Ransquawk

One Swallow, it seems, does make a summer

Can’t buy the euro, can’t buy the dollar either, bought the Yen and got burned, may as well try Sterling. It may not be that simplistic, but I seem to be having an “Emperor’s new clothes” moment over Sterling.

Have we forgotten the terrible consequences that are apparently going to overcome the UK after Brexit? Does the promise of a single twenty-five basis point hike in interest rates with the extremely vague promise of another sometime later in the year really warrant the pound to be well above 1.4000 and this close to 1.1500 (.8700)?

In case we have forgotten, the UK is leaving the EU single market and customs union, notwithstanding what happens over the Irish border. New trade deals are going to need to be negotiated (that may be a good thing, but it could also be a disaster). Employers, already finding it tough to find skilled workers, will suffer badly. Construction and hospitality will be the worst hit as neither, it seems, can survive without EU migrants.

Yesterday we saw the Halifax House Price Index for Q1 released and those long of Sterling added to their positions as they saw a higher than expected 2.7% in Q1. A couple of rate hikes in 2018 will see that data turn lower very quickly!

Draghi: In control or fiddling while Rome burns?

I am generally effusive in my praise of Mario Draghi. I believe him to have handled the ECB and its various headwinds extremely well over the close to seven years he has been President. I imagine the fact that he was the first President to have been chosen on merit gave him a head start.

Yesterday, he spoke of his calm over the uneven growth being experienced by the Eurozone, commenting that he never expected the recovery to be in a straight line. His words were backed by his Vice-President, Chief economist and a member of the Executive Board, who all spoke along the same lines.

But, is Sr. Draghi blinding himself to the issues facing the Eurozone? It is hard to say what more he could be doing. The Debt crisis which refuses to go away may have claimed a victim as Deutsche Bank sacked their CEO yesterday and looks likely to perform some kind of retrenchment. If lenders start to retreat behind their own borders, when added to the restrictions on British lenders following Brexit, liquidity could dry up and choke off any growth, particularly in the weaker nations of the EU.

Xi: Acquiescence or economic sense.

China does things in its own time. One Of the great historical proofs of that was the taking back of Hong Kong in 1997 having been forced by the British hand it over centuries earlier. They play the “long game”, rarely forced to do anything they don’t want to and when they act it is because it is in their best interests.

No knee-jerk reactions from Beijing.

So, President Trump, please do not self-congratulate just yet. The seeming loosening of China’s policies on trade announced by President Xi yesterday will have been because China wanted to and had little or nothing to do with Trump’s rhetoric and bluster.

With the likely cooling of that issue, America can immediately move onto another.

There seems to be doubt over whether Syrian President Assad launched a chemical weapon attack on his own people in the past few days. Trump says they did and struck a military airbase yesterday in retaliation and Russian Foreign Minister Lavrov, using a typical Russian form of words asked, “where’s the proof”.

Lavrov’s remarks are the same as what was said following the nerve agent attack on a former Russian agent and his daughter in the UK recently.

An escalation between Russia and America with Iran backing Assad will have a far greater and longer lasting effect on the dollar than a spat with China over aluminium and pork.

 

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