How Do You Solve a Problem Like Brexit?
How do you solve a problem like Brexit? Apparently offer companies that are wavering 'assurances'. Yesterday Nissan announced that they're going to build two new models in the UK, which secures 7,000 jobs at their Sunderland plant. The question everyone is asking now is what exactly those 'assurances' are. The government insist there was no chequebook, but we can't imagine some calming words from Theresa and co. was enough to make the decision – we say that because Nissan export 85% of the cars they make to in the UK to Europe, and if they, or their customers, had to face export taxes, then how could they possibly compete with French auto makers marketing a similar product with a different badge?
Of course, if the UK taxpayer isn't left underwriting the auto industry, then the deal is great news. Nissan is an industry heavyweight and it does bring a stamp of approval to the UK economy in a time when it could really do with one. Also, Sunderland voted by two thirds to one to leave the EU, so we'll call that having your cake and eating it – bravo.
We say the economy could really do with the approval, but the hard data isn't reflecting the sentiment indicators. Yesterday's GDP number (hard data) for Q3 was better than the market expected it to be, by some margin – coming in at +0.5% versus expectations for a +0.3%. The euphoria was short lived though and the Pound finished the day lower than it had started, with the 'how long can this last' question weighing heavily on investors. Overnight consumer confidence numbers (sentiment indicator) came out showing we're more pessimistic about the future because of the fears of a hard Brexit.
In Europe, there's not too much going on of note. Spain have a vote this weekend in which Mariano Rajoy hopes to be able to form a minority government, after the country has gone a year without one. Other than that, the main points of 'interest' are Italian Banks' being asked by the ECB to get their non-performing loans in order and the ongoing debate over what the ECB are going to do with QE when they meet in December.
In the US; Zerohedge have come up with another great article, which says that the amount of hedges in the oil market is the greatest it has been since 2007. The hedges are 'short hedges' which protect against prices falling and it basically shows the lack of confidence that oil is going to carry on climbing or even sustain around the $50 mark. They say that OPEC's attempt to further cut production is really just wishful thinking, but the market is buying it for now. Once everyone realises this, the market should correct below $40.
The overnight session has been pretty quiet – though the consumer confidence numbers did Sterling no favours – Today we've got a lot of European data on a country by country basis (GDP, inflation, retail sales) which could give us some clues to what the ECB needs/has to do come December. This afternoon we see US GDP numbers for Q3, which might bring The Donald and Hillary some material to pitch with, but the market isn't going to read too much into the data with the election looming.
Have a great weekend!
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