Mint – Blain’s Morning Porridge
As a whirlpool of boiling water has a centre point, so, all this raging circled around Defarge’s win-shop…
A dull, boring, predictable government from a dull, boring, predictable Prime Minister. Excellent!
You could not ask for better. And Theresa May’s opening podium speech as she took Downing Street struck more than a few positive notes as she sounded good about fighting injustice, positive thinking, and hinting about the Tories clear intentions to seize the middle-ground Labour voters who despair of [Labour party leader Jeremy] Corbyn. I think we can give the new UK government a tick!
Small wonder sterling bonds are bid only!
But words are cheap. Actions speak louder.
A unifying cabinet? Looks that way. Shame about [former Chancellor of the Exchequer George] Osborne. (I wonder which bank will hire him tomorrow? Has he got Goldman on his CV? Yet?) Former Justice Minister Michael Gove got his just desserts. In the absence of any credible opposition, May can pretty much do as she needs to do.
Boris [feed your constituents to the sharks] Johnson for foreign secretary? Not a problem. His role doesn’t include international trade relations – a new separate position to be run by Liam Fox. So Boris can go off around the globe doing what Boris does best: rugby tackling small children in the name of making chums and influencing people..
Perhaps the most important position is Eurosceptic David Davis in the European Union Negotiator role – the Minister for Brexit.
His Brexit credentials are clear as is his agenda: taking back control of trade policy. He sees pragmatic openings with Australia, the USA, China and India as priorities. His mantra is that single countries can negotiate faster than large 28 nations can compromise. Yet, his key role will effectively be to negotiate a new trade agreement with these 27 nations! (He says he expects a lot of “wrangling” to get the tariff-free solution he expects.)
To create growth he’ll be looking at deregulation, cutting red tape and tax rates. It’s not a bad strategy – the UK has proven it’s an attractive place to do business in the past; why not the future? However, while it’s all very-well to talk about a “global trade-based economic strategy” and “high intensity negotiating”, Britain’s historical export-led performance is less than stellar.. But good luck to him.
Meanwhile, does the immediate post-Brexit reaction justify the likelihood the Bank of England to cut rates to 0.25% later today? Why? Why not wait to see what happens? A property wobble exacerbated by illiquidity is not a reason to panic. The post vote crashes in services and construction are snapshots, not yet trends. Does anyone really think a 25 basis points reduction in rates is going to boost consumption, lending or growth? Or will it just further drain what little wind there is in investment?
Carney is well aware of just how low rates are pummelling savers, including the £300bn-plus pension schemes that are now underfunded.. Stimulating money back into the market is critical. You don’t do that by a panicked rate cut that’s all about hopeful signals rather than common sense. Much as it hurts to admit it.. the Bank of England has been all over the Brexit crisis like the proverbial cheap suit – and it has worked. Do they need to do more, or would it be overkill?
On the other hand, a cut in rates is now expected by over 80% of analysts.. if it doesn’t happen..how much will the market panic? Is it time for Carney to hold fire..disappoint the market today for greater effect later..(if required..)
Meanwhile, back in the real world, I note with interest conflicting views on the US treasury market. While Japan investors bought $24bn of overseas debt last week, (according to Bloomberg), buying foreign bonds as the negative interest rate policy kills Japanese government bonds, Sumitomo is looking for assets outside overly tight US bonds: corporate and mortgage paper, as they search for yield!
With a $220bn portfolio Sumitomo is a good example of the effects tidal yield flows will have on bond spreads and yield tourists. It’s happening. Yet when T-bonds widen – as they inevitably will – the corporate markets are not going to tighten…
What these yield tourists mean for the new highs on the US stock markets – doesn’t bear thinking about.. For now, money continues to flow into the game..
Tomorrow, normal service resumes with some thoughts about European banking..
Sorry for the lack of Porridge earlier this week. I was on Jury duty – but absolutely nothing to say about it.. I spent three days waiting.. before being told to come back again on Monday!
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