seems to

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<v Speaker 1>me that zal the Tory Party apart and it won't

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<v Speaker 1>surprise me then as Cameron faces a leadership challenge still

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<v Speaker 1>later this year, and Osborne, who has delivered a budget

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<v Speaker 1>that was quickly rejected and then came up with like

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<v Speaker 1>a gap budget in case of Blexit, I think he

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<v Speaker 1>might end up leaving, having to leave the champ of Exchequer,

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<v Speaker 1>which is sort of like the U S. Treasury Secretary.

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<v Speaker 1>So I still think that the politics in the UK

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<v Speaker 1>not resolved, and the market is probably gonna have to

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<v Speaker 1>overshoot now and this aren't really going to be good

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<v Speaker 1>levels for to be chasing the market, I think in

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<v Speaker 1>terms of this move, uh, the yen um, you know,

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<v Speaker 1>pulling back from the highs, the dollar rising, Will this continue?

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<v Speaker 1>Will because the dollar keep rising absent another industrate increase

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<v Speaker 1>in the FED, I think? So I think that's the

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<v Speaker 1>global market stabilized. I think one of the pressures on

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<v Speaker 1>the yen, you know. I look at the capital flows

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<v Speaker 1>and it's interesting. Uh. Bloomberg tracks the weekly data from

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<v Speaker 1>the Ministry of Finance and last week that is the

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<v Speaker 1>data that came out earlier today in the US would

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<v Speaker 1>be Thursday. Uh, I'm sorry, yeah, Thursday morning in the US,

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<v Speaker 1>the Japanese recorded for the first week since the end

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<v Speaker 1>of March, foreigners did not buy Japanese bonds and and

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<v Speaker 1>so I look at these flows, and so where's this

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<v Speaker 1>big demand from end coming from. It's not only the

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<v Speaker 1>portfolio flows. Yeah, speculators are long end, but it's not

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<v Speaker 1>really it's not really inside it really would move the

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<v Speaker 1>spot market necessarily. It seems to me that the Japanese

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<v Speaker 1>themselves repatriating, So was the profits and dividends or hedgings.

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<v Speaker 1>I saw one essiment that suggested that Japanese companies can

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<v Speaker 1>have as much as UH five hundreds a billion dollars

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<v Speaker 1>in overseas earnings a B thanks very much, Mark Chandler,

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<v Speaker 1>Global head of Currency Strategy of Brown Brothers Harriman. More

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<v Speaker 1>coverage of Brexit continues