Brexit and Financial Markets

[Adebesi]

The electorate as a whole. Obviously I've argued they're under no obligation to hold an election but if May had got it under almost any other circumstance the calls for an election would be far louder.

Instead she's been able to step in as a safe pair of hands and a stability candidate and the Tories can turn around and say to the electorate 'be careful what you wish for'.

Obviously May's passage to the PM job has been made significantly easier by Angela bloody Eagle. Whether you think Corbyn needs to go or not the timing of the leadership challenge has killed any chance of Labour opposition to this in the short term.

Well I think it was you I was discussing this with yesterday? I think she might well want to hold an election anyway, because I think she has a lot to gain, and with very good odds. But I know you disagree with that. Im not sure whether May fighting other candidates for the leadership, or getting it unopposed, makes any difference to the public clamour for an election either. As you pointed out (apologies if it wasnt you) they were only elected a year ago so there is very little pressure on them to do it either way.

But completely agree about the Labour omnishambles.

 

[Stanley Road]

Would be great if an election was held and the tories were dumped

 

[Rado_N]

If an election were held now UKIP would be the big winners.

 

[NinjaFletch]

Well I think it was you I was discussing this with yesterday? I think she might well want to hold an election anyway, because I think she has a lot to gain, and with very good odds. But I know you disagree with that. Im not sure whether May fighting other candidates for the leadership, or getting it unopposed, makes any difference to the public clamour for an election either. As you pointed out (apologies if it wasnt you) they were only elected a year ago so there is very little pressure on them to do it either way.

But completely agree about the Labour omnishambles.

It was me yes. If you think they're going to hold an election then you could equally likely assume that this is about presenting May as acceptable in light of that.

I don't think either of us will vote Tory in any circumstance (?) but you'd admit to being more inclined to voting for her now thanks to the comparisons to Leadsom, Gove, and Johnson than you would have been even a month ago? Right?

 

[Smores]

I dont want to excuse her on that but at the same time I do feel she was in a difficult position. (You always are in the Home Office)

You have Cameron (and his consigliere Osborne) saying they would get numbers of immigrants down. But that was mostly completely unachievable. The only way you could make any progress on it would be to go after certain groups that you could control. And that is what she did. Should she have just completely ignored the targets instead? I would prefer she had. But it is cynical of Osborne to approve setting these targets in the first place, and then criticise her for doing what she could to achieve them. After all, she was doing what her party's voters wanted her to do - bring down numbers of immigrants.

But again, to reiterate, I would absolutely rather she hadnt done it. I would rather the Tories didnt make dumb promises about immigrants in the first place, and they newspapers wouldnt scapegoat them to deflect attention from voters' real problems. I would rather the government tackle exploitative bosses, and stop people hiring immigrants and treating them like slaves, rather than demonising people who have often been brought here under false pretenses, or at least have come here to improve their own lives. If they were paid fairly they would not undercut British workers.

So yeah, there is a lot more she could have done. But as has already been said, she's the best of a bad bunch.

It's exactly that unchecked determination that I'm concerned about. I don't expect she'll suddenly come under no external pressure now she's PM, false promises will be made and a leader sometimes has to not carry those to extremes.

There's a long list of events that have got her in trouble in the past.

Also I'm suprised to see a few praise her for getting rid of ID cards. I'm vastly in favour of them but the main reason I'm suprised is because of all her other attacks on privacy.

 

[Adebesi]

It was me yes. If you think they're going to hold an election then you could equally likely assume that this is about presenting May as acceptable in light of that.

I don't think either of us will vote Tory in any circumstance (?) but you'd admit to being more inclined to voting for her now thanks to the comparisons to Leadsom, Gove, and Johnson than you would have been even a month ago? Right?

It is inconceivable that I would ever vote Tory. So the question does not compute. But yes, though it is making me spasm uncontrollably and vomit all over my keyboard, I guess I can agree to what you are saying.

 

[Mozza]

Scrapped plans for ID cards. Reformed stop and search powers of the police, acknowledging there was racial profiling going on. Refused to extradite Gary McKinnon. Took on the police and told them to reform or else.

Decided that a brit must earn £18600 to bring their loved one into the country so splitting families. Compounded that by requiring those with Children had to earn £2500 extra per child, splitting babies from parents. Was only stopped from setting the level at £38000 by being part of the coaltion government. Shes a monster

 

[Adebesi]

Decided that a brit must earn £18600 to bring their loved one into the country so splitting families. Compounded that by requiring those with Children had to earn £2500 extra per child, splitting babies from parents. Was only stopped from setting the level at £38000 by being part of the coaltion government. Shes a monster

She's a Tory.

 

[AshfordLad]

Decided that a brit must earn £18600 to bring their loved one into the country so splitting families. Compounded that by requiring those with Children had to earn £2500 extra per child, splitting babies from parents. Was only stopped from setting the level at £38000 by being part of the coaltion government. Shes a monster

Home office under her has been a disaster. The policies have been sickening and even then she has not been able to bring the migrant numbers down.

Would be great if an election was held and the tories were dumped

Dumped in favour of what? A civil war.

 

[Stanley Road]

Home office under her has been a disaster. The policies have been sickening and even then she has not been able to bring the migrant numbers down.


Dumped in favour of what? A civil war.

Dumped in favour of anything, raving looney party maybe

 

[Untied]

This is pretty significant

ELI5 Version: Investors think that the prospects of investing in the UK economy directly are so poor/inflation will be high enough that return of MINUS 1.578% for the next ten years is a good investment.

 

[Tyrion]

If an election were held now UKIP would be the big winners.

I'd have thought the opposite. What would they campaign for? Also, who is there that's half as famous as Farage?

This is pretty significant

ELI5 Version: Investors think that the prospects of investing in the UK economy directly are so poor/inflation will be high enough that return of MINUS 1.578% for the next ten years is a good investment.

At the risk of showing how ignorant I am of financial matters, how much does that reflect on more important economic issues (e.g. employment, growth, average wage, living standards)? Could they stay unaffected while the financial markets take most of the hit?

 

[jackofalltrades]

And just how good an idea is it to reduce corporate tax, if I undestand it correctly from 20% down to 14/15%, a 25% cut ? How will that tax hole be filled in order to fund, for example, the NHS ?

 

[Untied]

At the risk of showing how ignorant I am of financial matters, how much does that reflect on more important economic issues (e.g. employment, growth, average wage, living standards)? Could they stay unaffected while the financial markets take most of the hit?

Wouldn't read too much into a single bond issue but it is basically a bet by investors that interest rates will remain low but inflation will not. If inflation runs at say 5% and interest rates remain close to 0% that bond will have been a very safe way of securing a return on inflation.

If the investors are correct it means 'cost of living crisis' may become a catch phrase again. Mortgage payments will be fine, but goods will cost more and wages won't be increasing.

 

[Jippy]

This is pretty significant

ELI5 Version: Investors think that the prospects of investing in the UK economy directly are so poor/inflation will be high enough that return of MINUS 1.578% for the next ten years is a good investment.

Gilt prices rocketed by around 40pc around Brexit. It's more a massive risk off trade rather than any deeper statement on the economy. If you were that worried about the UK economy, you wouldn't be buying negative-yielding gilts, you'd probably buy bunds or Treasuries and get the extra currency kicker.
We'll start importing a bit of inflation soon.

 

[Jippy]

And just how good an idea is it to reduce corporate tax, if I undestand it correctly from 20% down to 14/15%, a 25% cut ? How will that tax hole be filled in order to fund, for example, the NHS ?

It might keep businesses and jobs here. I'm not sure what the tipping point is, but ever higher tax rates don't translate into bigger tax takes.

 

[Rado_N]

I'd have thought the opposite. What would they campaign for? Also, who is there that's half as famous as Farage?

Votes will be split among the other parties infighting.

I see it like the Balon D'or vote in 99 and UKIP are Ginola.

 

[Stanley Road]

And just how good an idea is it to reduce corporate tax, if I undestand it correctly from 20% down to 14/15%, a 25% cut ? How will that tax hole be filled in order to fund, for example, the NHS ?

The idea is that job creation funds it

 

[Untied]

Gilt prices rocketed by around 40pc around Brexit. It's more a massive risk off trade rather than any deeper statement on the economy. If you were that worried about the UK economy, you wouldn't be buying negative-yielding gilts, you'd probably buy bunds or Treasuries and get the extra currency kicker.
We'll start importing a bit of inflation soon.

I read it as a bet that interest rates will stay low, inflation not so much, coupled with a serious lack of confidence in the economy.

The sky isn't falling, but if all 3 predictions are correct there are hard times ahead for many ordinary people.

You actually edit a magazine about this though, right?

 

[Jippy]

I read it as a bet that interest rates will stay low, inflation not so much, coupled with a serious lack of confidence in the economy.

The sky isn't falling, but if all 3 predictions are correct there are hard times ahead for many ordinary people.

You actually edit a magazine about this though, right?

Yep, and everyone keeps fecking up the call on gilts. So many fund managers thought they were clearly overpriced and now yields have fallen even further.
Agree whole global economy looks weak and UK interest rate futures have moved out to pricing the first rate rise in eight years' time!
Inflation could be a curve ball. There are very bright people firmly in both the inflation and deflation camps.

 

[jackofalltrades]

It might keep businesses and jobs here. I'm not sure what the tipping point is, but ever higher tax rates don't translate into bigger tax takes.

It was obviously a ploy to halt the temptation to move to Paris or Frankfurt but could lead to a race to the bottom. Not so many workers involved though or at least not enough to fill that tax hole. Is that correct ?

 

[Jippy]

It was obviously a ploy to halt the temptation to move to Paris or Frankfurt but could lead to a race to the bottom. Not so many workers involved though or at least not enough to fill that tax hole. Is that correct ?

Not sure about the studies on the policy's effectiveness tbh. Don't forget Osborne did impose that apprentice levy on businesses a while back, so that needs factoring in.
Doubt it would be sufficient to keep all financial services jobs here if we don't get passporting though.
Dunno about the race to the bottom though. Can't imagine JPMorgan relocating to Bulgaria for example.

 

[jackofalltrades]

Not sure about the studies on the policy's effectiveness tbh. Don't forget Osborne did impose that apprentice levy on businesses a while back, so that needs factoring in.
Doubt it would be sufficient to keep all financial services jobs here if we don't get passporting though.
Dunno about the race to the bottom though. Can't imagine JPMorgan relocating to Bulgaria for example.

I meant to Paris. I suppose this is not highly likely but Hollande has talked about it being something like the natural home for Euro business and about reducing tax there. Might be the price Merkel has to pay for any deals she wants ?

 

[Jippy]

I meant to Paris. I suppose this is not highly likely but Hollande has talked about it being something like the natural home for Euro business and about reducing tax there. Might be the price Merkel has to pay for any deals she wants ?

I'm sure Paris, Frankfurt, Dublin and Lux will be queuing up to woo the US investment banks. Not just Merkel we have to worry about. Surely are more likely to be cnuts.

 

[Untied]

Yep, and everyone keeps fecking up the call on gilts. So many fund managers thought they were clearly overpriced and now yields have fallen even further.
Agree whole global economy looks weak and UK interest rate futures have moved out to pricing the first rate rise in eight years' time!
Inflation could be a curve ball. There are very bright people firmly in both the inflation and deflation camps.

What's the deflationary argument given the significant fall in Sterling? That demand will be hit hard enough by a struggling economy that prices will have to fall - more than counteracting the inflationary pressures of goods priced in foreign currencies (particularly oil/gas/coal)?

 

[Jippy]

What's the deflationary argument given the significant fall in Sterling? That demand will be hit hard enough by a struggling economy that prices will have to fall - more than counteracting the inflationary pressures of goods priced in foreign currencies (particularly oil/gas/coal)?

This is Morgan Stanley's view, albeit pre-Brexit and about the US. Google Russell Napier or 'Is Europe the new Japan' and loads will pop up. Admittedly, some economists are a bit rigid, stopped clock is right twice a day types.
http://uk.businessinsider.com/were-headed-for-1938-all-over-again-2016-6

 

[Rado_N]

So there's the interest rate cut.

£ to $ is gonna plummet again

 

[711]

Plummet's one of my favourite words. Right up there with schism for me.

 

[villain]

Guess I won't be going to America any time soon.

 

[evra]

This interest rate cut has been expected for a while, I should think the reaction is largely built into the price already.

 

[McLovin]

This interest rate cut has been expected for a while, I should think the reaction is largely built into the price already.

A 25bps cut was expected by the market, what wasn't expected was just how uber-dovish they actually were. QE amount is bigger than what people expected, and also MPC members think rates will be at 0% by year-end so that's another cut in the next few months with the likelihood of negative rates by next year. They're throwing the kitchen sink.

From zerohedge...'To recap the decision:

• BOE Cuts Rate to 0.25%; Vote 9-0; Expands QE, Buys Corp Bonds
• Bank of England says it will buy GBP60 bln gilts over six months.
• BOE to buy GBP10 bln corporate bonds over 18 months
• MPC voted 6-3 on QE; Weale, Forbes, McCafferty dissented
• MPC voted 8-1 on corp. bonds; Forbes dissented
• BOE announces term-funding scheme to mitigatate impact of low rates on some lenders
• BOE signals it may cut interest rate to near zero later this year. Says if data come in as expected, ‘a majority of members expect to support a further cut in bank to its effective lower bound”
• BOE says lower bound is “close to, but a little above, zero”
• BOE says Brexit has weakened outlook. It cut 2017 GDP forecast to 0.8% v 2.3%, kept 2016 at 2%
• BOE to look through inflation spike driven by weaker pound. Sees CPI at 2.4% at 2yr horizon
• BOE estimates that APF, including est. of GBP100 bln via term funding, may expand GBP170 bln
• BOE sees U.K. economy growing just 0.1% this quarter

The breakdown:

The outlook summary:

• Bank of England cuts 2017 growth forecast to 0.8% vs 2.3% in May
• BOE cuts 2018 growth forecast to 1.8% vs 2.3%
• BOE downgrades are most ever in a single Inflation Report
• BOE sees inflation at 1.9% in Q3 2017, vs 1.5% forecast in May
• BOE sees inflation at 2.4% at 2-yr, 3-yr horizons
• BOE forecasts unemployment will rise to 5.4% in coming year
• BOE cuts forecasts for consumer spending, business investment, housing investment
• BOE sees business investment dropping 3.75% in 2016, 2% in 2017

It is notable that while the BOE slashed its GDP forecast for 2017 from 2.3% to 0.8%, this was the biggest downward revision in history but despite Carney's warning of a technical recession pre-Brexit, it still sees UK economy growing.

The summary table:



The market response is instant, with Sterling crashing 1%, or about 200 pips, to 1.316....



... while 10Y Gilt yields just tumbled to a new record low 0.68%'

 

[Rado_N]

Guess I won't be going to America any time soon.

I'm going next month

 

[McLovin]

I'm going next month

US jobs report out tomorrow...if it's a shocker then USD will get trounced as well. If it's good then you're fecked. Cross your fingers and hope the US didn't hire anyone last month.

 

[Rado_N]

US jobs report out tomorrow...if it's a shocker then USD will get trounced as well. If it's good then you're fecked. Cross your fingers and hope the US didn't hire anyone last month.

It is what it is, it's not going to spoil a great trip, it'll just make it a bit more expensive.

 

[McLovin]

It is what it is, it's not going to spoil a great trip, it'll just make it a bit more expensive.

Definitely...could also not tip anyone and you'll make back that 15% drop in the pound. You might make some Americans pretty fecking angry though. But that's always good.

 

[Jippy]

A 25bps cut was expected by the market, what wasn't expected was just how uber-dovish they actually were. QE amount is bigger than what people expected, and also MPC members think rates will be at 0% by year-end so that's another cut in the next few months with the likelihood of negative rates by next year. They're throwing the kitchen sink.

From zerohedge...'To recap the decision:

• BOE Cuts Rate to 0.25%; Vote 9-0; Expands QE, Buys Corp Bonds
• Bank of England says it will buy GBP60 bln gilts over six months.
• BOE to buy GBP10 bln corporate bonds over 18 months
• MPC voted 6-3 on QE; Weale, Forbes, McCafferty dissented
• MPC voted 8-1 on corp. bonds; Forbes dissented
• BOE announces term-funding scheme to mitigatate impact of low rates on some lenders
• BOE signals it may cut interest rate to near zero later this year. Says if data come in as expected, ‘a majority of members expect to support a further cut in bank to its effective lower bound”
• BOE says lower bound is “close to, but a little above, zero”
• BOE says Brexit has weakened outlook. It cut 2017 GDP forecast to 0.8% v 2.3%, kept 2016 at 2%
• BOE to look through inflation spike driven by weaker pound. Sees CPI at 2.4% at 2yr horizon
• BOE estimates that APF, including est. of GBP100 bln via term funding, may expand GBP170 bln
• BOE sees U.K. economy growing just 0.1% this quarter

The breakdown:

The outlook summary:

• Bank of England cuts 2017 growth forecast to 0.8% vs 2.3% in May
• BOE cuts 2018 growth forecast to 1.8% vs 2.3%
• BOE downgrades are most ever in a single Inflation Report
• BOE sees inflation at 1.9% in Q3 2017, vs 1.5% forecast in May
• BOE sees inflation at 2.4% at 2-yr, 3-yr horizons
• BOE forecasts unemployment will rise to 5.4% in coming year
• BOE cuts forecasts for consumer spending, business investment, housing investment
• BOE sees business investment dropping 3.75% in 2016, 2% in 2017

It is notable that while the BOE slashed its GDP forecast for 2017 from 2.3% to 0.8%, this was the biggest downward revision in history but despite Carney's warning of a technical recession pre-Brexit, it still sees UK economy growing.

The summary table:



The market response is instant, with Sterling crashing 1%, or about 200 pips, to 1.316....



... while 10Y Gilt yields just tumbled to a new record low 0.68%'

It really is crazy times when you have stock markets at record highs and sovereign bond yields at record lows. Something's got to give.

 

[McLovin]

It really is crazy times when you have stock markets at record highs and sovereign bond yields at record lows. Something's got to give.

Yeah...historical relationships are just shattered with all this global easing. Think it was the 673 rate cut by a CB since Lehman...1 every 3 trading days. I tend to agree with Gross and Gundlach...'sell everything'.

 

[evra]

Interesting stuff @McLovin thanks for the info

 

[MikeUpNorth]

Monetary policy isn't going to be able to do all the work. Theresa is going to have to open her chequebook.

 

[PedroMendez]

Well. Everyone is getting their share of the poisen.