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Thursday, 19 October 2017

On the weak week and Eurosclerosis

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Anthony Peters sums up the mixed up markets and muddled EU motives.

Most of the market participants, or at least those who actually manage risk (be that on the buy-side or the sell-side) will be happy to see the back end of this week. It has again been horribly volatile but at least US equities had the common decency to take the inevitable on the chin and to fall by 2½% during the first four days of trading. These losses would have looked a lot less severe, had stock markets not rallied on Friday in the aftermath of the jobs report and the drop in the pre-NFP level of the Dow to last night’s close is no more than 0.68%.

Treasury yields, on the other hand, have been creeping higher for a good few weeks. In mid-October the US 10-year was still below 2%. By the time of the NFP last Friday it had risen to 2.23% and repriced itself at 2.32% in the immediate aftermath. The result is that it is, a week later, within no more than a basis point from where it settled last Friday. The front end of the curve has also been stable with the 2-year note spending the entire week so far hovering within a single basis point of its post-NFP sell-off level. Oh to be trading those beautifully logical US markets!

Europe remains a dog’s breakfast with bits doing better and other bits going nowhere in hurry. Q3 GDP figures out this morning were quite encouraging with France turning in +0.3% QoQ and +1.2% YoY and Germany also 0.3% QoQ but +1.8% YoY. Not stellar growth but still not all that bad. However, the eurozone is made up of a lot more than just of Germany and France and based on what Saint Mario had to say yesterday about down-side risks to growth, he’s more concerned about the rest of the union than he is for the heavyweights. He really is the absolute master of verbal easing.

I note that after Macy’s drubbing on Wednesday, it was Nordstrom’s turn yesterday. The same story, the same downward revision of guidance but if you thought there was pre-Thanksgiving discounting in Macy’s stock price, you should have seen poor old Nordstrom – long-time purveyor of smalls to the Peters household – which saw its own shares trade down 20% in after hours. The official close was US$63.47 but it traded as low as US$51.20 in the dark.

On the Union and Process

The UK’s relationship with the EU has been on everybody’s lips this week and I keep getting asked what my view on the subject is. So I decided to climb off the fence and…then to get straight back on it again. There is no question that I am a proper, full-blooded European, both culturally and genetically. But believing in a unified Europe does not mean that one has to blindly endorse in its entirety and without reflection the way in which it has so far developed.

“Eurosclerosis” is not a new term but it reflects an organisation which is less concerned with where it is going and more focused on how it is going to get there. This is what I have been meaning when I have recently referred to it being hamstrung by “process”. I recently heard the head of the UK’s steel industry association explain that the US can have anti-dumping measures in place in 45 days. In the EU, on the other hand, the “investigation” process will take at least one whole year.

A good 20 years ago I observed that the only way the EEC, as it then was, knew how to deal with structural failings was to bury them under ever more new legislation until the old errors were forgotten. The Union was built with no brakes and no reverse, on the assumption that all would be for the best of all worlds in an ever closer union.

Thus, I have no gripe with Dave “you may now call me David again” Cameron and with his campaign to permit individual countries to act in accordance with their cultural differences and not to assume that one size fits all actually fits all and, more to the point, if it doesn’t, to squeeze the country and its people into shape until they do. This would require an agreement on communal objectives but leave it to the individual countries to find their own way of getting there. In other words, central objectives but individual processes which would possible break much of the grid-lock of Eurosclerosis.

This is where I trip up – I like Cameron’s objectives but I am not sure about the process. Grrr! Hence I am happily perched back on my fence where I suspect I shall calmly remain until the day of the referendum.

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Alas, it is that time of the week again and all that remains of for me to wish you and yours a happy and peaceful week-end. Who care about it being Friday the 13th? What is really scary is that it’s only two weeks to Thanksgiving and Christmas Day is six weeks today. How about buying a mini ground to air missile system to shoot down the neighbours’ kids’ radio controlled drone on Christmas morning? Amazon, here I came…..

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