Back from a weekend built around the splendid wedding of Mr and Mrs PC Jones, both rising stars at HSBC. Having, on the day, met many of their bright and talented peers, I can confirm that the future is in good hands. I’m not sure I can say the same for the present.
The Brexit Punch and Judy show is heating up. Last week we were told by Her Majesty’s Treasury that a vote to leave would see residential house prices, the nation’s principal piggy bank, drop by 8% over two years. This weekend we were told by self-same Treasury that price growth would decline by 10%. To me that means that instead of growing by, say, 4% per annum, prices will rise only by 3.6% and not that they will fall by 10%. Scaremongering is trumps.
The alarmism is becoming ever more shrill and it appears that, irrespective, a confused and uncertain electorate will eventually be cowed into voting Remain. So be it, but please spare us the triumphalism. The Austrian presidential election, which we will only know the final result of today after the postal votes have been counted, should, no matter who wins, serve as a clear signal that something is going wrong in the current European model and that a spot of introspection might be called for.
The fact that I can’t see this happening will more than anything else motivate me to vote to leave.
The growth of the anonymous governing monster, which is fearful of facing its people because of the risk of not garnering ringing endorsements for the results it has decided are the ones that are good for the “sans-culottes”, is worrying.
A Brexit would endanger global growth? Could somebody please explain to me how? Chancellor of the Exchequer George Osborne tells us that a Brexit would trigger a recession of between 2.5% and 6% in the first year. That’s a pretty wide margin which should indicate that whoever wrote the algorithm hasn’t got a clue what result they were looking for, other than that it had to be negative.
Bank of Japan Governor Kuroda joined the bunch when he warned of the risks of a Brexit vote. But I have yet to hear a single voice proposing what would and could be done to smooth the path in the unlikely event that the outcome of the June 23rd referendum should be to leave.
One month today it will all be decided and what then? The big middle class dinner party conversation is all about what the uncertainty is doing to the stock market. Well, the FTSE is down 1.38%, year to date (as of the close on Friday). The CaC40, however, is down 6.11%, the Dax down 7.7% and the MIB is off by 16.84%. The Swiss aren’t members of the EU and therefore have no stake in the Brexit fight and their own SMI index has lost 9.31% since the beginning of the year. Over the same period the pound has lost 1.4% against the dollar but over the past three months it has gained 3.63%.
At the end of the day, there are many, many moving parts. Actually, in conversation with investors and traders alike, one might gain the impression that there are simply too many moving parts as all and sundry try to work out at what level rising oil prices stop being good news and begin to be bad news again or whether the relatively good performance by UK equities is because of or despite the referendum and, of course, ultimately, does “data dependency” make Fed tightening more or less likely?
High levels of uncertainty in a market deprived of the tools required to provide sensible levels of liquidity can only enhance volatility and with it accelerate the vicious cycle.
Senior players with grey hair continue to fear what might happen if markets hit the skids – the authorities still seem to be busily convincing themselves that the huge pool of cheap liquidity vitiated the collapse in asset prices in 2008/2009. I, for one, am not at all convinced that they are right.
First the grub…
Onward and upward to AXA and the surprise announcement of its decision to cease holding tobacco-related stock and bonds.
The US$2bn-equivalent in holdings it plans to sell in a week or two will barely hit the market and I expect a very grown up and gradual disposal of the positions it holds. The psychological effect will, however, surely be significant and although investors should not be panicked into dumping their existing holdings, they might be advised to desist from adding to positions in the short term. The world remains yield hungry and tobacco still pays handsomely. As Bertold Brecht said, first the grub, then the morality.
Finally, Bayer has this morning released the terms of its unsolicited bid for Monsanto by way of a US$62bn cash offer. Leverage should rise to 4.5x which is in line with Bayer’s current rating.
Goldman reckons spreads will drift 10bp wider into the low 80s on the back of a need to raise US$25bn in the markets. US$25bn barely rates as a jumbo issue any longer; I remember when US$500m was regarded as special and when the joint leads established “war rooms” to co-ordinate the syndication. How times change.
A good week to all – a full five-day week ahead, but the US and UK are both going into a three-day weeken