APAC Global Macro Morning Brief – Happy Macro Wed 23 Oct 2019: 50% chance of a UK general election & Brexit by end of Jan 2020
Global Macro Strategist, Saxo Bank Group
Summary: Morning APAC Global Macro & Cross-Asset Snapshot
(Note that these are solely the views and opinions of KVP, and do not constitute any trade or investment recommendations.)
Happy Macro Wed 23 Oct 2019
APAC Global Macro Morning Brief: 50% UK general election & Brexit by end of January 2020
KVP was on Bloomberg TV Tuesday Asia morning - talking all things Global Macro, here is a link to part of the segment, always a lot of fun with such phenomenal people – definitely amongst the very best in the financials news space.
Brexit – as highlighted beautifully o/n by our Chief Economist & CIO Steen Jakobsen, it was always about vote number two - which was about accelerating the process, rather than the usual 21days for parliament to pass the law which would not have worked with the Oct 31 deadline
Vote one (The WAB) was passed & well flagged to do so. Vote two (The Program Motion, PM) was the 50-delta skew & was rejected
The updated Saxo House view – which is always subject to change, given how liquid things are – is that now there is a 50% chance of a UK General Election & Brexit by end of January 2020
This could also explain why sterling is still staying bid, with GBPUSD at these 1.2872 -0.68% & EURGBP at these 0.8643 +0.46%. I.e. the price action is suggesting that the market still views all the developments in cumulating to a higher GBP, i.e. election should still be positive as it should be Boris over Corbyn & now we finally look like there is political lack of capital to keep blocking an exit. In situations like this, where asymmetry in one direction is suggested by the market, its worth going through the factors of what would be needed to change that & how high of a bar (low to high probability) is that in taking place
Meanwhile across the Atlantic from the UK, it looks like Trudeau’s Liberals have just managed to hang on by the skin of their teeth and its looks like it will be a minority government gig.
DollarCad was sharply unchanged at 1.3095 with Canada having a history of minority governments, so apparently nothing to see here.
Cross-Asset wise we hand a pullback in the S&P 2996 -0.36%, as well as down session in Europe. Yet nothing to dramatic in regards to moves across other asset classes, USTs are still round 1.75% levels, dollar had a slight +20% tick up to the DXY 97.53 lvls (EUR & GBP pullback) & Gold 1487 popped by +0.21%.
Facebook 182.34 -3.91% was on the backfoot of a combination of weaker markets, as well as coalition of states conducting a Facebook antitrust investigation into everybody’s favourite ‘your privacy & data for sale’ & ‘election fixer franchise’.
Post watching Billions, KVP shut eye would be a ‘touch’ affected, if he had 47 US Attorney Generals gunning for him. Best way to “really” start to pivot out of this is for Zuc to step down, senior execs to move on & that board to be reshuffled – they still don’t get it. That’s the thing about money, profitable & influence enterprises, at +$22bn in earnings for 2018 & at close to 3bn monthly users (Facebook, WhatsApp, Instagram, Messenger) – you can afford to not get it for a while, perhaps even forever.
Just to give you context, here are some countries’ who’s GDP are less than FB’s earning last year: Botswana, Senegal, Cambodia, Malo, Jamica, Mozambique, Namibia, Congo
On US equites & earnings in general: Boeing will be very interesting today, as the 737 Max saga continues. KVP remembers having a lunch a few months back with a full-fledged career pilot who used to be in the air force, & now flies some of the biggest commercial planes, let’s call him Top Gun.
Long & short of it, I asked Top Gun how does someone who is in the business of flying aircraft see the whole 737 Max software stumble? It was basically pretty clear from day one, that corners had been cut & that there were a lot of red flags, there are normally 3 fail-safe systems in place with everything in the cockpit [flying is basically a series of checks & checks on checks] & post the max software upgrade that got down to 1 fail-safe. Meaning you don’t know you are in trouble until its too late.
i.e. KVP’s read, this was systematic error in how everything was conducted & not some rogue operator mistake – and this no doubt extends into other companies & industries.
The only thing that Boeing has going for them, is a big deal at the end of the day… with all due respect to the Brazilians & Chinese… its still predominantly a global Duopoly market between the Europeans (Airbus) & the Americans (Boeing)…
That a tough current to swim against & being a global macro padawan, KVP likes to swim with the current. Now if he was an event driven, stock specific kind of investor maybe it’s a different call. And yes we need more competition not just in aircraft, but tech & retail – the likes of FB, Google, Amazon, Apple have an unprecedented structural influence on how societies are functioning.
Later on today we’ll also hear from Tech favs. Tesla, Microsoft, as well as some big global industrial players such as Caterpillar that may give a better feel of how global growth is faring.
Have a great day out there.
- NZ: TB in at -1242m a vs. -1375m e, -1628m p
- EZ: Consumer Confidence, Bund Auction
- CA: Wholesale
- US: Crude Oil Inventories, House Prices, Federal Budget
- To catch this wk’s Macro Monday Click here… & replay of the call here
- Don’t forget to bookmark & check our Daily SaxoStrats calls from the European morning session c. 09:00 CET
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