Steen Jakobsen, Saxo Bank CIO on the UK Election, Pound, Euro

Steen Jakobsen, Saxo Bank Chief Investment Officer, comments on the UK election, the British Pound, and the Euro in a recent email report.

Dear All,

Please find my almost final version of the UK election presentation:

Main Points

Conservatives and PM May have executed a terrible campaign – she has done ALL the mistakes of Clinton and the establishment:

• Safe pair of hands
• Not committing to anything
• Talking about energy regulation
• No committing to tax freeze

On the other hand, Labour has been able to reframe.

What kind of Brexit do you want?  To what kind of country do you want?

• Classic tax & spend, but this time the classic middle class is safe, while “rich” & “corporates” needs to pay more….
• Wild promises free lunch and education, 250 billion GBP infrastructure program
• No commitment on Brexit
• Corbyn policy is economically naïve but he is getting the young voters.

My final call:

• The election will end with Tories having EXACTLY the same majority as now – hence a lost election and a muddy BREXIT mandate.
• Prime Minister May is the de facto loser independently of the final results as her “management” has been poor and rudderless leaving more doubt than the clear vision needed – hence the title: Unintended consequences (May getting weaker mandate and populous empty promises still attracting voters.)

Market calls:

If correct in my call… GBP/USD should correct 1-2% but overall the next major level is 1.3500 (& 1.4000 in 2018 based on credit impulse, weak dollar and terms of trade improvement & the better trade is probably to be long EUR/GBP towards parity (EU growth > UK growth, EUR undervalued, EU Current Account surplus vs. UK Current Account)

Steen Jakobsen

UK Polls

A new set of UK polls is in.

 

Election Blowout?

If the latest poll is accurate, the election may be the slaughter that many envisioned all along. I suspect the election will provide a substantial pickup for the Tories, but short of an absolute blowout.

Long the Pound

I am long the pound vs the US dollar and have been for some time.

Near-term, Steen may very well be correct the better play is to be long the Euro vs the Pound. However, the euro is a far riskier play. Any number of events with Italy or Greece could impact the Euro.

The consensus opinion is the UK has more to lose in Brexit. I disagree with that consensus.

Will French President Emanuel Macron achieve anything, even if his party “en Marche” wins a majority of French parliament? Color me skeptical.

For now, a sinking dollar (I believe the dollar has peaked this cycle) stands to benefit the Euro and the Pound.

Disruptions due to Italy, Portugal, or Greece are a substantial worry for those considering the Euro.