Rabo: A Look At Markets “Through The Lens Of The Wall”
Today is Armistice Day in the UK, where those who made the ultimate sacrifice in WW1 are recalled at 11am.
Yesterday was also the anniversary of Kristallnacht – against a backdrop of attacks on synagogues and graves in Germany, Scandinavia, and the US, and a UK election where anti-Semitism is a major issue.
On top of that, Saturday was the 30th anniversary of the fall of the Berlin Wall, which marked the end of the Cold War and the triumph of capitalism over Communism.
So let’s look at events today through the lens of The Wall.
“In the Flesh?” Markets have kept saying a US-China trade deal is agreed and US tariffs are to be rolled back. We finally heard from US President Trump on Friday. Guess, what? He doesn’t agree.
“The Thin Ice” Trump made clear while he wants a deal, the very best offer is a delay to new 15% tariffs on 15 December. Moreover, the ‘deal’ to that might not happen until 2020 now.
“Another Brick in the Wall, Part 1” A BBC UK poll tracker has the Tories on 38%, Labour on 27%, the Lib Dems on 16%, and the Brexit Party on 9%. So much for the Remain alliance? Moody’s has downgraded the UK’s credit outlook, just to cheer the spirits.
“The Happiest Days of Our Lives” Chinese inflation data over the weekend were terrible. Pork prices surged, pushing headline CPI to a seven-year high of 3.8% y/y. Yet prices elsewhere are sagging, and PPI inflation was -1.6%, meaning deflation.
“Another Brick in the Wall, Part 2” Spain’s general election, meant to resolve gridlock, has produced more of the same – and a collapse of the liberal centre-right Citizens in favour of the Far Right Vox. More far-right Europeans. How has that ever gone wrong before?
“Mother” Angela Merkel commemorated the 30th anniversary of the collapse of The Wall by saying “no wall is too high to be broken down”. She also isn’t much for putting walls up against China’s Huawei, of course – but her own defence minister, and possible successor, disagrees.
“Goodbye Blue Sky” Markets are trading as if there are now no threats to the global economy – ignoring the further slump in Chinese imports and that once the fumes of the CCP’s 70th anniversary pump-priming wear off, the next leg in the global downturn will re-emerge.
“Empty Spaces” With global steel demand falling and over-capacity through the roof, Chinese steel output are up 8.4% y/y to a new record high. And local governments, driving growth via borrowing that can’t be repaid, are defaulting in places.
“Young Lust” …for equities show no signs of disappearing despite these risks…because global central banks are doing the opposite of what was promised in 1989: “Free markets” – Hah!
“One of My Turns” Yet how long until we see the bond market, at least, reverse some of its recent reversal?
“Don’t Leave Me Now” You are half-way through the Daily. Stick with it to the end if you can!
“Another Brick in the Wall, Part 3” Bolivia’s president Morales has been forced to stand down after poll fraud accusations. Another partial victory for people power following Lebanon…perhaps some of the 1989 spirit is back(?)
“Goodbye Cruel World” Mainly in the winners though. “How the megacities of Europe stole a continent’s wealth” underlines that globalised free markets see capital and people congregate in key lucky locations as the rest wither away, relatively. The left behind can vote though…
“Hey You” The Ukraine-gate whistle-blower will not be testifying in public. ‘Because impeachment’. The bare-knuckle 2020 fight is now a knife-fight about the post-1989 world.
“Is There Anybody Out There?”…paying attention to Iran deliberately breaking the terms of the nuclear deal? Or of North Korea talking about walking away from talks?
“Nobody Home” Indeed, Israel has got the message from what happened to the Kurds and is preparing for potential war with Iran. Shouldn’t that be risk off at all? No? Really?
“Vera” ECB President Lagarde, pushing Europe to spend money it does not want to, is facing internal pressure for more voting on ECB monetary policy decisions. That will be fun.
“Bring the Boys Back Home”…is what didn’t happen in Syria. US troops just moved to hold Syria’s oil. Why? Don’t ask: we are all too busy with the potential mess of Trump’s impeachment.
“Comfortably Numb”…is how markets want to stay regardless. There is no pain you are receding, etc. And they have some powerful backers singing the same song.
“The Show Must Go On”…as Mike Bloomberg really is going to run for President to keep the post-1989 world safe, at least for billionaires. But not all billionaires. On which note…
“In the Flesh”…Trump will speak Tuesday at the US Veterans Day Parade and before that at the Economic Club of New York. Let’s just say it’s more likely he sounds like Pompeo than Kudlow.
“Run Like Hell”…would be the logical reaction for bond yields if the market understands the breakdown of the post-1989 world order that is implied. Then again, they won’t listen when Trump openly tells them that tariffs are not coming off.
“Waiting for the Worms”…is consequently the position of market bears and bond bulls. Until the real economic data turn south again – which they will sooner than people think.
“Stop”…and think about that before diving in to any year-end momentum chasing.
“The Trial” Yes, it is, waiting for markets to realise the 30th anniversary of The Wall coming down shows many of the gains from that genuine triumph have been squandered, and defeat rammed down the mouth of victory wrapped in a foldable smartphone installed with multiple ‘gig’ economy apps.
“Outside the Wall” Which leads to the question: which side of which wall do you want to be on when they inevitably go back up? Because they can and they will go up, and perhaps as suddenly as The Wall came down. Recall on November 9th 1989, the Morning Star, the British Far Left’s paper of choice, reported: “GDR unveils reform package.”