The Morning Porridge - A pratfall of Clowns
Blain’s Morning Porridge October 7th 2016
““Well,” she said.. “It’s the clowns””
It’s a little bit Funboy Three this morning.
What does last night’s algo-driven Sterling fat finger moment tell us? As the pound momentarily crashed 6 big figures – in fact Bloomberg reports a low trade at $1.1378! - it seems to confirm incipient fear and uncertainty on where the UK is headed. Brexit over? Don’t believe it for a moment.
Of course, some folk will say last night’s spike is just another example of fat-fingers in a thin market and means nothing. I doubt it. Fat fingers tend to follow the narrative.
Will the UK narrative continue to get worse? At a dinner with Europe’s hard-men enforcers last night (Juncker, Barnier, et al), Hollande was calling for aggressive Brexit negotiations to discourage other nations from “such foolishness” – I’d think he’ll get a shock if his own countrymen got the vote..
Oh they do? Next year! Swings and roundabouts indeed.
I don’t suppose it helps that the great and the good of the UK’s exit-driven right-wing loonies were punching each other out on the floor of the European parliament. Nice. Perhaps that’s the right message to send Europe.. “we’re so frecking crazy we’re beating ourselves up”. The Russians must be wetting themselves in anticipation of a divided Europe sans the Parachute Regiment as they ponder real estate on their (current) borders.
And, we had a surreal moment on the desk y’day as we wondered what it means for the UK as the slightly more elected right-wing lunatics threaten to take back the asylum known as monetary and fiscal policy. As we digested speeches, news flow, moving gilts and stocks, and considered the Leaderene’s latest comments on beating up bankers, up flashed a story about a US school menaced by a pratfall (yes, that is the collective noun) of clowns*!
How apt I thought…
Apparently, the school sent an automated message to parent’s phones: “Hi this is Fairhope middle school calling with an important message,” the cheerful voice began. “Please rest assured that your students are safe and the school is taking necessary precautions due to rumored clown activity. The school perimeter is secured and the police are on campus.”
If that doesn’t scare the bejesus out you, then you don’t suffer from coulrophobia.
Should we be concerned that Phil “Spreadsheet” Hammond is earnestly talking about taking back the economy for the people? The hints the Treasury is going to start a serious bout of fiscal experimentation.. with taxes and some proper spending plans … are there. Yesterday they declared against further QE.
I suspect someone has been booked a one-way family ticket back to Canada…
It makes you think.
If the UK switches off QE because of an unforeseen outbreak of common sense among politicians.. what hope for elsewhere? What if Germans suddenly see the light? Or Italians decide.. “well, actually, it’s our country… and if we want to borrow and spend.. that’s our problem.. (till we can convince the ECB it’s theirs!)” Or the Spanish finally decide a government might be a good thing – especially one that promises jobs for the kids..
No wonder bunds are paying interest again…
And… if Theresa May has actually decided she’s going to run the UK – unlike her predecessor who thought it a much better idea to let his chums in the City and Bond Street “just get on with it” – then it’s absolutely essential everyone subscribes to the Daily Torygraph... As someone famous once said.. “I read the Torygraph so I know what the enemy is thinking..”
Meanwhile, back on Planet Earth… It’s US Payrolls later today. A number around 172k is expected but the market could be active. The 10-year has risen 15bp this week to 1.75% meaning a weak or strong print could trigger a deal of volatility. Wonderful…
Elsewhere I read on BBerg Norway is set to pull some $15 bln from its SWF next year to cover a looming budget hole. That’s a massive 1.6% of the fund ... not exactly something to panic about. But if even the Blonde Arabs are having to dip into their piggybank earlier than expected to cover the economic costs of low oil prices on state revenues… should we be surprised the other oil producers are in serious serious trouble?
There is some $890 bln in the Norwegian oil fund. Money carefully put away for rainy days from the state’s oil revenues.
Putting my Scottish hat on for a moment…and yes, I admit I find wee Nicola Krankie rather marvellous... imagine what Scotland would look like today if Maggie Thatcher hadn’t spent all our oil dosh on sacking the miners?
(I look forward to many predictably angry calls on the topic, and no doubt one of the UKIP nutters on the bond desk opposite will go apoplectic and want to punch me out.. Please! Bring it on..)
Thanks for all the positive comments on my latest bank commentary yesterday… Interesting to see some of the big investment banks are now saying its time to go overweight European banks on the broad basis they have touched bottom and are coming back.
Our argument is a little more sophisticated – some of the banks are damn good.. and have been pulled lower by the poor ones which have failed to evolve.
If you want a copy of the note.. email me.
Bill Blain
Capital Markets / Alternative Assets
*Interestingly, other collective nouns for clowns are a “Shudder” or an “Alle