The winter of despair
June 14, 2018

Mint - Blain's Morning Porridge

It was the age of wisdom, it was the age of foolishness… it was the spring of hope, it was the winter of despair..

The Morning Porridge is unrestricted market commentary freely available to all investors on an unsolicited basis. It is not investment research. 

Two things to think about today – the implications of what the Federal Reserve said yesterday after hiking US rates, and what the European Central Bank will say today.

Fed Head Jay Powell's message could not have been more positive: "Economic growth appears to have picked up… a bounce in household spending. Business investment continues to grow strongly… Fiscal policy is boasting the economy. Job gains are raising incomes and confidence. Foreign economies continue to expand… overall financial conditions remain accommodative… we expect the job market to remain strong… gradual approach to increasing the Fed Funds rate.. 2.4 percent by end of this year… 3.4 percent at end of 2020…." Two more hikes it is!  

During the questions he made clear the Fed remains "patient" and that the "gradual pace seem the right thing..", which means he'll give "hot" growth extra leeway. Interesting to note his comments on inflation in the Q&A: "the last two business cycles didn't end with high inflation they ended with financial instability… that's something we need to keep our eye on.." That's worth bearing in mind.. (And don't worry about the implications of the flatter it curve – it's not heralding a new recession…)

Compare and contrast the US and Europe. To quote my head of high-yield trading: "the ECB is on a bit of a sticky wicket this morning."

Although the market expects ECB clarification on the timing of the bond-buying taper-stop later this year, and some form of mumble-swerve guidance on rate timing, I'm betting we will get something more couched in terms of "data-dependent". There never seems to be a "right time" for the ECB, but the current economic data remains… "challenging" (another way of saying recent releases have been very disappointing), and "delicate" in terms of the politics (another way of saying Italy). 

If the ECB was a normal polity, the independent central bank would bite the bullet and either extend the buy-programme, or enact the taper - and get on with it.

But, Europe is not a normal polity. There are no straight lines. For the sake of their grand currency experiment, they must applaud the successes of enforced euro austerity and its achievements: anaemic economic growth, unacceptably high youth unemployment, structural imbalances, Target 2 imbalances, incomplete economic reform, unresolved banking systems? And what of the conflict between the policy imperatives and vision of the Eurocracy versus the political demands of stronger nations unwilling to pay for weaker ones – all the while looking over their shoulders at the lumbering beast of populism..

While the Germans would be delighted to see the abomination of the bond-buying programme ended, and Brussels will be delighted to hail normalization as vindication of economic recovery, the Italians can be pretty confident Draghi will "do whatever it takes" and pull something out of his hat to avoid a BTP-led meltdown. 

All of which are reasons not to overly concern ourselves with Europe this morning.. Something will come right… it usually does.. Let the party continue..

Once the ECB meeting is out the way, we can get back to the usual stuff like worrying about trade, geopolitics, market illiquidity, and the World Cup. We just stocked the fridge with beer for the World Cup. San Miguel for when Spain is playing because it's Spanish. Becks for when Germany plays because it's German. Leffe for when Belgium plays because it's Belgian.. And Carling for when England plays because it's arguably, despite the advertising claims, not really that great.

(As a Scotsman I am fairly agnostic on the World Cup… although it would be great to see Iceland win.. apparently their DNA is very close to ours..)

Out of time and back to the day job…

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge

It was the age of wisdom, it was the age of foolishness… it was the spring of hope, it was the winter of despair..

The Morning Porridge is unrestricted market commentary freely available to all investors on an unsolicited basis. It is not investment research. 

Two things to think about today – the implications of what the Federal Reserve said yesterday after hiking US rates, and what the European Central Bank will say today.

Fed Head Jay Powell's message could not have been more positive: "Economic growth appears to have picked up… a bounce in household spending. Business investment continues to grow strongly… Fiscal policy is boasting the economy. Job gains are raising incomes and confidence. Foreign economies continue to expand… overall financial conditions remain accommodative… we expect the job market to remain strong… gradual approach to increasing the Fed Funds rate.. 2.4 percent by end of this year… 3.4 percent at end of 2020…." Two more hikes it is!  

During the questions he made clear the Fed remains "patient" and that the "gradual pace seem the right thing..", which means he'll give "hot" growth extra leeway. Interesting to note his comments on inflation in the Q&A: "the last two business cycles didn't end with high inflation they ended with financial instability… that's something we need to keep our eye on.." That's worth bearing in mind.. (And don't worry about the implications of the flatter it curve – it's not heralding a new recession…)

Compare and contrast the US and Europe. To quote my head of high-yield trading: "the ECB is on a bit of a sticky wicket this morning."

Although the market expects ECB clarification on the timing of the bond-buying taper-stop later this year, and some form of mumble-swerve guidance on rate timing, I'm betting we will get something more couched in terms of "data-dependent". There never seems to be a "right time" for the ECB, but the current economic data remains… "challenging" (another way of saying recent releases have been very disappointing), and "delicate" in terms of the politics (another way of saying Italy). 

If the ECB was a normal polity, the independent central bank would bite the bullet and either extend the buy-programme, or enact the taper - and get on with it.

But, Europe is not a normal polity. There are no straight lines. For the sake of their grand currency experiment, they must applaud the successes of enforced euro austerity and its achievements: anaemic economic growth, unacceptably high youth unemployment, structural imbalances, Target 2 imbalances, incomplete economic reform, unresolved banking systems? And what of the conflict between the policy imperatives and vision of the Eurocracy versus the political demands of stronger nations unwilling to pay for weaker ones – all the while looking over their shoulders at the lumbering beast of populism..

While the Germans would be delighted to see the abomination of the bond-buying programme ended, and Brussels will be delighted to hail normalization as vindication of economic recovery, the Italians can be pretty confident Draghi will "do whatever it takes" and pull something out of his hat to avoid a BTP-led meltdown. 

All of which are reasons not to overly concern ourselves with Europe this morning.. Something will come right… it usually does.. Let the party continue..

Once the ECB meeting is out the way, we can get back to the usual stuff like worrying about trade, geopolitics, market illiquidity, and the World Cup. We just stocked the fridge with beer for the World Cup. San Miguel for when Spain is playing because it's Spanish. Becks for when Germany plays because it's German. Leffe for when Belgium plays because it's Belgian.. And Carling for when England plays because it's arguably, despite the advertising claims, not really that great.

(As a Scotsman I am fairly agnostic on the World Cup… although it would be great to see Iceland win.. apparently their DNA is very close to ours..)

Out of time and back to the day job…

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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