Wednesday, 26 September 2018

Pondering Christmas presents? How about some Visa bonds

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  • Peters 475px June 2014

Peters begins his shopping

A late and abbreviated version this morning as I have cautiously departed my Oxfordshire hermitage for a day in the Big Smoke and for the Teenage Scribblers’ annual Christmas lunch.

I combined this trip with my annual pilgrimage to New Covent Garden Market in order to procure my Christmas tree. That process took a tad longer than anticipated but I am pretty satisfied with the outcome.

The Teenage Scribblers are no more than a few hardy City characters who, like myself, try to express their views on the daily lives and loves of the bond market in columns and comments of varying length and varying seriousness.

Although we all look at the world from different angles, it is clear that our central themes tend to be similar. The main one has to have been, throughout 2015, that if the monetary authorities can’t work out what’s going on, how should we be able to? They do, bless them, keep on pitching curve balls at us.

Today it is the turn of the People’s Bank of China which has, as widely anticipated, let the yuan drift further south against the US dollar by setting the midpoint of the trading range at 6.4358/$, its lowest in four and half years.

Inclusion in the SDR or no inclusion in the SDR, a weak yuan is a fillip to exporters and a stab in the heart for US exporters who are facing a rising Greenback both on the back of the impending Fed tightening as well as deliberate-looking policies by the USB main trading partners (China, Japan and Europe) to push their own currencies lower and lower.

In truth, there should be no moaning as Japan and Germany rose to prominence not by a weak currency but by hard work and by accurately gauging demand and fashion.

All manufacturers in all countries have to contend with the ebb and flow of exchange rates but the decline of Detritus, for example, had nothing to do with the level of the dollar. It was a simple function of a poor product, badly made and of completely missing the shift in consumer behaviour and expectations.

There is no reason why the US economy should come unstuck under pressure of a strong dollar. I trust the FOMC will keep this in mind going into its meeting next week.

Over here in Europe, the battle goes on with the Bundesbank’s Jens Weidmann continuing to fight his rearguard action against the ECB becoming systemically over-accommodative.

His latest utterings on QE are in the direction that excessive application ends up blurring the demarcation between monetary and fiscal policy and we all know why he thinks that.

But it’s not only him – it is quite clear that the ECB’s remit does not include fiscal policy. The ongoing issue, and one which has not been in the headlights of late, remains that the ECB can apply eurozone-wide monetary policy but that that there is still no way of backing it up with equally eurozone-wide fiscal policy.

2015 has, by the way, brought little new in the realm of fiscal union so the fatal weakness in the single currency area remains as well defined now as it has been since the Maastricht Treaty first missed the point.

What we do have, though, is talk of a unified border force to patrol the outer perimeter of the Schengen area.

You may recall my observation a few weeks ago that the south-eastern border of France is being patrolled by Greeks. I can’t quite see how central command would work but even in a different uniform the Greeks remain Greeks and the French remain French. Sounds to me like another big idea which will give a few eurocrats fat salaries and even fatter pensions and achieve dick on a stick.

Market-wise, prices have been going up and down but not necessarily in that order. The smart US$16bn Visa Corp deal on Wednesday, which had north of US$50bn of subscriptions, turned into a bit of a dog with some very poor aftermarket price action.

I guess it’s mid December and the Street, already stressed by capital constraints, slammed the door in sellers’ faces. I still like the deal and would be tempted to pick up loose bonds which dealers are, whether they want to or not, turning their noses up at.

Alas, it’s that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. It’s wonderful to be surrounded by people who know how the global economy should be run, who should be the next President of the USA and whether either Lionel Messi or Cristiano Ronaldo is the world’s best player but who are incapable of deciding what to buy the better-half (should that be three-quarters?) for Christmas. I know the risks of getting it wrong are nearly as high as those of getting hit in US$20,000,000 of Gencore bonds but the rewards for getting it right are so much higher. Courage, mon braves!

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