If the only escape from endless Brexit talk is to watch 22 millionaires kicking a pigskin, then I suppose I’ll have to stick with Brexit. Let’s face it, it’s nearly over….or at least the referendum part of it is.
The fallout on the other side of Friday morning, irrespective of the outcome, has hardly been touched upon. I suppose it was once again up to Wolfgang Schäuble, Germany’s blunt and outspoken finance minister, to nail it when he suggested that Europe will never be the same again, Brexit or Bremain.
I can’t see Marine Le Pen’s call for a similar open debate and referendum in France – please not “Frexit” – being heeded but it does beg the question whether the near axiomatic 150-year old left/right division in European politics might have had its day. It could be argued that many of the dominant problems of slow growth, austerity and immigration are the result of the traditional left having been, and I’m not joking, too successful in achieving the founding fathers’ – Marxists and Fabians alike - objective of improving the lot of the broad proletariat.
The rise of the protest movements, whether of the environmental or the xenophobic hue, possibly points to the established right/left division running out of steam. Sure, we can aspire to expanded social support and more benefits but we simply can’t afford it any more. In fact, all we have to do is to look at our debt/GDP levels to conclude that we’re busily bankrupting ourselves by simply trying to maintain what we already have. I digress.
Brarmageddon
The list of heavyweights who have stood up and turned their threats of a “Brarmageddon” – sorry, I couldn’t resist that one – into gentle pleas to the British people to play ball and to stay with the project is impressive. The imperious Werner Herzog’s film Kaspar Hauser was subtitled “Every man for himself and God against all”; that’s what it feels like from this wet and cold island.
I received a call yesterday from a chap at the Bloomberg news service who wondered whether I’d be working through the night. As I have largely withdrawn from the cut and thrust of day-to-day trading I see little sense, although I will be attending an all-night party which will be held mark the occasion. There will, however, be plenty of bods manning desks on what will surely prove to be a bit of a “Gap Day”.
Trading round the clock when there is plenty of liquidity is one thing but trying to get things done sensibly when everybody is one way can only lead to markets gapping up and down with traders and investors caught with positions they might find hard to get into and then out of again as and when they want to either take a profit or cut a loss. I used to have institutional clients who were banned from trading for given periods ahead of and after key releases. I’m sure there will be lots of rulings on trading come Friday morning. I do, however, have to attend on Friday morning an emergency meeting of the asset allocation committee of an investment management group that I sit on in the event of an “Out” vote.
There is, without a doubt, a pile of cash sitting on the sidelines and with quarter end just a week away, there will have to be a rush to snuggle up to the index. Some of this will surely be behind the rally of the past few days. I know it’s not a popular way of thinking but for purpose of index huggers and benchmark jockeys holding cash is risky and to them the “risk-off” trade is to buy the market. To them “risk-on” is to stray away from benchmark neutrality; whether to the long or to the short side is irrelevant.
Y2K
I have heard voices suggest that the pumped up fears of everything which has been threatened in terms of what might befall markets on Friday by way of pestilence and death could well be likened to another Millennium Bug. Younger readers might not have been around when billions were spent at the back end of the 90s when it was feared that computers which wrote dates as dd/mm/yy would miss the jump to the year 2000 and reset to 1900. The “Y2K” issue had markets in a tizz until New Year came and went without a hitch. Whether the smooth transition into the new millennium happened because of or despite the panic remains open to debate although, to be frank, I’m not sure whether anybody gives a toss any longer,
The big news this morning is that oil, both Brent and WTI, is back above US$50 per barrel. I hear the argument that the fading probability of Britain voting to leave the EU is relieving pressures that a decision to leave might have on global growth. I’m sorry but haven’t we been told for the past month or so that any rise in the price of oil is only due to technical supply shortages and that, based purely on economic fundamentals, it should be closer to US$40/bbl? It is said that if you look around the table and you can’t spot the fool, that you’re the fool. If I look around a table of oil price pundits, I can rest assured that the fool is most definitely not me.
Elsewhere, we can all be happy that the ECJ has approved the ECB’s OMT, a ruling of which had been requested by the GCC. I’m sure the CEBS , the CFS and the EBA will be delighted. The FST – or EFC if you prefer – will be secured and the ECB as LLR can now continue with the LTRO as was. Any SRM such as the SGP is now safe. What a LOBS – load of….. Part of the Brexit debate surrounds the fact that in the context of the EU and its objectives the end appears to justify the means; any means.
Did anybody really believe that a ruling declaring the OMT to be in breach of the German constitution was ever going to be handed down? I did hear an American “expert” being interviewed a couple of days ago on the risks of a Trump presidency. He argued quite though not entirely convincingly that the rigidity of the US constitution would severely limit Trump’s range of actions, irrespective of the rhetoric. To all questions he replied with his faith in the power of constitution and then ended up by declaring how happy he was not be living in Europe with a “flexible constitution”. Interesting, that one and a discussion ahead of us once we have tomorrow and Sunday’s pretty significant general elections in Spain out of the way. Olé!