By Michael Every of Rabobank
Those Proud Iranians?
The talks are still going to be hard; but at least there are talks; maybe –just maybe– long-standing ties of culture, kith and kin can allow a deal to be done so goods and services and people all still flow. I am referring, of course, to the ongoing dialogue between London and other parts of England, such as Manchester: future relations between London and Scotland, or London and Brussels, are still open to question.
The ongoing dialogue between the US Republicans and Democrats, paralleling the same kind of polarisation, also continues. Tuesday’s deadline naturally wasn’t met, and Mnuchin and Pelosi will talk again today to try to get ‘language sorted’ by the weekend to allow a vote next week: can that still allow any money to be in any voters’ pockets before they take their hands out of their pockets to vote? Tens of millions have already voted of course.
On which note, the US election looms larger and larger. This evening US time will be the final presidential debate between Trump and Biden, with a moderator the White House claims isn’t moderate, where none of the topics are on the foreign policy debate this format traditionally covers at this time, and where microphones can be switched off to mute the speakers. The last one was hardly an edifying experience: and in a weekly election news-cycle that has already seen Hunter Biden’s laptop, #MeToobin, Trump having a Chinese bank account, Borat’s daughter meeting Rudy Giuliani, and Iran alleged by the US to be pretending to be The Proud Boys via email(!), we can all approach it with certain trepidation. It wouldn’t be 2020 otherwise.
Meanwhile, the market meme remains that the polls continue to show a strong Biden lead. Or rather most of the polls. The subset that correctly called the 2016 Trump surprise are showing the same kind of surprise could still happen again in 2020. 12 days to go and then we all get to reshuffle our memes. Or not. Some memes seem to be very, very sticky.
China may not be on the agenda for this evening’s debate, but it may well come up anyway. More so after the White House just hit Chinese media operating in the US with new restrictions, prompting the editor of The Global Times to tweet “The US has gone too far….Beijing will definitely retaliate, and US media outlets’ operation in HK could be included in retaliation list.” Cynics might add that markets won’t care about that much, of course, given they generally prefer to only hear good news anyway.
However, they are more likely to want to pay attention to the not-so-good news reported in the South China Morning Post on China’s corporate dollar debt. It notes: “China’s US dollar debt market showing cracks from US sanctions and prospect of more; If US decides to block top Chinese firms from US dollar financings, everyone will have to stop trading their bonds immediately, analyst says; and Chinese technology companies, banks and state-owned enterprises are key targets for American sanctions, affecting the price of their bonds in the Chinese corporate bond market.” But hey, risk on and pile into higher yields, right? Apparently so.
Enough so that China is confident enough to widen its narrow door allowing capital to flow out: the QDII quota is going to be widened by USD10bn. Given these decisions never happen in a vacuum, two points jump to mind: first is that China does not want CNY getting stronger (we are at the spooky 6.66); second is to ask what China suddenly wants to buy given the “really?” valuation of almost every financial asset one cares to look at – if it can get so much higher yields at home than abroad, why buy foreign assets at all?