Sterling Event Conference Call Tuesday, 08 September 2015

Transcription

1 Hamish Pepper: Good morning, everyone, and welcome to the September Sterling conference call. Well, since we last spoke on 4 th August it s been anything but quiet over what is traditionally a summer holiday month. We ve seen Sterling depreciate about 1.5% against the Dollar and, somewhat surprisingly, depreciate around 4% versus the Euro. Over this time there s also been a significant pickup in financial market volatility generally, and I think there s three important developments that I d like to talk about today. The first of those is China; growth concerns there, as well as volatility. The second is the Euro strength that we ve seen over the past month; why do we think that s happening? And then finally bringing this all together and talking about Sterling, particularly in the context of the rate repricing we ve seen over the past month and the impact that that s had on the currency. So to begin with, let s talk about China. August did start relatively quietly and we thought that that was the way it was going to continue, until on Tuesday 11 th August the PBOC changed the way it determined the onshore Dollar China fix to make it more market determined. The net result of that was a fairly sharp depreciation in the currency there, but more importantly a broader concern from the market that perhaps the PBOC and Chinese officials more generally knew something that we all didn t; in particular, you know, were they seeing growth that was materially weaker than some of the official data was suggesting. Since then, I suppose there s been some confirmation of that growth concern. We ve seen the People s Bank of China cut its benchmark lending and deposit rates. We ve seen it reduce banks reserve requirement. It s likely intervened and reportedly intervened in both the equity market to support equity prices, as well as the currency market to support the Renminbi. So let me make just three points related to China to begin with. In relation to the change in the fix, just specifically that, we think that is about financial market liberalisation and wanting to make the exchange rate more market determined. Now, that in itself does not necessarily imply CNY depreciation, but we think it will occur when we take into consideration the macroeconomic backdrop in China, which is that there are downside risks to growth and we are seeing

2 capital outflows. So in the case of our Dollar China forecast, we re looking for some quite large depreciation there, 680 by year end and 690 by Q2 of next year. Now, given that view of material Renminbi depreciation, let me make the second point here which is that that has the most important implications we think for emerging market Asia currencies, as well as commodity currencies. So these are the guys that tend to export large proportions of their GDP to China. You can see that on slide two in the chart deck there. You can see that clump of countries that sit in that sort of top right part of the chart there. They export a lot to China and as a percentage of their GDP and also, unfortunately for them, they re highly sensitive to movements in global equity prices as well. So, all in all, they look very vulnerable to this market dynamic. In addition to the direct exposure that many of these countries have, some of them will also compete with China in third markets. So, for example, Korea and Thailand and countries like this who will be encouraged to allow their own currencies to depreciate as the Renminbi does in order to keep the competitiveness in these third markets. In terms of the impacts on commodities, perhaps that s relatively obvious. As Chinese imports become more expensive as their currency depreciates, that s likely to reduce demand for those commodities, so there we can step outside of EM Asia and start to look at currencies like the Australian Dollar and the Kiwi Dollar and so on. The final currency to note here is the Japanese Yen. If you put together China as well as EM Asia, that makes up more than half of the Japanese Yen trade weighted basket, so they too will have a strong incentive to allow their currency to depreciate. If they don t do that, it will happen anyway. Their exports are likely to be negatively impacted as China and those other Asian economies gain competitive advantage, so there s implications there for the Yen, too. It s one of the reasons why we ve revised higher our Dollar Yen forecast to now look for a peak of 1.27 from previously looking for a peak of That reflects the idea that all else equal, if the Yen does not move, they will be actually appreciating against all of those countries and currencies. That s not something that we think is helpful when they have growth as low as it currently is.

3 The third point that we d want to make on China is that despite all of this we re continuing to forecast material US Dollar outperformance. So not because it s unaffected by what s happening in China, but because we think it s likely to be the least affected major currency. The economy in the US is largely closed. It has very strong internal growth momentum, both measured by, you know, growth itself as well as inflation. And while we may have adjusted our view on when the Fed will begin to tighten policy, we re now looking for that to happen in March of next year versus September previously. That dynamic of an outperforming US economy is likely to still be a strong driver of the Dollar, given that we are always looking at these things on a relative basis. Essentially that s a way of me saying that we feel that the risks of delay to other central banks in terms of when they may tighten, or indeed the risk that more will need to be done in terms of easing is higher for countries other than the US. A good example of that is the step that we saw the ECB take last week towards expanding its asset purchase programme, and I ll talk a little bit more about that in a moment. So moving on to the Euro and the strength that we ve seen over the past month, definitely that was a surprise, but there are some ways in which we can explain it. The first is a fundamental channel. We have observed a narrowing of interest rate differentials with the US over the past month as the market has pushed out its expectations of Fed rate hikes, and of course that s happened in the context of the ECB already keeping short-term rates anchored at zero or negative for the next three years essentially. So the Euro rate curve has had little ability to move in response to all of these developments, at least at the short end, whereas in the case of the US there s been a great degree of flexibility there for the market to be able to push expectations out and therefore push short-term yields lower. So there has been a fundamental degree of support for the move higher in the Euro. What we also think has happened over the past month is that you ve seen an unwinding of Euro positions. Now, we could probably characterise these in two broad buckets. The first is that the Euro has been a very popular funding currency, particularly for buying high yielding emerging market currencies to pick up the

4 yield advantage there. In addition, a lot of the flow into European equity markets, a portion of that has been FX hedged, so selling Euros forward in a lot of cases. Now, given the volatility that we ve seen over the past month, many of these positions were likely liquidated and as a result of that the associated hedges were unwound in the case of equities, and in the case of the currency trade the funding currency had to be bought back. So we feel that there was broadly speaking a technical dynamic, so to speak, that was in play over the past month which has added to the support that the Euro has seen. Looking ahead, we don t think that that dynamic will continue and we think that likely ECB action to expand its QE programme before year end, in particular what we re saying is that they will extend the programme s expiry date beyond September of next year, but they may potentially even do more in terms of expanding the size of the programme, the scope of the programme, even lowering the deposit rate further into negative territory. All of that is possible before year end. What we are saying for certain, in our view, is that we expect the programme expiry to be extended. That, we think, should provide a fresh catalyst for Euro weakness. So bringing this all together for Sterling, what does it mean? You can see on slide two there that the UK s direct exposure to China is very small, and this is something that the Bank of England governor Carney mentioned recently at Jackson Hole in the speech that he delivered there. However, there are indirect channels which we think do matter quite a lot. The first of those is indirect trade exposure to China, for example through the Euro area, but also through global growth more generally. The potential that China s slowdown impacts global growth, in a general sense global confidence and that then feeds back into weakness for Sterling exports, for example, but also confidence within the economy as well.

5 The second channel we think is important from a currency point of view is Sterling s inferior safe haven characteristics versus the Dollar and the Yen. Now, some of that reflects factors such as the UK s twin current account and fiscal deficit. Also, this is just something we observed historically. If you look at that chart on slide two, you can see that the correlation that Sterling has with global equities is really somewhere around zero, whereas with the Japanese Yen and the US Dollar you actually see them moving in the opposite direction. So when equities are falling, the Japanese Yen and the US Dollar tend to appreciate on a nominal effective exchange rate basis. So, all in all, what that tells us is that there is a strong argument for recent Sterling weakness versus the Euro to reverse. We think that is the case. However, depreciation versus the Dollar that we ve seen is very much justified in our view and we continue to look for further depreciation in Sterling versus the Dollar. In terms of this week s Bank of England meeting, which of course now will have the minutes published at the same time, so the minutes from that meeting will be released at the same time we get the policy decision, we re looking for the Bank of England to be more dovish than they were in the August inflation report and that should encourage our cautious Sterling view. Indeed, as I mentioned, governor Carney in his speech at Jackson Hole noted the risk of further disinflationary pressure from the developments in China and more broadly we continue, and this is the chart we show on slide three, we think the MBC remain uncomfortable with the current level of Sterling. We estimate it to be still overvalued, about 6% overvalued on a trade weighted basis, and if this persists in the context of the significant fiscal consolidation that s likely to occur over the next two years, which is somewhere around 2.3 percentage points of GDP in total, there is a real risk of a substantial delay in Bank of England tightening we think. Just finally before I open up to questions, I put a slide in here specifically on what the cable risk reversal was looking like, essentially the price of calls relative to the price of puts, and what it s telling you there is that cable puts have become very, very cheap recently and for those Dollar buyers out there it is something to note. They re close to their deepest discount versus calls since 2010, so we think that this

6 does represent an attractive opportunity to gain some protection against further depreciation in cable and something which is unlikely, we think anyway, to persist beyond the next few months. I think I ll stop there. There s been a lot happening. I think, as I ve said, we can break it down into those three buckets; China, Europe and what it all means for Sterling. Let s open it up to questions to see if there s any interest to go further. Operator: Ladies and gentlemen, please press star one if you would like to ask a question, or if you change your mind and wish to withdraw your question, then press star two, and please ensure that your phones are unmuted locally. We have a question from Stephen Lenhardt from APS Events and Media. Please go ahead. Stephen Lenhardt: Good morning, and thank you for the analysis. It s been interesting listening to your views on China. However, I m wondering, what is happening? What is going to happen with the UK economy in the medium to long-term because we also have a certain degree of economic problems? And I m interested to think, to find out what you would consider to happen to Sterling, especially US Dollar and Euro. Hamish Pepper: Sure. Thanks, Stephen. Yes, very good question. I mean, I think let s talk briefly about the economic sort of situation in the UK and what we expect going forward there. At the moment, growth is relatively healthy, running at around just a bit above 2.5% on an annual basis. We think that is at the moment being driven in a fairly normal way. What I mean by that is that when interest rates are very low, the recoveries tend to be driven by consumption and investment and that s what we re seeing. Also, we re seeing that being supported, particularly on the consumption side, by high real wage growth, that s partly a reflection of the low inflation environment, but also strong confidence generally and that s

7 on the back of pretty low unemployment, a fairly healthy labour market and also high house prices as well. Those are the, some of the two biggest drivers of confidence. So for now it looks like a normal recovery. What s disappointing, though, is export performance in the UK and that s partly a reflection of the currency strength I mentioned. I mentioned that we estimate Sterling to be about 6% overvalued on a trade weighted basis, but what s even more important to that is how quickly it s moved to being that much overvalued. If we go back to March of 2013, since then we ve had an appreciation of the real effective exchange rate of about 20% and so that s a very, very fast pace of appreciation. I think what s happening is that had an impact on export performance and will probably continue to flow through and have a negative impact on export performance. So in the context of that kind of backdrop, perhaps the surprising thing has been that we haven t seen more inflation in the UK. That s something which policymakers around the world are grappling with. Inflation is very low. Headline is basically zero, as I m sure you know. Core is slightly better in the UK, so core inflation is about 1.2%, but it s still a long way from where the Bank of England would like it at the 2% target, or somewhere around then. There are encouraging signs that perhaps inflation is beginning to pick up. For example, we can look at the labour market and I mentioned that that looked relatively healthy. Wages there running at around 2.5%, although it s worth noting there also that that s below the long-term average which is about three, but also importantly below the kind of rates that we ve seen when the economy is to be doing well which is more like 4% per annum. The other important factor here in terms of the outlook going forward, in addition to China and the global growth risks that I mentioned are, you know, there are some idiosyncratic risks within the UK. There s a fiscal consolidation which I mentioned which is very, very large; as I said, almost 2.5 percentage points of GDP over the next two years.

8 But there s also the referendum; this continues to be an issue for the market and something which businesses are increasingly becoming aware of as well. The impact it s having on our forecast, and one of the reasons why we have growth moving back towards 2% in the coming years, is that we do think that firms will delay some of their investment until there s better clarity around what the outcome might be of that referendum, or indeed they may even wait for the referendum result itself given how poor polling proved to be for the May election. So, all in all, it s a fairly, I suppose, cautious outlook that we have for the UK. There s a lot of risk factors and they are to the downside, whether it s China or whether it s fiscal policy, and beyond that sort of institutional risks around the referendum. And I think that s why we feel much more comfortable in our view that the US Dollar will be an outperformer versus and will outperform Sterling in that you have less of these downside risks to deal with. You have greater internal momentum within the economy, so growth is generally slightly better, and you have inflation being generated importantly as the labour market continues to tighten there in a very consistent way. And there s all of this other, all of these other metrics that I mentioned; the more closed nature of the US economy and essentially the fact that we think that the Fed is comfortable in moving, starting to move to normalised policy sooner than we think that the Bank of England would be comfortable doing that. So, all in all, what we ve got here is a situation where cable we think should continue to fall based on that dynamic, but what, where we do see, you know, sort of a disconnect at the moment is the kind of price action we re seeing in Euro Sterling or Sterling Euro. The weakness that the Pound has experienced there is not completely justified in our view and I think it comes back to some of those technical factors I mentioned that occurred over the summer, over August, driving that Euro appreciation and I think we re still to see some of that unwind and as that does happen, we would expect to see Sterling benefit against the Euro in that environment. Operator: The next question comes from Sandro Das from Free World Trading. Please go ahead.

9 Sandro Das: Hi there. Firstly, I think it s a little bit ironic that we ve just hit 1.54 I think on the Sterling USD. But going back, I m interested in what happened during this problem with the Chinese equities and all this. And the Euro strengthened to just around 1.17 I think against the Dollar and I think the gentleman was saying basically this was fear hitting the Euro shorts. But we look at something called the net USD position from the Chicago Exchange, which is the sort of measure of the speculator s contracts, and it didn t seem to unwind that much. The reason that I think this is important is because I would ve expected the Dollar to have strengthened during this as a sort of, you know, safe haven kind of currency during this time of great uncertainty. So why did the Euro go up so much? Hamish Pepper: These are good questions, Sandro. I mean, the first point you made about, you know, where cable is trading today at 1.54, I think it s worth thinking about where we ve come from as well. I mean, it wasn t that long ago, it was just 21 st August that we were trading cable at 1.57 so there s still three big figures there we ve moved lower. And, you know, in our view, you know, our forecast for the end of Q3 is basically 1.52 so we re pretty comfortable in terms of, you know, where our forecasts lie and the drivers of those, and we ve been encouraged by the general direction in which cable has traded. In terms of the data that you note, that you do get from the futures market, it s worth noting that futures as a FX derivative don t make up very much of the overall market. So if you include futures in with the spot volume, for example, you would be at a very, very small fraction of that, so we re always a little careful looking at that non-commercial futures position data. Sandro Das: Do you think there s a better number we should be looking at? Hamish Pepper Well, I would encourage you to reach out to us. There s a lot of the volume data that we track that we re able to share. Obviously we can t share the numbers themselves. We can t give you a Dollar figure or a Sterling figure, for example, but what we can do is talk about, you know, what we ve seen generally in terms of our client flow. We would look

10 Sandro Das: All right, okay. Hamish Pepper: We would look, for example, to what our real money clients are doing and our leveraged discretionary clients, excluding sort of algorithmic trading, and I think that helps to build a better overall picture. And I think, you know, looking at that data, definitely the flow that we saw encouraged this view which we have, which is that an unwinding of those short Euro positions using the Euro as a funding currency, and also Sandro Das: Carry trade? Hamish Pepper: Yes, and also there was a consistency that we saw across the price section in Dollar Yen as well, so there was a lot of Yen strength on that day where you saw a lot of Euro strength, so there s to the extent that clients and market participants were also using the Yen as a funding currency. There was a consistency in terms of the unwinding of those and therefore sort of appreciation pressures. So I think broadly speaking by no means is it a full explanation of what we saw, particularly on that day where it did in some ways feel as if, you know, the markets temporarily broke. It was very hard for people to find, and obviously this is seen in the price action, it was very, very hard for people to find prices in which they could execute. There was a degree of them reaching for prices in order to do it. I think that there is a consistency in terms of that technical explanation and also more generally there is, you know, there is a degree of fundamental support, but I think for it to persist going forward we think is quite unlikely. We think central banks are now starting to respond, not least of which is the People s Bank of China, but we ve also seen the ECB, let s see what the Bank of England have to say. But that day that you mention in particular, I think the market was very, very concerned that there wasn t going to necessarily be a supportive policymaker response. There was a degree of panic, particularly in the equity market as well of course. The, you know, the equity market was as volatile as FX and I think the

11 reason that that makes sense, if we compare that dynamic with what we saw in fixed income which is actually relatively stable, is that, you know, this is where people had positions. If you were a big, sort of macro type investor, you were probably long European equities. You probably had them hedged by selling Euros forward. You were probably in some kind of, you know, yield pickup type currency trade, either funded through Euros and Yen. You probably didn t have a lot of exposure in fixed income. I mean, being short US treasuries, for example, is something that, you know, people have tried and failed over, you know, sort of, well, years now basically. So I think that was an interesting dynamic that we saw on that day, was that in many ways it revealed where the market positioning was, and I think it was largely in equities and it was largely in FX. Sandro Das: Okay, so it s still safe haven Dollar. Hamish Pepper Yes, so yes, I mean, the final, I guess that final part of your question was about, you know, the Dollar and I think, you know, this is where, sure, we ll get this kind of volatility on a day by day basis, but what should shine through is the fact that, I mean, all of our analysis suggests that the Dollar should come out of this on top, that essentially the other major currencies are more vulnerable, and that s why we are keeping our faith in the Dollar and that it will be the outperformer going forward. Sandro Das: Okay, thank you. Hamish Pepper: No worries. Operator: The next question comes from Alf Davis from Bank Sadler. Please go ahead.

12 Alf Davis: Hi there, Hamish. Hamish, I m specifically interested in the ongoing value of the Euro with reference to value of Euro Sterling, and a view we were getting was that the, to some degree the Euro was being actually artificially depressed in terms of its value by the continuation of debt problems in Europe and the pending election in Spain. But with this bailout that s happened in Greece perhaps not being completely convincing, that was continuing to keep the Euro at a depressed value, or is certainly at least a factor in terms of its value globally. And you haven t mentioned this in your presentation, and I wonder what sort of impact you think those ongoing problems are impacting the value of the Euro and how much of a factor that is moving forwards. Hamish Pepper: It s a really good question and, in fact, probably my discussion is somewhat a reflection of the broader market in the sense that you re right. I mean, Greece is still an issue. They re in a programme which is unsustainable I think, you know, we re happy to say that and that at some point in the future it will need, you know, Greece is likely to need a restructuring of its debt, so this issue is still there. I think what s happened, and obviously there are implications, as you mentioned, for other peripheral European countries which might be, you know, that might have some degree of similarity. So I think that issue is very much still there, but what s happened over the past month is that the market has been completely taken away from, you know, the issues around sort of political risk in Europe and has had to digest and come to a view on something which perhaps it hadn t expected to, which was the sort of material slowing of growth in China and the sort of associated financial market volatility. It wouldn t surprise me at all for us to move back to show a greater degree of consideration over the political sort of dynamic in Europe, but for now I think this is a really good example of where the market can sort of only concentrate on a few things or maybe just one thing at once. In terms of our view on sort of Euro Sterling, I think it s definitely still a factor in terms of our view and I think it probably comes through in the sense that there should be a premium there and despite the recent agreement that Greece has come to with its creditors, as I mentioned, we think that there are issues around the sustainability of the programme. So in terms of the risk premium that should be built into the

13 Euro, we don t really feel as if that s materially changed, despite the fact that there s been this progress, at least from a medium-term point of view. But probably the more important driver of Euro weakness we think over the remainder of the year is going to be what we see from the ECB. We think that they are on the cusp of doing something more and something that could be a lot more and what the likely impact of that will be, will be to suppress yields in the Euro area, not just sort of for the next two to three years that I mentioned but start to suppress those yields further out the yield curve. And all of that s going to be in response to, you know, firstly the growth risks that China represents, but also, and perhaps more importantly in the near-term, is the inflation risk. So we ve been watching very carefully where market measures of inflation expectations in the Euro area have been trading over the past month and they ve been firstly volatile, but they ve also moved at sometimes, at some points substantially lower. So if we look at a very popular measure of, and this is essentially a measure of the ECBs credibility, you know, how well can they anchor inflation to their sort of close to 2% target this five year ahead, five year breakeven inflation rate, it s sort of market inflation expectations for the five years forward. That fell from somewhere around 1.8 to 1.9% at the beginning of July all the way down to 1.6% just a few weeks ago. Now, that s the kind of level that we saw when the ECB began their expanded asset purchase programme, the public sector purchase programme, so we think they re very worried about that. They re worried about losing their credibility, and in amongst all of this I think there is still a residual worry about Greece and about the periphery generally in terms of, that would be sort of the worst case scenario for those issues to come back and to be a drag on confidence at a time where you re also dealing with this exogenous event in China and the downward pressure that that s putting on inflation.

14 So, all in all, I think we think the risk premium is still there and should be there. We don t see it moving out any time soon, being priced out, and in many ways it encourages our view that the ECB do need to do more and that should be another catalyst for Euro weakness, we think. Alf Davis: Thanks, Hamish. Operator: The next question comes from Brian Hannon from EQS. Please go ahead. Brian Hannon Good morning, Hamish. A very targeted question: cable during the fourth quarter, I think you say at the end of the third quarter is 1.52 and I think your fourth quarter end is 1.47, but if you have any insight on how you think that will pan out throughout October and November that would be very useful. Hamish Pepper: Sure, yes. I mean, I think our call is even more aggressive than that actually, Brian. I think we re 1.44 in cable. Brian Hannon: 1.44, right, okay. Hamish Pepper: Yes, by year end. But regardless, it s aggressive. It s an aggressive call and I think, you know, what we re expecting to see for us to be right on this is we ll begin this week. I think it will begin with the Bank of England starting to show much more concern around firstly what s happening domestically in terms of the fact that inflation remains very low and there s all of these downside risks that I mentioned going forward, largely driven by sort of government related factors you could say. But at the same time the US will emerge and hopefully will prove our analysis right that, you know, China is something which, sure, is a problem to particular countries, particularly those in Asia and to a degree

15 Europe and the UK, but actually there s a lot of domestic momentum in the US which should be driving, and this is where we come back to, you know, monetary policy is not everything. So, for example, you know, if it s the case that your central bank is refusing to acknowledge what s happening in the economy, the economy can still drive sort of currency appreciation itself. So things like returns to capital will move higher if the economy is doing well, which we expect the US to do. So a lot of people have been concentrating a lot on the change in our Fed call from September to March and there s been a lot of focus generally on the way in which the market has pushed out its expectations of when the Fed will begin to normalise. And I think, you know, it is important to have that discussion and think about it, but what s also important is all of the other drivers of a currency beyond monetary policy and I think that s what we re going to learn in the second half of, sorry, in the final quarter of this year, will be that the US, as it improves, as the economy continues to gain momentum, you will see more and more capital in the world want to move into US assets. That s essentially what we re saying here, is that the US is attractive before you even worry about sort of volatility in those returns or volatility generally. Just in terms of your return to capital is going to look much better in the US than it will, for example, in the UK, in Europe, in Japan. Then on top of that, if you do have some concerns over volatility, all of our analysis suggests that you will get the smallest amount of volatility in those returns in the US. So that s the kind of dynamic that we need to see take place over the remainder of the year. And of course there are risks; you know, the risk is that we do see a slowing in momentum in the US economy. Now, we haven t really seen that to date, despite, you know, a lot of focus on the US labour market report on Friday, but at the end of the day I think I ve already mentioned on this call a few times there s actually very, very little job growth required in the US in order to keep seeing the unemployment rate fall. It s something around that 100,000 jobs per month mark and of course we had a lot more than that in the most recent report and the average looks even better, somewhere around double that over the past three months. So I think there s still the momentum in the US economy. There s still inflation being generated. There s all the drivers of confidence there that are still playing out.

16 In the UK I think you do see, I mean, I personally see a lot more downside risk to the outlook, particularly if we just go back to that sort of composition of growth that we re seeing at the moment in the UK which is one largely driven by consumption and investment. The consumption side is a little worrying in the sense that some of the way that that consumption in the UK is being funded is through households just saving, so they re essentially running down the saving that they have or they are, they re accumulating debt. Now, that s fine if you then move on to a growth environment which is positive and therefore, you know, they continue to feel good about doing that and, in fact, in some cases they can then, you know, repay some of that debt or indeed start to save again. The problem that that creates is if that kind of environment doesn t happen, that you don t see better growth outcomes going forward, that perhaps there are some issues, whether it s around the drag in fiscal policy or the referendum, and so on and so forth. So I think that s, you know, one of the big differences in the outlooks is for me around the risks I suppose, the distribution of risks, and I see the distribution of risks for the UK to be more skewed to the downside and I think the distribution of risks to the US are to the upside. I think the market is about as sort of dovish as they can be on the Fed at the moment. It s hard to see them being any more dovish there, so I feel like the risk is actually we see some kind of repricing there which is very supportive for the Dollar. Brian Hannon So, I mean, because it s quite a big move between end of quarter three and end of quarter four in your forecast, I mean, so you think it s going to accelerate pretty quickly towards that once we hit that quarter? Hamish Pepper: I think so. I mean, there s a lot that will happen between now and year end I think. Central banks are on the cusp of I think having a real response to China. Those that are vulnerable to some degree, and I would put the Bank of England in that basket obviously, you know, the ECB is the one that we ve been talking about more perhaps so I think, you know, that s where we re going to find new information between now and year end. Of course we ve got Fed meetings in amongst all of that.

17 Of course there s the September meeting next week which had been for so long the one that we d thought would be, would mark the point of them starting to raise rates. Of course we don t think that now, but that s a huge amount of information we ll get in terms of the degree to which they re worried about China; we think that generally they won t be. And then of course we ll hear from them again, at least twice before the end of the year, and what we would expect to see is at least by the December meeting them starting to condition the market for higher rates, for example. On the Bank of England side of the equation, I think what we would probably what we re probably going to see there is very little change in this kind of cautious approach which has emerged recently. Let s see what Kristin Forbes is going to speak on Friday, so obviously the day after the Bank of England meeting, so we ll get a lot of information this week. But we ll continue to get more information going forward and I think by the end of the year we ll get a good picture of where the two economies stand, where the two central banks stand, and I really do think that you ll have You ll end the year with a very cautious Bank of England, an economy in the UK which is still struggling to generate inflation. I mean, we think headline inflation, for example, at the end of the year will still be probably sub.5% so very, very low rates of inflation. Of course it will start to pick up next year, but that s the dynamic that you ll see and observe at the end of the year. A cautious monetary policy committee, these downside risks that I mentioned, you know, even closer to being materialised, and I think that will sit in stark contrast to what we re observing in the US. Brian Hannon: Okay, lovely. Thank you very much. Hamish Pepper: No worries. Operator: We have no further questions, Hamish.

18 Hamish Pepper: Great. Well, thanks very much, Seb, and thanks, everybody, for dialling in. That was an excellent call. I really enjoyed the Q&A at the end. Please feel free to reach out to me directly, if you like. If there s a question you wanted to ask and perhaps didn t want to ask it in front of others, or indeed if it just comes to you after the call, please reach out or to your relevant sales coverage. Have a good month, and we ll speak again in early October. All the best.