Now, if ever, is a time when we have to rise above the white noise of the media and do something for which we are supposedly very well paid and that is to think for ourselves.
When Theresa May became leader of the Conservative party and successor to the Coward Cameron in July last year I opined that it was time to have a prime minister who would lead from the front and speak based on her convictions.
LEAKS
A great example of that was delivered yesterday when she stepped out of the front door of 10 Downing Street and coolly announced to the assembled media that the people of the UK would be called upon to once again cast their ballots in a general election on June 8. Watching the BBC’s political editor Laura Kuenssberg floundering around outside Number 10 without a script was of immeasurable entertainment value and displayed clearly what happens when news is not leaked left, right and centre.
I had received a query from a trader in Zurich shortly before the news broke who had heard a whisper that May was about to announce her resignation due to health reasons, which I immediately bounced off the head of a Gilts desk in London who in turn had heard nothing to that effect. Shortly thereafter I got a call from my infernal sister who simply said “General election on June 8…” before hanging up and my Gilts man came back to me a few minutes later with “Wow!”.
At the time of the shock announcement Gilts had already traded below 1% so they in fact, at 1.01%, closed lower than they had been pre-announcement and the FTSE had been down by over 80 points in sympathy with the rest of the European equity markets, only to fall a further 100 points through the day as sterling rallied 1.3% to a six-month high.
The list of FTSE 100 losers reads like a who’s who of dollar earners with the commodity guys at the top of the list. BHP Billiton -5.59%, Glencore -5.58%, Anglo American -5.13%, BP -3.39%, Johnson Matthey -3.81%, and Rio Tinto -3.78% were the six biggest losers. In the context of the CAC 40 having lost 1.59%, the Dax 0.9% and the MIB 1.67% on the day, the FTSE’s losses of 2.46%, currency adjusted, don’t look particularly out of line.
Back to Downing Street. May has repeatedly assured the country that she was not contemplating a snap election and now she has done it. Has she been lying to the country or has she simply kept her thinking to herself? It was General Sir Arthur Wellesley, the 1st Duke of Wellington who, when asked on the morning of the battle of Waterloo what his plan was answered “If I thought my hair knew what my head was thinking, I’d cut it off”.
I make no bones about being of the Conservative persuasion and also not of the dislike I developed for my former MP and our past prime minister David Cameron and my liking in equal measure for May and yesterday she once again showed how to govern without pandering to the press at every corner.
THISTLES
The answer to many of the questions was presented by her arch nemesis, Nicola Sturgeon, First Minister of Scotland, who nine months ago howled that May had no mandate to negotiate Brexit and is now howling equally loudly about her going off to seek one.
May did not want to go to the polls but since every single leader of every single party on the opposition benches has made it clear that they will do everything and anything they can to thwart the progress of the country’s exit from the EU she really had no choice. If one does not want to fight a war on two fronts, one has to engineer a fight on one front first and then on the other. May and her government cannot effectively deal with the EU if she has an opposition sticking needles in her back. Not only that but with a majority in parliament of only 17 seats, she was also subject to the vagaries of the unruly line of anti-EU hard Brexiteers in her own party.
Polls over the weekend that showed the Tories to have a lead of 20 percentage points over Labour might not have driven the decision to go to the people in a “back me or sack me” election but it will certainly have strengthened the case. These elections are not a second referendum but it is a government that has been mandated by the electorate to take the country out of the EU asking to be handed the power to do so properly.
I had the pleasure of hosting Easter Sunday lunch and one of my guests was a senior British businessman and fervent Remainer. He once again beat the drum about the “knuckle-dragging racists” who had voted to leave until I pointed out that the referendum was swung by the 2% the remain campaign lost to the leave camp and that Remainers should ask themselves why and how they lost that marginal 2%. While expounding the loss of opportunity that British university students will suffer without access to the Erasmus programme he failed to see the problems caused to primary school children in rural areas where former seasonal farm workers have now settled and where classes in small village schools have half of their numbers unable to speak English. This not about going to university abroad, this is perceived by local parents as their children being held back and never achieving even basic educational standards. The referendum was lost by the elite not listening to what the grass roots were telling them. Those parents are not “knuckle-dragging racists”. I digress.
By dissolving parliament and calling an election May might be gambling but every election is a gamble. The rise in sterling reflects the world initially giving her a strong “thumbs up”, the fall in equity prices is not a parochial event and the response of the dollar earners is no more than normal.
Meanwhile, somewhere over the pond, Goldman Sachs reported and missed estimates by a mile, as did Johnson & Johnson. Goldman stock took a 4.72% hit and J&J fell by 3.1%. Expressed in index points, Goldies accounted for 73.07 points and J&J for 26.70 of index losses so together the made up 99.77 of the overall drop of 113.64 on the day. I had suggested yesterday morning that Goldman wasn’t the canary in the coalmine but Bank of America was, and that the focus should be on the SME sector. And behold, it was right there in the machine room of the American economy that great advances were made. Investors should take heart from that and for a moment forget the millionaires’ playground at 150 Broadway.
GALLUS
The latest Ifop poll in France shows Macron up 50bp to 23.5% and Melenchon down 50bp to 19%. Le Pen (22.5%) and Fillon (19.5%) are stable. I seem to recall a rule blacking out opinion polls 48 hours before the polling booths open so believe as much as you like and hang on the your beliefs.
Risk markets remain weak but maybe not weak enough to force anybody to sell into them in a big way while also not yet calling for dip buying. It may be a good time to withdraw to the sidelines and to do a bit of watching.