Wednesday’s FOMC meeting sort of came and went. Not much had been expected and once the fog of war cleared and one had cut through the white noise from analysts desperate to fill their media slots, Madame Yellen told us what we should have expected, that there are too many moving parts for the Fed to contemplate saying anything meaningful or doing anything drastic.
It would be fatuous to suggest that the market moves yesterday were in response to anything that might have come out of the Fed; they just did the same bit of “up a bit, down a bit” as they have been doing for the past week or so. As one market participant put it to me, the Fed meeting did little more than to give people a different excuse why they were going to do nothing meaningful.
Focus today will be on the Bank of England and Governor Mark “The Magician” Carney. The actual MPC meeting will in all probability be just about as exciting as its US counterpart’s was yesterday with no shift in either rates or in the asset purchase programme but it is followed by the release of the bank’s quarterly inflation report and its subsequent presentation by the governor. This is his big moment, the once-a-quarter event when all the media report on his utterances and hence one of the few occasions when he can connect directly with the country outside of the Square Mile.
Since his rather inglorious venture into the political arena and his dire warnings that a vote to leave the EU would push the country into a cauldron of fire and brimstone and bring about the end of the world as we know it, he has been very quiet and even I, never a great fan, have had to concede that he has played a pretty bad hand of cards very well indeed. The QIR might be the bank’s benchmark publication and its forecasts might, despite its famously liberal use of fan charts, have been way off the mark for most of the time since the 2007/2008 crisis but it is still a piece to be taken seriously. It tells us what the bank’s army of economists are thinking and what base material the MPC will be working to.
Recent bank lending numbers point towards a slowing in consumption, still the main driver of the domestic economy, which in turn leads to the impression that some of the uncertainty that Brexit brings with it is beginning to take root in households’ psyche. That said, there is little that comes between British consumers and things they neither need nor can afford.
Wednesday saw the government’s Brexit bill sail though parliament with a thumping majority, giving the prime minister the go-ahead to trigger Article 50 on schedule. The famous 50 amendments that the SNP were going to table went nowhere, which might be good for them as Brussels had now made it clear that Nicola Sturgeon’s totally unfounded and downright stupid dream of Scotland remaining within the single market has no chance of success.
In fact, the tide is beginning to turn in some corners. It has been reported that one of the City’s leading lobby groups, TheCityUK, has swung from remain to Brexit. Its core message, previously “Brexit risks damaging UK-based financial and related professional services through uncertainty, reduced market access and a loss of influence over trading conditions.” has changed to “TheCityUK is a strong believer in the potential opportunities that the UK’s departure from the European Union will offer”.
In a rather roundabout way it acknowledges that the union has become leaden-footed and totally obsessed with process to the detriment of objective. The “opportunities” that keep being held up by Brexit supporters of all hues seem to focus on that point. And most of this is not without reason. Globalisation in general and the single market in particular have widened the horizons for those people at the top, opening opportunities to gain fame and fortune while for simple citizens in Hicksville, the place remains the same and the horizon never moves. Thus the gap between the broad populus and the elite has widened and not narrowed. The backlash comes from the elite not appreciating why and how they are doing so well while at the same time treating those left behind with gay disdain. On that basis is it understandable why many see the Brexit vote and the Trump election as the beginning and not as the end of the counter-revolution. TheCityUK might well have concluded that the UK is ahead of the curve and that it would be careless to waste the first-mover advantage.
It will be interesting to hear whether Carney is going to take the same approach and focus on where this country could be going rather than where it might have gone.
There are reports this morning of a spat between President Trump and Australian Prime Minister Malcolm Turnbull. When it comes to America’s staunch allies, special relationship or no special relationship, none has been more staunch than Australia. The disagreement , which is reported to have ended with one of them slamming down the phone, had to do with refugee policy.
The big question facing the world at the moment is whether trade relationships can be divorced from political relationships. Received wisdom is that they can’t but both Brexit and the Trump administration are presenting us with that very tricky conundrum to which a workable answer either has to be found or we really do risk sinking into economic decline and possibly slump. Oh no! We’ve already had the Trump Jump and the Trump Dump – do we now have to start working around the concept of a Trump Slump?
Finally, and back to facts, not alternative ones, Deutsche Bank reported another thumping loss for Q4 at €1.9 bn. Just over a year ago Deutsche was still being hailed as Europe’s Goldman Sachs. I guess Goldmans will now be quite happy not have become America’s Deutsche Bank. Although the outlook for DB is still questionable, and the stock opened down just over 2%, at €18.665, it is still well up on its September low of €10.55.
There remains a possibility that the asset management business might be put up for sale and I understand that there are some buyers out there with pretty deep pockets, one of whom I met last week. I recall the possibility of taking down Deutsche Asset Management having been a topic upon which we briefly touched. The speed with which the conversation moved on left me with the impression that my conversation partner did not want to be further drawn on the subject, which can mean yes as much as it does no. Discretion being the greater part of valour, I left it at that. I guess the best I can add here is “watch this space…”