Blain's Morning Porridge - Trains, Missiles, Europe.. and other things that'll wreck Monday
Blain’s Morning Porridge – April 10th 2017
“Don’t threaten me with a dead fish….”
I am not happy this Morning. I know you want to read about markets, but I want to have someone judicially executed. All I want is whoever is responsible for this morning's FUBAR on Southern trains and RailTrack to be shot. At least a couple of times… Entirely reasonable I think.
Problems modernising Waterloo means the contract I entered into when I bought a monsterously expensive ticket from Southern Trains is considered fulfilled on their side when they dump me and millions of other passengers in Woking. Find your own way to London.
No announcements at the station - just a harassed guard on the train trying to make it sound normal. Then a comedy moment when the train from Woking to London pulls into the station and doesn’t stop.
Who is the government Rail czar? There is an Oktober revolution coming his/her way. Who'd have though Jeremy Corbyn becomes prime minister because of Theresa May's government's incompetence... ?
Yeah… I need someone to blame.. and that’s what government is for. Sort it.
Away from my fury... short comment because I am very late.
What are the major drivers of the market pre-Easter?
First, its going to be thin ahead of the long Easter weekend holiday. Loads on people taking time out for school holidays. That’s a danger sign.
Second is the market shrugging off Friday's weaker than expected US payrolls – lots of folk writing sage articles about it being a one-off, a sampling error, and likely to be reversed next month. Add in Trump's recent muscle flexing. Again, the market shrugged off Friday's missile strikes on Syria. (I am thinking we should pay more attention to the carrier battle group loitering with intent off Korea.)
The US consensus seems to be nothing has really changed – which sounds more than a little like complacency. I’m minded the US stock markets feel overvalued, the indications are we’re entering another fallow period of growth, yet markets are happy to believe we’re still on the uptick on the hope the Trump Jump will actually deliver growth, jobs and tax reform. Be cautious – US upside is a massive ask.
One thing that is changing is the mood re Trump. I detect a definite rehabilitation under way – de-emphasise the lunatic fringe, a realistic charm offensive (illustrated by this piece from the FT: https://www.ft.com/content/943e322a-178a-11e7-9c35-0dd2cb31823a?segmentId=dad1f597-235e-ad3a-0308-e2b71c2f4d71 last week), and also a reassessment by the thinking part of the market along the lines of: “Trump is a long-term market feature – get used to it.”
The other big factor to think about is Europe and the ECB.
Lots of pundits have been worrying the ECB is going to go “hikey” on us – unwinding monetary policy and ZIRP. They cite growth across Europe, growing discontent from the Germanic faction, and the strength of some economies – witness German numbers today. Time for a European taper tantrum?
Relax. Listen to what Draghi was saying last week: "from today's standpoint, we do not see cause to deviate".
What he means is the following:
Growth is apparent, but not yet entrenched deeply enough to justify changes in policy.
Europe needs to see broad recovery across many sectors, (and by implication countries), before changing policy.
Deflation is less of a threat, but inflation remains neutral and has not reached a level where policy change is required.
Inflation has been due to factors like food and energy, not changed fundamentals. As he said, it is: "not yet at a stage where inflation dynamics can be self-sustaining without monetary policy support."
Bank profitability might be impacted by monetary policy, but the ECB is aware and says get over it!
In other words.. stop worrying about an imminent change in ECB policy until the “dynamics” change more substantially. Instead, keep worrying about Greece, France, Italian banks, German elections and all the usual stuff.
Finally, sounds like issues for Barclays this morning with CEO Jes Staley under investigation for trying to trace down a whistleblower. This is serious. Its pretty devastating stuff, especially at a bank with a reputation, shall we say, for some practices re libor-rigging and capital raising that put it a bit close to the wind on ocassion. I hear there is already a book being made when Mr Staley gets to do a perp-walk courtesy of the SFO.
Watch this space..
Out of time and very late..
Fastnet Race Charity: http://www.sail4cancer.org/fastnet-2017-bill-blain
Bill Blain