E Markets: Losing?

The second time is not a charm. The sense of déjà vu in regards to Brexit headlines and UK Prime Minister May dominates markets today as the stakes for global growth remain critical for investors. Losing 391 to 242 on her plan leaves Parliament to vote next on whether to leave the EU without a deal affectionately called a hard-Brexit. This is seen as unlikely and that leaves Thursday open for a vote to request a delay in Article 50, requiring EU acceptance as well, a process, which many see as opening the door for another referendum and UK election. The timeline effectively clouds all other event risks – like the UK Spring Budget or the US durable goods orders and maybe even the China retail sales, industrial production and fixed investment economic releases ahead. The bigger picture maybe in markets losing interest as volatility drops, as carry trades return and as waiting for bad news stories proves boring until new events emerge like a US/China trade deal unraveling or US imposing auto tariffs on the EU. The other losing story is about Boeing as the Ethiopia Air Flight 302 crash has led much of the world to ground the Max 8 plane with the US FAA standing out in its support for it’s safety. This is micro, not macro but makes clear that the big picture is not finished. The market sees hope in some US/China deal, some further China stimulus, some chance of no Brexit, some clarity from the myriad of elections ahead – Thailand, Spain and EU May elections – all in focus. The economic data releases overnight were mixed at best with better Korea jobs, worse Australian consumer confidence, weaker Japan machinery orders and better Eurozone industrial production. The lack of attention comes through in most markets with feeble ranges and volumes, making the only risk barometer of note to remain the GBP. When you look at the GBP chart you see whispers of hopes for a breaking to 1.36 as the best-case scenario of no Brexit continues to play forward on the markets. There are plenty of obstacles and reasons to doubt such an outcome but this remains the zero-sum nature of politics in the UK and the GBP where traders hope its either 1.25 and lower or 1.35 and higher in the next 48 hours.

Question for the DayIs today really about politics or growth? The problem with Brexit on the global economy has been its chilling effect on EU and UK business investment. Uncertainty breeds contempt. The hope is for some clarity – even a bad outcome promotes some binary path forward rather than being stuck in limbo. Much of the worst pains from this uncertainty have been countered by the BOE and ECB policies. They have left money easy and talked forward their reactions to more difficult outcomes like a hard Brexit. There is the bigger issue behind uncertainty of politics beyond the UK and EU and that is the US/China trade talks. Informa’s work on uncertainty from politics on markets and growth is worth reading. Policy uncertainty is at the highest since 1997 and flows of capital are beginning to reflect this all. 

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