Blain's morning porridge, submitted by Bill Blain of Shard Capital
I blew myself up on Sunday…
While cooking for a bunch of pals in the back garden I opened the Big-Green-Egg and it burped! A fireball of superheated charcoal plasma/flame blevied outwards. The conflagration removed much of my already scarce hair and my left eyebrow. No real damage except to my pride – and very embarrassing. My chums are mining a rich vein of hair-loss and eyebrow memes and puns – Eye, Eye Skipper! Feel free to contribute. What really peeves me is I had a proper hair-cut last week… I could have saved my money if I’d known.
Markets – more of the same?
What have we got to look forward to in markets this week? Trade and Data sensitive, and FX led. The trend remains for very choppy conditions as investors try to balance how far to chase down bond yields as a flight to safety trade or in the face of likely central bank easing. They key factor remains data, and it’s all pointing to weaker economic numbers from just about everywhere. However, it does feel the race to lower yields has paused. Also worth listening to the comment flow from central banks.
I’m increasingly worried about Europe’s vulnerability. German data on Wednesday is likely to confirm Europe’s strongest economy contracted in Q2 – which puts last week’s UK slide into perspective. Germany looks week and defensive – and how will the EU respond if Trump decides to lash out on trade? It’s possible. It looks clear the China discussions are going nowhere. Even Trump understands zero sum game.
Time to bully someone else? What many analysts deride as “Incoherent Policy Decisions”, could equally be seen as considered probing of economic weakness. Trump sees a bulls-eye vs Germany. How many points can he score with his electorate? How Europe’s trade surplus with the US is growing – and Germany is 40% of that. The German’s don’t import much from the US, and they’re buying oil and gas from Russia! And the US is effectively defending them because of low defence spending! The temerity of these people!
The second factor to consider is trade rhetoric. Get over it. It’s happening – and it’s happening first in currency markets. Some analysts are fearful dollar strength will trigger further pain and thus a recession led out of EM nations – much as happened in the late 90s. The strength of the dollar is focusing the pain on to the US. FX is a funny old market – they say you can’t fight central banks, but currency intervention is a funny old thing – very difficult to do well or effectively. In recent weeks “currency manipulation” has become a theme – but there is precious little to be done about it in terms of further tariffs!
And then there is the equity markets – where do...