A few years ago the novelist Robert Harris published a book called The Fear Index, which graphically described how a supercomputer caused the financial crash to end all financial crashes, by betting against the markets and making its own financial decisions based on the data its algorithms picked up.
Just after midnight last Friday we saw something horrifyingly similar, when a “flash crash” caused the value of the pound to plummet from US$1.26 to $1.1491, an astonishing 8 per cent in a mere 240 seconds. At one stage it plunged as low as $1.13 in trading in Hong Kong and Singapore, and although it staged a recovery of sorts, hedge funds, investors and other speculators are now “shorting” sterling in volumes never seen before.
So far they have been doing remarkably well out of it. But they are not finished yet. According to market analysts, the hedgies are looking for more.
Sterling has now fallen by 14 per cent since late May, before the Brexit jitters set in, and by 19 per cent since the start of the year, which is actually more than Harold Wilson’s famous “pound in your pocket” devaluation back in 1967, which has haunted the Labour Party ever since. Wilson blamed “the gnomes of Zurich” for selling the pound, but now it’s the hedgies – or maybe the robots. A far more formidable enemy.
The Bank of England (BoE) has begun its own investigation into what happened in the Asian markets, and will probably find it was a combination of algorithms, hedgies, lack of liquidity and the fact that it was triggered during an Asian “graveyard shift”, when US and European traders were not at their desks over the weekend.
It doesn’t matter, because the damage is done and sterling, after a long period of stability, has become the hunted currency. To the chagrin of British officials, who have had great fun jeering at France and its poor economic record for the past few years, the British economy has now slipped to sixth from fifth place in the world. That is not good news for the new prime minister, Theresa May, as she sets out to prove that the British economy is big and vigorous enough to stand on its own feet and doesn’t need to be in the European single market.
The question now is – how much further can sterling fall? There are not many bulls of sterling around and this week it started off just about as nervously as last week. The pound was a little above $1.24 yesterday morning and a little below it in the afternoon.
Goldman Sachs’ forecast, made before the flash crash, is for sterling to sink to $1.20; Rabobank has now revised its forecast down to $1.18 by mid-2017; and HSBC is even gloomier, forecasting that the pound could go all the way down to $1.10 by the end of next year.
Other analysts are talking about something even below that. Over the weekend a number of forecasters mentioned the dreaded word “parity”, with the dollar, something we have not seen since 1985, when an inadvertent statement from Mrs Thatcher’s spokesman, Bernard Ingham, suggested that parity was government policy. It turned out that Ingham, who was very good at politics but hopeless at economics, had misunderstood his briefing and parity lasted only a matter of moments.
I think talk of parity is absurd. The British economy, for the moment at least, is still the best performing in Europe and has so far shrugged off the threat even of a “hard” Brexit, which is what we are now heading for. A weak pound is good for exports and British exporters have actually been responding. The BoE’s swift action to cut interest rates and supply liquidity has so far worked in keeping consumer spending up, and the services sector is doing its bit.
Nonetheless it will be a long, long time before sterling gets back to its pre-Brexit level, if it ever does. News from the IMF annual meeting in Washington last week was that Mrs May's message to the Conservative Party conference of a relatively hard Brexit went down badly. "You would be amazed how many policymakers and bankers were still of the opinion that Britain would not go through with it [leaving the EU]," wrote The Daily Telegraph financial columnist Jeremy Warner, who was at the meeting. "In markets, there are growing fears that the heart will be allowed to rule the head, leading to an irrational and economically harmful outcome."
Mrs May’s first serious economic remarks have sent all the wrong signals. The flash crash has shown just how dangerous that can be. Sterling has some rough times ahead before Brexit finally happens.
Ivan Fallon is a former business editor of The Sunday Times and the author of Black Horse Ride: The Inside Story of Lloyds and the Financial Crisis
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What is Bitcoin?
Bitcoin is the most popular virtual currency in the world. It was created in 2009 as a new way of paying for things that would not be subject to central banks that are capable of devaluing currency. A Bitcoin itself is essentially a line of computer code. It's signed digitally when it goes from one owner to another. There are sustainability concerns around the cryptocurrency, which stem from the process of "mining" that is central to its existence.
The "miners" use computers to make complex calculations that verify transactions in Bitcoin. This uses a tremendous amount of energy via computers and server farms all over the world, which has given rise to concerns about the amount of fossil fuel-dependent electricity used to power the computers.
Indoor cricket in a nutshell
Indoor Cricket World Cup - Sep 16-20, Insportz, Dubai
16 Indoor cricket matches are 16 overs per side
8 There are eight players per team
9 There have been nine Indoor Cricket World Cups for men. Australia have won every one.
5 Five runs are deducted from the score when a wickets falls
4 Batsmen bat in pairs, facing four overs per partnership
Scoring In indoor cricket, runs are scored by way of both physical and bonus runs. Physical runs are scored by both batsmen completing a run from one crease to the other. Bonus runs are scored when the ball hits a net in different zones, but only when at least one physical run is score.
Zones
A Front net, behind the striker and wicketkeeper: 0 runs
B Side nets, between the striker and halfway down the pitch: 1 run
C Side nets between halfway and the bowlers end: 2 runs
D Back net: 4 runs on the bounce, 6 runs on the full
Israel Palestine on Swedish TV 1958-1989
Director: Goran Hugo Olsson
Rating: 5/5
POSSIBLE ENGLAND EURO 2020 SQUAD
Goalkeepers: Jordan Pickford, Nick Pope, Dean Henderson.
Defenders: Trent Alexander-Arnold, Kieran Trippier, Joe Gomez, John Stones, Harry Maguire, Tyrone Mings, Ben Chilwell, Fabian Delph.
Midfielders: Declan Rice, Harry Winks, Jordan Henderson, Ross Barkley, Mason Mount, Alex Oxlade-Chamberlain.
Forwards: Harry Kane, Raheem Sterling, Marcus Rashford, Jadon Sancho, Tammy Abraham, Callum Hudson-Odoi.
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RESULTS
5pm: Maiden (PA) Dh80,000 1,600m
Winner: Omania, Saif Al Balushi (jockey), Ibrahim Al Hadhrami (trainer)
5.30pm: Conditions (PA) Dh85,000 1,600m
Winner: Brehaan, Richard Mullen, Ana Mendez
6pm: Handicap (TB) Dh100,000 1,600m
Winner: Craving, Connor Beasley, Simon Crisford
6.30pm: The President’s Cup Prep (PA) Dh100,000 2,200m
Winner: Rmmas, Tadhg O’Shea, Jean de Roualle
7pm: Wathba Stallions Cup (PA) Dh70,000 1,200m
Winner: Dahess D’Arabie, Connor Beasley, Helal Al Alawi
7.30pm: Handicap (PA) Dh80,000 1,400m
Winner: Fertile De Croate, Sam Hitchcott, Ibrahim Aseel
Ashes 2019 schedule
August 1-5: First Test, Edgbaston
August 14-18: Second Test, Lord's
August 22-26: Third Test, Headingley
September 4-8: Fourth Test, Old Trafford
September 12-16: Fifth Test, Oval
DEADPOOL & WOLVERINE
Starring: Ryan Reynolds, Hugh Jackman, Emma Corrin
Director: Shawn Levy
Rating: 3/5
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THE POPE'S ITINERARY
Sunday, February 3, 2019 - Rome to Abu Dhabi
1pm: departure by plane from Rome / Fiumicino to Abu Dhabi
10pm: arrival at Abu Dhabi Presidential Airport
Monday, February 4
12pm: welcome ceremony at the main entrance of the Presidential Palace
12.20pm: visit Abu Dhabi Crown Prince at Presidential Palace
5pm: private meeting with Muslim Council of Elders at Sheikh Zayed Grand Mosque
6.10pm: Inter-religious in the Founder's Memorial
Tuesday, February 5 - Abu Dhabi to Rome
9.15am: private visit to undisclosed cathedral
10.30am: public mass at Zayed Sports City – with a homily by Pope Francis
12.40pm: farewell at Abu Dhabi Presidential Airport
1pm: departure by plane to Rome
5pm: arrival at the Rome / Ciampino International Airport