Here We Go Again?

Here We Go Again?

Here We Go Again?

Good Morning

Politicians take note; if there's uncertainty and doubts around your actions and that's making people nervous – take a leaf out of Mark Carney's book and clarify your position.  Yesterday the Bank of England governor nipped the speculation in the bud and drew a happy compromise for himself and the markets by saying he'd stay in his post until June 2019, which should be long enough to get us out the other side of article 50 and into our new relationship with Europe. The markets instantly took a liking to his words, with Sterling rallying across the board – nicely played Mr. Carney.

Japan's ambassador to London has fired a warning shot to Theresa May, by saying the UK must improve their communications over Brexit or risk inward investment drying up. “We are friends (but), we are also a very major stakeholder. The Japanese economic presence in the UK is quite significant, therefore this important presence will of course have an impact on how the negotiations should be conducted”.

Contrary to that warning shot, there's been another positive development for the UK, as data showed that foreign purchases of UK government bonds were extremely strong. After the July sell-off and the August clear-off, the market's return in September and subsequent purchase of UK Gilts is a step in the right direction and will mean that capital inflows are remaining strong and propping up the current account deficit. It's also a slight step away from Europe where, according to the Telegraph, markets have been mispricing risk and under estimating the potential damage of Matteo Renzi's Italian referendum going wrong and Portugal's declining output, amongst other things.

Those other things could well include Greece, where apparently a fourth bailout is on the cards! An article over the IMF's involvement in the current structure hints that the Germans believe that a fourth injection of funding will be a “matter of course” by 2018 at the latest. Greek opposition party also sees public funds collapsing in 2017 unless debt relief is given. Here we go again?

Another story this morning that might make you think its Groundhog Day comes from Bloomberg. They warn that European banks are still stuck with €1.2 trillion of non-performing loans on their balance sheets. Even the European Banking Authority admits that NPL's in Europe are roughly three times higher than most other global jurisdictions and point to different tax regimes and a lot of legal red tape being part of the reason that there is a very limited secondary market for them, meaning the banks can't shift them onto anyone.

Overnight we've seen some positive data from China which has led to a decent performance in global equity markets. We also got a limp wristed attempt from OPEC to put together a long term output control strategy (which has no teeth, but investors will cling onto it) which is pushing prices up slightly.

We saw another mega-merger announced yesterday between Baker Hughes and GE's oil and gas division. The logic, we're told, is that it improves the cash position to ride out any more storms and creates efficiencies that mean they'll be able to take better advantage of any rebound in the industry. The cynic in us thinks it's another case of a merger in lieu of any chance of profitability.

Today we've got manufacturing numbers from the UK, US and some European states. Tonight we have the Bank of Japan policy announcement, where we expect no change.

Have a great day.

©Hamilton Court FX

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