This country’s stocks, bonds and currency just had one of the worst months this century. One trader sees an opportunity.

With US markets shut for Labor Day, the investing world on Monday was focused on Europe’s troubles. The euro EURUSD
briefly dipped below 99 cents, and the British pound fell to the lowest level since 1985, as traders wonder just how Europe will keep the lights on this winter.

As Liz Truss takes the reigns of what’s now the world’s number-six economy behind India, UK assets are particularly unloved. According to Deutsche Bank, the combined performance of UK bonds, equities and the pound in August was one of the worst this century. The going isn’t great for UK households, either — data from supermarket chain Asda finds household spending power plummeted 18% year-over-year in July.

So a contrarian call comes from Brent Donnelly, president of Spectra Markets, who sees opportunity in the British pound.

Donnelly, who also had trading roles at HSBC, Citi and Nomura, argues that bleak headlines — like the one that appeared on MarketWatch, that a strategist thinks the UK may be headed for an International Monetary Fund rescue — are the kinds that appear at bottoms , not tops. And it’s not only a contrarian story.

Fiscal expansion, he argues, is probably bullish for the pound, not bearish. He said the UK story now is like the concerns that emerged when Democrats swept Congress. “The theory then was ‘more deficits = bad for currency’ but the reality was ‘loose fiscal leads to tight monetary and currency rips higher.’ Could markets be making the same mistake twice?”

He adds that huge decouplings of rates and FX tend to be short-lived for G-10 countries. “High rates are a beacon that will attract capital at the slightest whiff of stabilization in GBP,” he argues.

Granted, the macro story is “horrendous” but it could be priced in at this juncture, Donnelly says. And the technical picture he says is bullish.

Because he doesn’t like the idea of ​​being short the dollar, he went long a basket of the pound vs. the dollar GBPUSD,
the yen GBPJPY
and the Canadian dollar GBPCAD.
He’s long at $1.1518, 161.84 yen and C$1.5133, taking profits at $1.1839, 165.99 yen and C$1.5684, and stop losses at $1.1374, 159.29 yen and C$1.4884.

The markets

US stock futures were higher as traders returned from the Labor Day break. Oil futures CL
declined. The yield on the 10-year Treasury BX:TMUBMUSD10Y
rose 5 basis points to 3.25%.

The buzz

The OPEC+ grouping on Monday agreed on a production cut of 100,000 barrels per day.

Liz Truss was set to become prime minister of the UK after winning the Conservative party election. Truss reportedly will issue an energy price cap in days.

Natural-gas prices in Europe surged on Monday after the Nord Stream 1 pipeline was cut off by Russia, though some gains were reversed on Tuesday.

The ISM services index for August is set for release.

agreed to buy Signify Health SGFY
in an $8 billion deal. Digital World Acquisition Company shares slumped after Reuters reported the company buying Donald Trump’s media company hasn’t won shareholder support for a one-year extension.

The chief financial officer of Bed Bath & Beyond BBBY,
Gustavo Arnal, died after jumping from the iconic Jenga Building.

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