Switch it off
September 4, 2019

Blain's Morning Porridge

Our swanky lifts blare out constant BBC News Opinion. Overheard this morning: "Switch it off...we're bored.."

There is other stuff going on. Trade continues to dominate the flows – when will we get the next meeting between the US and China? Not that we have particularly high expectations anything will happen.. especially when Donald was tweeting about a deal now will be tough, but if the Chinese drag it into his second term it will be even more painful!

Signals of a slowing US economy in terms of the Manufacturing ISM below 50 (which is a bad sign confirming trade wars bite and is causing a contraction of production) drove a bond frenzy yesterday. (Bad for stocks.) A record US$30 billion day in terms of new US corporate issuance, scream the headlines. Despite the volume, corporate bond spreads remain tight to treasuries. Meanwhile, we're expecting over €20 billion of new bonds issued in Europe this week. More junk bonds into negative yield territory!

How long will it last? Friday's US employment number isn't half-as-important as folk think, but it's still a critical barometer that could upset expectations short-term. The European Central Bank has been sending mixed signals about what to expect at next week's meeting. The market expects a new asset purchase plan – and we've had ECB board members speculating maybe not. Gosh! The toddler that is the market will have an almighty tantrum if it doesn't get new toys!

Away from markets, Italy looks calmer (better not say anything lest I get accused of the pot calling the kettle dirty). It also looks like Hong Kong's leader Carrie Lam is set to withdraw the extradition bill that triggered the current discontent. We've seen this kind of thing before – you can't push smoke back into the bottle once its been opened! However, it might be a short term buy-signal, or to exit names like HSBC.

But let us blather about the pachyderm in the room…I reckon you can pretty much forget about Brexit this year, maybe next. After yesterday's masterclass in parliamentary chaos, the UK now faces an election and whoever wins will either have to overturn legislation forbidding a "no-deal" before dealing yet again with Brussels, or the victors will lead the country into a divisive second referendum which will probably result in decades of bitterness. It feels the UK is going nowhere – but it's what now passes as political process.

The Tories should have been well placed to win an election: able to do a constituency by constituency deal with the Brexit Party, ridding themselves of their Remoaners, and with a clear policy platform to Brexit. But they did themselves no electoral favours yesterday. They made dreadful, but avoidable political mistakes. What the electorate will remember is a poor performance from Boris, but, critically, Jacob Rees-Mogg's contemptuous sneering posture.

He may be a constitutional genius, but that's now what voters want. Like so many of the current runt crop of politicians, Mogg has absolutely no feel for the common people – and that's the nub of who will win. Who can best express and seize the imagination of the UK electorate is critical. The Brits are sick of petty politics and looking for change. Boris was on course, but I wonder if he's blown it?

In short, lots more still to go wrong here in the UK. Anything is pure speculation. It could go something like this:

No-deal legislation passes this week or early next;

Election called for November;

Europe agrees extension to January 2021;

New Tories win majority in election…overturn no-deal legislation;

New negotiation with Brussels goes nowhere – despite the new mandate for Boris;

No-deal exit January.

Or it might be more like this:

Labour loses election with small minority – but forms government supported by Liberal Democrats and Scottish National Party;

Lib Dems promised a new referendum on the deal proposed by Brussels – accept exit deal or stay;

SNP promised a new independence referendum;

Labour government fractures between Brexiteers and Remainers;

No Brexit;

Brexit remains focus of UK politics till next election.

Who knows…who cares anymore?

Out of time, and going to do some proper work instead…

Bill Blain

Shard Capital





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Blain's Morning Porridge

Our swanky lifts blare out constant BBC News Opinion. Overheard this morning: "Switch it off...we're bored.."

There is other stuff going on. Trade continues to dominate the flows – when will we get the next meeting between the US and China? Not that we have particularly high expectations anything will happen.. especially when Donald was tweeting about a deal now will be tough, but if the Chinese drag it into his second term it will be even more painful!

Signals of a slowing US economy in terms of the Manufacturing ISM below 50 (which is a bad sign confirming trade wars bite and is causing a contraction of production) drove a bond frenzy yesterday. (Bad for stocks.) A record US$30 billion day in terms of new US corporate issuance, scream the headlines. Despite the volume, corporate bond spreads remain tight to treasuries. Meanwhile, we're expecting over €20 billion of new bonds issued in Europe this week. More junk bonds into negative yield territory!

How long will it last? Friday's US employment number isn't half-as-important as folk think, but it's still a critical barometer that could upset expectations short-term. The European Central Bank has been sending mixed signals about what to expect at next week's meeting. The market expects a new asset purchase plan – and we've had ECB board members speculating maybe not. Gosh! The toddler that is the market will have an almighty tantrum if it doesn't get new toys!

Away from markets, Italy looks calmer (better not say anything lest I get accused of the pot calling the kettle dirty). It also looks like Hong Kong's leader Carrie Lam is set to withdraw the extradition bill that triggered the current discontent. We've seen this kind of thing before – you can't push smoke back into the bottle once its been opened! However, it might be a short term buy-signal, or to exit names like HSBC.

But let us blather about the pachyderm in the room…I reckon you can pretty much forget about Brexit this year, maybe next. After yesterday's masterclass in parliamentary chaos, the UK now faces an election and whoever wins will either have to overturn legislation forbidding a "no-deal" before dealing yet again with Brussels, or the victors will lead the country into a divisive second referendum which will probably result in decades of bitterness. It feels the UK is going nowhere – but it's what now passes as political process.

The Tories should have been well placed to win an election: able to do a constituency by constituency deal with the Brexit Party, ridding themselves of their Remoaners, and with a clear policy platform to Brexit. But they did themselves no electoral favours yesterday. They made dreadful, but avoidable political mistakes. What the electorate will remember is a poor performance from Boris, but, critically, Jacob Rees-Mogg's contemptuous sneering posture.

He may be a constitutional genius, but that's now what voters want. Like so many of the current runt crop of politicians, Mogg has absolutely no feel for the common people – and that's the nub of who will win. Who can best express and seize the imagination of the UK electorate is critical. The Brits are sick of petty politics and looking for change. Boris was on course, but I wonder if he's blown it?

In short, lots more still to go wrong here in the UK. Anything is pure speculation. It could go something like this:

No-deal legislation passes this week or early next;

Election called for November;

Europe agrees extension to January 2021;

New Tories win majority in election…overturn no-deal legislation;

New negotiation with Brussels goes nowhere – despite the new mandate for Boris;

No-deal exit January.

Or it might be more like this:

Labour loses election with small minority – but forms government supported by Liberal Democrats and Scottish National Party;

Lib Dems promised a new referendum on the deal proposed by Brussels – accept exit deal or stay;

SNP promised a new independence referendum;

Labour government fractures between Brexiteers and Remainers;

No Brexit;

Brexit remains focus of UK politics till next election.

Who knows…who cares anymore?

Out of time, and going to do some proper work instead…

Bill Blain

Shard Capital



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