Answer the Question!

Prevarication can't mask ineptitude much longer.

Yes, I know, it's Brexit again but it's either that or Trump since the market is still, at least in its collective mind, on a Mediterranean beach.

When I was at school, if I was asked by a teacher what is nine times five I doubt my answer would have been "Australia miss". So why does David Davis feel that the answer to the question "what are your plans for EU citizens remaining in the U.K. after Brexit?" is "free trade sir".

We can all accept that the U.K. Government is in a difficult position. First, there is a split over Brexit in the first place. They made a fundamental mistake in choosing a remain supporter as leader. Theresa May is conflicted, of that there can be little doubt. Since the referendum was an apolitical event where Party allegiances counted for nothing surely that is how the negotiation should have been handled.

The bravest decision Theresa May could make would be to accept that her party is not equipped to handle Brexit and appoint a team from outside politics but with a commitment to leaving the EU to handle the negotiations. Then the ratification of Parliament would be a straightforward process. Business would see such an idea as a positive and start to invest in their businesses since they could see a clear path and have representation from like-minded people. Economic activity would grow, the pound would rally and inflation would fall.

Sorry, ain't gonna happen. I blame the Mediterranean sun affecting my mind!

 

Draghi to induce a correction?

What are the chances of a hawkish speech from Mario Draghi either later today in Germany or in Jackson Hole on Friday? Yes, I agree, so how dovish is he likely to be? We know that interest rates in the Eurozone are on hold until H2 ‘18 so attention is drawn to the tapering of bond purchases. Of the three Central Bankers who have a decision to make on "extraordinary measures" it would be a surprise if Janet Yellen didn't pull the trigger first.

The Euro is very overbought by most measures. Its reaction since breaking 0.9150 versus Sterling means that there were very few stop losses and the market remains long. Any avoidance of the subject of tapering today from Sr. Draghi could see the common currency commence a correction that could last quite a while.

Sentiment indices are released today for the Eurozone. Over the past few months sentiment has remained consistent but following a fall in the data for Germany, the first fall in a while could be seen. The reason for concern is the value of the Euro which is making Eurozone exports prohibitively expensive. There is a fine line to be trod as activity picks up. German Finance Minister Wolfgang Schaeuble was quoted recently as saying he hopes the end of "cheap money" is coming to an end. Were the ECB to change its bias towards tighter monetary policy, the single currency would most likely reach 1.2500 and parity.

 

Oh Donald, turn the plane around.

President Trump appeared in Arizona yesterday at the start of an apparent re-election campaign! He spoke defiantly of his stance over the Charlottesville riots blaming the media for "giving a voice to extremism" Well since they publish what he says, that is clearly true!

He also spoke of the wall between the U.S. and Mexico and true to form made vague threats as to how it was going to be paid for. This time he warned of a Government shutdown.

Modern Day political history in the U.S. is characterized by the 1992 Clinton slogan "it's the economy stupid" and all that that has come to mean. It is time such a mantra pervaded Trumps administration before he becomes the lamest of lame ducks. The U.S. economy is growing, jobs are being created (+200k two months in succession) but inflation remains stubbornly low. It is no exaggeration to say the dollar has collapsed since January but still inflation remains benign.

A fiscal reform and economic stimulus package has been promised and if Trump has any advisors left they need to impress upon the President that the time has come for action not more meaningless rhetoric.