In France, Young Macron has done as predicted and, in the form of his one-year-old political party En Marche!, swept all before him.
This morning it is hard to distinguish the political from the business pages in the newspapers for, although the debate on what the implications might be for Brexit and how hard or soft it might turn out to be there are as yet few opinions being expressed, which might give the markets a pointer.
Friday’s knee-jerk on sterling might make sense whereas the strong rally in the stock markets – the FTSE 100 up by 1.04%, the FTSE 250 by 0.13% and the FTSE 350 by 0.88% - might seem counterintuitive but there is much in the valuation of equities that boggles the mind. Why should a dog’s breakfast of an election be any different?
JERRY-MANDERING
At least, so investors will be thinking, it’s not Jeremy Corbyn who has promised the moon to all and sundry while promising to tax corporations until their pips squeak. I guess he hasn’t acknowledged that globalisation means that pretty much any company can up sticks and move itself and its tax base wherever it likes. I attended a small event close to home yesterday where I sat for a while with a local software entrepreneur who laconically commented that he could have his company registered in Ireland at the stroke of a pen.
Uncertainty reigns supreme but the biscuit was taken by a reporter from an international business magazine who phoned a senior executive of a blockchain start-up and asked him what impact the UK election result might have on the value of bitcoin. Don’t ask me where this guy got his degree in journalism but whoever said that there is no such thing as a stupid question, just a stupid answer had not reckoned with this fellow. A propos bitcoin, it is up over US$100 over the weekend and is now getting close to breaking the US$3,000.00 level. It closed the year at US$963.50. There is no sound reason why this should not go on.
Those who cry “Madness!” might have a point but they are probably the same supposedly rational people who are still comfortable holding stocks with the CAC 40 up 9% year to date and the DAX up by 11.62% while OATs are at the low yield for the year at 0.637% and Bunds not far off at 0.258%. People in glass houses shouldn’t throw stones.
There was on great fly in the market ointment in the form of the Nasdaq, which got hosed on Friday, closing down 1.8% at 6,207.92. It had in fact traded as low as 6,137.68 in heavy trading although, put into context, the correction wasn’t anything like as fierce. It was only on April 25, six weeks ago, that it closed above 6,000 for the first time and even with Friday’s big dump it still closed more or less where it had begun the month of June. The reasons for the tumble are slightly unclear although it could be argued that Apple’s rather uninspiring product launch – its smart speaker seems to be a modest follower and not a barnstorming leader – points to the tech gizmo market having reached another one of its periodic plateaus and that therefore imputed earnings growth might be a tad on the optimistic side. That said, risk assets continue to enjoy a tailwind and I’d be most surprised if there were any follow-on selling; it’s significantly more likely that the relative value hunters will be out first thing in the New York morning.
BREATHER
Experienced traders still buy on rumour and sell on fact as well as knowing not to jump on top of any market movement that has been driven by politics. Thus Europe is slated to take a breather and to consolidate today, which would make sense ahead of Wednesday’s FOMC meeting with the inevitable 25bp increase in US rates.
Although this has been signalled pretty clearly for weeks, there are always those who either don’t believe it or who simply disregard the shifts in the cost of funding. They are not completely mad; more recent FOMC meeting minutes make it quite clear that the tightening cycle remains data dependent and that, should there be any wobble in the US growth trajectory, the committee reserves the right to halt or even reverse the process and that balance sheet reduction can easily go the same way.
Oil continues to linger in no man’s land as it tries to digest what we really should have all already known, that with the falling cost of shale oil extraction, Opec’s limitation strategy is doomed to failure. Markets were supposedly disappointed that Opec hadn’t implemented deeper cuts at its last meeting but the simple fact remains that the harder it tries to manipulate the oil price to the upside, the easier it becomes for shale oil producers to make a decent living. In trying to price the US shale industry into oblivion, Opec has effectively signed its own death warrant. And if there is anybody left out there who isn’t certain about that, all they need to do is to look for the non-existent price panic among the rising political tensions in the Middle East.
Finally, French labour laws are about to be tested again. Who can remember the case of Airgas being acquired by Air Liquide in the aftermath of which an M&A MD of SocGen was charged with insider trading? In the US and in the UK insider traders get the book thrown at them; in France criminal charges for insider trading are rare. The officer in question, apart from denying the charges, is suing SocGen for salary and lost bonus. In every job in which I worked, the bonus was contractually discretionary. I know of enough cases where women sued for bonuses but these cases were usually settled out of court in order to avoid discrimination cases. I shall be following this one.
Have a good week.