The lady on BBC business news opened this morning with “Welcome to the new trading week” while forgetting to mention that it is also a new month, a new quarter and, for Japan, a new year.
On November 21 last my editor at IFR titled my column “Politics is the new economics”, which seemed highly appropriate in the context of the recent elevation of Donald Trump to the next term as president and the dumping by the RPR of Nicolas Sarkozy as candidate for the upcoming elections in France.
Four and a half months later politics remains centre stage. Since then the Dutch have proven that the extreme right is not about to take over the world. And despite all the column inches and TV reporters on the streets of French towns up and down the country, Emmanuel Macron has absolutely nothing to fear from Marine Le Pen. And yet politics has a stronger handle on our day-to-day activities than at any point since the turn of the century.
Understanding political machinations and their influence on economics is hard enough but if the debate has to take account of post-colonial political correctness as well, things become even more fraught. Over the weekend we have been inundated with views on the summary sacking of South Africa’s finance minister Pravin Gordhan along with a string of colleagues by President Jacob Zuma. All manner of explanations have been proffered but the one word I did not see in anything I might have read on the subject was “Mugabe”.
Zuma’s “reasoning” that Gordhan was in London trying to plan a foreign-backed coup aimed at removing him from office sound uncannily like Mugabe. Gordhan’s successor, Malusi Gigaba, has about the same qualifications for running the economy as the average wildebeest but he’s already spouting off about redistribution of wealth – anyone hear echoes of Mugabe? And it appears as though Zuma is preparing to bring his wife into the front row of South African politics too. The moment a word about renaming the country “Azania” or whatever appears, I’d suggest selling the last holding one might have in the country – would the last foreign investor pulling out please be kind enough switch off the lights?
“It’ll never happen!” I hear some there cry. It might not be the same ones who felt the same way about Venezuela, that oil-rich country in South America with all to play for and with a shining future, but happen it did. The rand has now stabilised around ZAR13.42/USD but it is hard to imagine it remaining there. Either Zuma gets his way and places his country and its natural wealth on the table as a stake in a game of power roulette or the developing civil disobedience increases, bringing down Zuma and his cohorts but leaving a vacuum that will take time to fill.
And yet there are larger fish to fry.
STERLING SCORES
The pink’un today carries an article titled “Central banks ditch euro for sterling amid bloc jitters”. This is one I doubt will be found triumphantly shared on the many ‘Remain’ Facebook pages. It opens “Central banks are dumping euros amid concerns over political instability, weak growth and the European Central bank’s negative interest rate policy – and favour sterling as a long-term, stable alternative”.
The article is based on a survey of reserve managers of 80 central banks around the globe responsible for investments amounting to US$6.5trn. There are some pretty spectacular revelations within the survey although they all need to be taken with a pinch of salt – throwing the bloc’s political travails in with the negative interest rate policy is both misleading and dangerous. No self-respecting reserve manager would want to be paying the ECB to hold his or her country’s precious money but that has, prima facie, relatively little to do with either Brexit or the rumblings of the populist right.
The popularity of sterling, still loved for the political stability of the United Kingdom, looks to be benefiting less from a love for Brexit but from the very fact that when trying to build a portfolio with the lowest possible correlation risk, the exit of the UK from the EU adds to its diversification potential.
LIGHT WORK
On Saturday morning I visited a friend who happens to be the COO of the British Lighting Industry Association. Most of his work has been as a liaison officer between the industry and government, both at a national and at an EU level. As such he is a fervent Remainer. He was most tickled when on Friday he was elected, despite Brexit, to the presidency of the EU-wide industry convocation, a role he had thought would be barred to him following the referendum of last June.
Peter has spent most of the past years since he moved from manufacturing lighting to designing it to helping to manage industry standards, racing between his offices and Brussels and Westminster and he probably has more first-hand knowledge about the workings and failings of the system and its bureaucracy than anyone I have personal access to.
We spoke at length about Brexit and the practicalities of its implementation and I hope I’m not speaking out of school when I report that he either hopes or believes that the final outcome will be very different from the one which is being touted in either the political or the business press. His scenario would appear to be that we might well end up with a sort of associate membership and effectively a two-speed Europe, which would ultimately permit other countries, whether currently members or not, to redefine their relationship to the bloc without being faced with the binary in/out conundrum.
That none of this is yet on the table is, so we agreed, no great surprise as nobody has ever successfully entered any negotiation by announcing in advance what compromise they are willing to settle for. It was most interesting to spend time with somebody who is at the real coalface rather than just punting around in financial assets and believing that because they have more zeroes in their investment portfolio, that they have better knowledge of the facts.
QUARTER PAST
So off we go into the new quarter with US payrolls on Friday. It’s not as though the non-farm is the only relevant release of the month but it remains the key to pricing the US markets and, to a fair extent, those of the rest of the industrialised world. Yet, before we come to that bridge, Wednesday brings the minutes of the last FOMC meeting.
I think we all have a pretty good handle on what the Fed says and why so no surprises should be expected. The ongoing question as to whether there are to be two or three more rate moves by the Fed this year will certainly not be answered and, frankly, there’s not much more that markets really want to know. Payrolls will tell us more than the minutes.
Have a good week.