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Tuesday, 17 October 2017

On sanguine markets, Swiss holes and good Greek news

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Anthony Peters has a relatively positive look at Tuesday.

I had suggested yesterday morning that if markets were to trade down in the aftermath of the Paris terrorist attacks, that one should trade the other way. I also assumed that weakness in Asia had had more to do with Friday’s trading pattern in Europe and the US and with the soft Japanese Q3 GDP release than it did with Friday night’s horror in the French capital.

In the event, there was little chance of bargain hunting. Although markets in Europe did in fact open cautiously softer, it didn’t last long and we ended up going through a very stable, albeit low volume day. Nobody wanted to be caught shorting the market at the same time as aggressive buying might have looked slightly out of place.

Other than tourism related risks with a French flavour – Accor, Air France and the likes – there were no systemic losers on the day and by the time Europe had handed over to the US and they had had their day, the Dow closed 1.38% higher and the SA&P 1.49%.

Oil was also a tad firmer – WTI closed on Friday at US$40.74 pbb and on Monday at 41.74 – but one dollar either way means nothing and anybody who tries to argue this morning that the increase back to where the stuff had closed on Thursday (US$41.75) had anything to do with Paris has either no knowledge of trading, is a complete idiot or is struggling to fill column inches after a day on which the Paris attacks had no influence whatsoever on global markets.

Swissie fallout

I spoke to one Swiss CIO yesterday for whom year-end can now not come fast enough. The SNB’s shock removal of the currency cap on January 14th still has all his foreign currency holdings deeply under water and with next to no return on his Swiss franc bond holdings and the stock market index off by a couple of percentage points, he is facing a negative total return year. The now fully expected Fed tightening in December is barely going to make things better for him and so, it would seem, the end of year with its overall mark to market is all he has left to look forward to.

He is not alone – the whole of the Swiss asset management community was ambushed by the National Bank in January and it has been fighting with one hand tied behind its back ever since. Why, they wonder, couldn’t the cap have been lifted before the end of the year rather than after it, thus destroying the whole of 2015’s performance just two weeks into the new year? I suppose, had they done it in December, wiping out 2014’s hard earned returns, the cry would have gone up that they should have done it at the beginning of the new accounting period, thus offering people a chance to catch up. Damned if you do, damned if you don’t… 

Well, in six weeks the argument as to whether 2014 or 2015 would have been the better time will be history but that will not take away a government bond curve which offers negative returns through to 15 years and even the long 30 year bond only pays just over ½%.

Fed fig leaf

Moving back to the US where we are waiting to see whether the Fed has unzipped and stripped off the coward suit and hung it back in the closet. The failure to tighten policy in September on the back of gyrations in over-bulled and over-leveraged Chinese stock markets was not its finest hour and it knows that it has been found out. It is now tasked with tightening in December without having to admit that it missed its chance three months earlier and that it is even further behind the curve than it already was. Thus, today’s CPI figures for October will be important, if not in reaching the decision to tighten but at least by way of window dressing.

A core figure of 2% – that’s CPI ex-food and energy – would definitely seal the deal although I suspect anything above 1.8% can be treated by the FOMC as being within the general trend and within a rounding difference. A result of 1.7% or below – which is highly unlikely – makes the job harder.

French fight

Meanwhile, President Francois “Qui? Moi?” Hollande has obviously been reading his Napoleon who wrote “The art of war is a simple art; everything is in the performance. There is nothing vague in it; everything in it is common sense; ideology does not enter into it.” In unilaterally banging on about war, Hollande is stretching NATO, the EU treaties and Schengen as well as his own Socialist credentials.

I would love to be a fly on the wall in a meeting between him and the Jeremysaurus who still seems to believe that ISIS, ISIL, IS or Daesh, depending on how one wants to term this murderous bunch of fanatics, could be pacified over a cup of tea and some ginger biscuits. Anyone care to contribute to whip-round for his air ticket? Enough!

A ray of light in Greece

My thanks to my old chum, Ian McBride at Tullett’s for pointing out to me that there are some positive developments to be reported from Greece where the most recent pictures were once again of anti-austerity protesters throwing stones in the streets.

It would appear that a form of preliminary agreement has been reached between the Athens government and its creditors with respect to home foreclosure reforms which will release a payment of some €2bn to pay down state arrears as well as a further €10bn in funds aimed at recapitalising the four main banks, all of which are technically bankrupt.

The IMF, the “holdout” creditor, also seems to be more happy now and could well take a leading role again in formally restructuring Greece’s debt profile.

Friendly

Finally, France plays England at Wembley tonight at that other, funny kind of football where they have a round ball and where they wear shorts which are as long as skirts and where they keep falling over when an opponent sneezes.

The FA has apparently requested that the English fans join in singing the Marseillaise (or the “Marseillais” as one BBC reporter called it last night). It is supposedly only a friendly – do we do friendlies against France? – so I should also like to wish “les bleus” a warm welcome to our shores but, being English, I’m afraid I still hope they lose…..

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