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Thursday, 19 October 2017

On clueless markets, hardline Carney and Belgian coins

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Anthony Peters’ take on swings, roundabouts, crime and punishment.

The great risk thermometer in the European credit markets, the iTraxx Xover index, broke back down below 300 points although it should be noted that its 15¾-point rally did start at a contract wide of 313¾ points while its closest cousin in US equities, the CBOT VIX index, which measures stock market volatility fell from 14.47 to 13.22. Talk about everybody into the pool, everybody out of the pool!

It all felt a little bit headless, although there seems to be a pervading culture of treating strong rallies as signs of considered confidence and sharp sell-offs as mindless panic. From where I’m sitting, it looked largely like mindless buying. The other great litmus test has to be of course the yield on the 10-year Bund, itself a measure of fear, which sailed through 1% like a hot knife through butter in the morning but then clawed its way back to 0.98% by the close, just a single basis point wider on the day.

Could it be that a Grexit really has now been fully discounted by markets and that it’s all over bar the shouting? Last night’s meeting between Greece, Germany and France didn’t seem to have brought with it any tangible progress. I might be wrong but this doesn’t seem to be at all like one of those many past episodes of swash-buckling brinkmanship, culminating with an agreement to let Athens off the hook if it made lots of promises, many of which have now proved to be rather hollow. It truly feels as though there is a severe lack of common ground and that the clock now simply ticking for the sake of it. In this topsy-turvy world, does that would mean that one has to sell the rumour and buy the fact?

I do like to go into a new day with some sort of idea whether I’d want to be a better buyer or seller but as at this morning, I truly don’t have a clue.

RBS, Scotch and Sturgeon

I have been scanning the papers this morning to see what Nicola Sturgeon, leader of the SNP (a Scottish CIO I know refers to her as “our Trotskyite munchkin”) has to say about Chancellor George Osborne’s announcement at the Mansion House last night that the government will begin to sell of its 61.6% stake in Royal Bank of Scotland. Estimates are that the current book-loss accruing to the government is around £7 billion which is a pretty chunky hit on a holding with a market value of £24.6 billion. Ms Sturgeon can’t be found in any paper offering to reimburse the English or Welsh tax-payers for the money they put into propping up Scotland’s national rubbish bin.

The government is putting on a brave face as it is chatters on about gradually selling out its stake into a rising market and ending up with a profit. Given the rate at which RBS is shrinking, I can’t see from where it takes that logic. Maybe Chancellor Osborne ought to give Ms Sturgeon a call and ask her whether she would like to buy us English out.

Carney crackdown

Rather unusually for the Mansion House dinner, it was the Governor of the Bank of England’s speech and not that of the Chancellor which has parochial chins wagging. Mark “The Magician” Carney made the big push to close the books on the British part in the GFC and declared that the age and culture of greed, collusion and aggression in the City of London are dead and buried and that anyone who doesn’t get that will be buried in prison cell themselves.

I wrote in a piece for the Telegraph in September 2010 “New regulations on capital and risk are game-changing events that will significantly reduce the profitability of the banks’ trading activities. On top of which, a greater proportion of those reduced earnings will have to be paid to shareholders in dividends so banks can still compete for capital with other sectors of the economy….”

The theme of the piece had been that the greed culture would naturally blow itself out over a period of time and so it appears to be. As the old guard retires to the golf courses of the Algarve on its often ill-gotten gains, a new generation is coming through which never knew the free-wheeling nineties and noughties and to whom that era is as alien as is the age of closed shops and endless strikes to car workers today.

That said, it was good to hear the Governor, himself a 12-year alumnus of Goldman Sachs, declare the war as over.

Growth and coins

In the wider world, the World Bank revised it global growth forecasts for this year from 3.0% down to 2.8%. While lowering its forecast for the US from 3.2% to 2.8%, it also increased its prediction for Europe from 1.1% to 1.5%. It reiterated Christine Lagarde’s call for the US to hold off any increase in interest rates until 2016.

Finally, I’d like to thank a friend in Belgium for having picked up the gauntlet yesterday and for having placed an order on my behalf with the Belgian Treasury for some of the commemorative €2.50 and €10.00 Waterloo coins. It’s good to have low friends in high places.

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