The dollar is getting a safe haven rallyette on the news from the UK
|Outlook:
Today we get Oct retail sales, expected up 0.5% but of less importance because of the Nov-Dec surge on everyone’s mind. Macys has already reported good earnings and today brings Walmart and Nordstrom.
We also get the usual Thursday jobless claims, the Empire and Philly Fed business reports, and a report by the bank supervisor at the Fed, Quarles, to the Senate.
The dollar is getting a safe haven rallyette on the news from the UK. Every few minutes you have to go check the wires for an update and every few minutes there is fresh news or some new perspective. It’s a fast-moving crisis that we should all have foreseen. We mistakenly thought the pound had a real chance yesterday when the Cabinet accepted the deal, so the resignations today were a shock. And the shocks will just keep coming for the simple reason that there is no good solution, no good alternative ideas, no time left, and no way out. May could propose a new referendum (despite denying any such thing all along) or May could resign, but no matter what comes next is this drama, a negotiated Brexit is almost certainly a dead duck. For the UK to exit the EU without a deal is a Shock of the highest order, worse than the referendum result and with the same outcome—a sterling crash to the lowest low and possibly beyond. Bloomberg puts the post-referendum crash low at 1.1840. But we remember the true lowest low at about 1.0250 from Feb 1985, when we were lucky enough to be in London and went shopping.
A post-mortem is going to show two things—mismanagement and a toxic political environment down to a few players, just as Churchill had only a few players seeking a deal with Hitler to the very last minute. In this case it’s Boris Johnson and a few others. The split in the ruling Tory party that necessitated May getting votes from a N. Ireland party is a disgrace. Nobody knows what could have been done differently, exactly, but therein lies the dysfunctionality. It’s certainly not the charm or capabilities of the opposition Labour leader, who is a solid dud.
We are now back to feeling totally negative about the outlook for sterling. And with Italy standing its ground, the euro will be contaminated, too. A no-deal Brexit is just as unfavorable, economically, to the eurozone as to Britain. The old saw has it “nobody ever went broke shorting the pound,” but that is not always true. It probably is true this time.
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