Sunday, 23 September 2018

On Mutti Merkel and Muppets

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Anthony Peters expects the German Chancellor to have a stern message for the new EC president.

Last night the European leaders assembled for a dinner in Brussels in order to assess and evaluate the results from the week-end’s parliamentary elections. In the event and on the back of the strong showing of Eurosceptic parties, it turned out to be more than just a jolly good slap-up with a couple of glasses of France’s finest and, more to the point, the Muppet-in-Chief, Jean-Claude Juncker, did not come out of it as anointed President of the European Commission.

To his absolute horror, the leaders of the member states, led by Mutti Merkel, had the unforgivable audacity to actually listen to what the voters are telling them and decided to hold off on rubber-stamping his appointment. According to this morning’s pink’un Merkel “blew open the race for the top Brussels job” by suggesting that a “broad tableau” of candidates should be considered.

The inference is that the leaders were uncertain how to react to the poll results. Do they simply dismiss them as part of an overall post-crisis reaction and a protest vote against incumbent governments which will fade as the economy recovers while waiting patiently for it to go away or do they respond in the expectation that there is a seismic shift happening in public sentiment which it would irresponsible to ignore?

Sure, the summer driving season is upon us and US oil prices always rally in between June and August but if we break the key resistance level and get to $105.50, oil has to be a buy through to at least US$110.00 or eve US$115.00.

Merkel might be many things but she is neither stupid not politically insensitive. Having grown up in the GDR, she can rightfully claim to have lived in a country which from 1933 to 1989 was governed by two successive administrations which suppressed opposition and which removed and imprisoned a person who openly strayed from the orthodoxy. For 56 years, leaders were appointed and not elected and those who opposed the doctrine were treated as though they were mentally ill. As a child of a dictatorship – she was born after the first of the two had fallen – there is no way that she can or will press forward without listening to the people, even if there message is unclear.

The Muppet-in-Chief, on the other hand, is behaving like a spoilt six-year-old whose chocolate has been taken away. The way in which he galvanised the Luxembourg opposition and was finally ousted from office might remind us of just how intransigent he can be and how much it takes to get through to him. I doubt that, when push comes to shove, he will not emerge as President of the Commission but he might do so with a flea firmly placed in his ear that he is a servant to and not the master of the people of the European Union. Mutti Merkel will take care of that.

Options, volatility and oil

Meanwhile, the S&P 500 made a second, back-to-back all time high last night at 1911.91 points and there is no evidence that there is a big reversal in the offing. Economics were mixed but the markets focused on the April Durable Goods Orders which were forecast to report at -0.7% but stormed in at +0.8% and on the Case-Shiller which confirmed the solid rebound in residential house prices. The rather miserable capital goods orders which might reflect a slowing in the investment in manufacturing capacity were conveniently overlooked as investors continue to focus on anything and everything which supports and justifies the direction in which the market is already going.

The fly in the ointment was provided by Credit Suisse’s research people who calculated that S&P call options are at their cheapest level in five years. Option-implied volatility is normally a good indicator of a shift in momentum as options offer the easiest and least disruptive method of expressing a view on directional expectations and a drop in the price of calls points to buying pressure decreasing. This might just be a quirk but you have three days left to sell in May and go away and to come back on St Ledger’s Day. That, incidentally, is September 13th for those who wish to do so.

Is anyone still following the oil price? Since trading as low as US$91.24 pbb in January, WTI has twice popped north of US$105.00 – once at the beginning of March and once in mid-April – although on both occasions if fell straight back to below US$100.00. It is now, for the third time, taking a run at $105.00, having closed last night at US$104.23 and technical guys would sense that failing to break a level twice is not serious and that it is the third run which counts.

Sure, the summer driving season is upon us and US oil prices always rally in between June and August but if we break the key resistance level and get to US$105.50, oil has to be a buy through to at least US$110.00 or even US$115.00.

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