A view from cruising altitude…

Compliments of Bannockburn Global Forex

As we approach the end of Q1 2021, and since most of us have been grounded with COVID restrictions,  I thought it would be refreshing to return to the skies and take a 30,000 foot view on the remainder of the year ahead of us.

  • Reflation and Growth– Looking beyond the COVID vaccine rollout, 2021 will be a year of two parts. In first part of the year, in which we are living right now, the virus remains with us and will continue to headline most everything and for good reason. Markets will be driven by news of the vaccines rollout progress. In addition, a long awaited stimulus package should eventually be passed without too much fanfare. The second part of the year will be about the success of stimulus however its application and delivery will be crucial to the economy “reflating” itself from the lows of 2020. Good news will lead to steeper yield curves and risk assets, especially in the emerging markets, should perform well. By June and July global growth should begin to work its way back.

Source: Bloomberg

  • Inflation and Prices – Central banks will continue to keep interest rates low well through the end of this year and in to next year. A lower dollar in this environment will help lift global commodity prices and global supply will struggle to keep up with global demand. Prices will rise and the net result of this should be inflationary. The almost 40 year downward trend on interest rates we have experienced since the mid 1980’s has been a historical era but it will likely come to an end. The global economy, both private and public, needs to prepare for the end of this era and remain flexible enough to pivot forward. There is hope for the private sector however sovereigns might be a different story.
  • The Dollar – The last several years of a strong dollar has provided significant headwinds for US companies however this long term trend is shifting in favor of US companies and will fuel domestic growth. In the near-term however the dollar still has legs…

The US dollar Index

Source: Bloomberg

  • Populism – This era may be over as the popular hope of elites losing power may have been a little premature. Nationalism, on the other hand might linger as it is a tool used by both elites and 1 populist. It will become evident that globalization is the omelet that can’t be unscrambled. A better and more equitable global arrangement might require breaking a few more eggs to make the omelet more responsive to 21st century demands. 

So much for considerations on what should drive markets and the global economy. Now a little about international risks to business, cross border cash flows, and enterprise value.

  • Profitability – Companies have an internal threshold for the necessary profitability to warrant expenses. Has this profitability threshold been too high for multinationals and other large companies? Answering this question will remain the main focus for the giants, especially for technology. Large companies will continue to be treated like family and VIP guests by big finance while small to medium size companies are treated like tourists in terms of fees and margins. Bannockburn Global FOREX closes this gap by offering the transparency and efficiencies to small and medium size companies that financial institutions offer their largest clients.
  • M&A – In cross border M&A, large companies are using equity at elevated prices therefore currency risk is always a main focus in protecting their large scale but narrow returns. In the mid-market however smaller companies, through private equity, are using relatively cheap cash that is then deployed at much better returns that are often compromised by currency exposure that is left unattended to. Bannockburn closes this gap too as a resource for mid-market companies to maintain their returns on cross border acquisitions and divestures.
  • Core Competence – Mid-market corporate Foreign Exchange (FX) to large financial institutions is a side item and as a result their FX margins are large, variable, and inconsistent for clients of this size. For Bannockburn, FX is all we do as a firm therefore it’s not an afterthought, it’s our main business and our core-competence. The last thing a company wants is for currency exposure to undermine its productivity and profit margins. We are disruptive to the mid-market corporate FX space because we offer advice, analytics, transparency, and consistently fixed margins.

Please reach out with any questions and concerns and let me know how I can assist.

Nicholas Omirly
Managing Director
Bannockburn Global Forex
Office: (980) 771-4350
Mobile: (704) 773-9957