Posts tagged U.S. elections
Things to think about #5

There’s been a lot of talk about the political center* in Europe in the past few weeks, in the wake of the French parliamentary elections and the landslide victory for Labour in the UK. Is it reinvigorated, complacent, or perhaps just lucky? I offer two thoughts on this.

Firstly, sometimes a long-in-the-tooth incumbent is sacrificed on the altar of change no matter how reasonable or uncontroversial he or she is. In the context the most recent elections in Europe, this applies mostly to France, where the people has a tendency to throw their leaders under the bus, for no other reason that they’ve been in power for a bit too long. But I think it applies to England too, to an extent. Rishi Sunak and his cabinet weren’t that bad, or more specifically, the Sunak government was a lot of less controversial and risk-seeking than its Tory predecessors. But in the end, the weight of dissatisfaction and disillusion with previous iterations of Conservative cabinets were too much to bear. The Tories received the drubbing they deserved, having put their faith in a toxic mix of volatility and incompetence under Boris Johnson and Liz Truss. The doomed political and economic project of Brexit looms large in this story too. Whatever Labour decides to do with this smelling carcass of a political legacy, it brought the destruction of the Conservative party, and the right in UK politics, as we know it. Perhaps for that reason, Starmer will be inclined to leave it smelling for a bit longer, to remind people of what they’ll get should they consider jumping back into the Tory fold.

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Politics and society, US politics and society, European politics and society, UKclaus vistesenHedgehog Review, European politics, US politics, Anton Barba-Kay, centrism, Joe Biden, Donald Trump, Ben Hunt, Epsilon Theory, politics, U.S. elections, U.S. politics
The Riddle of the Dollar

Judging by the latest virus numbers in Europe, and government announcements to contain it, markets may soon have to read up on the math of lockdown economics. Before we get to that, though, investors have been locked in deep thought over the impact of the U.S. presidential elections, which seems to converge on trying to price in the consequences of a Biden victory and a “blue wave”. As I explained last week, investors seem to have concluded that this is good outcome for risk assets, though as I argued at the time, this isn’t entirely clear to me. To illuminate this further, it’s useful to consider how markets perceive a Blue wave in the context of the dollar and the U.S. bond market. As it turns out, the consensus position isn’t entirely clear, which is a hint. If markets can’t figure out how a Democratic sweep will impact the dollar and bonds, it’s difficult to have any view on how it would impact equities. The dollar is particularly interesting. It seems to me that analysts initially pinned recent weakness—effectively since April—on the inherent political risks associated with a Biden presidency, though it has since morphed into a bullish catalyst in the context of the expectation of surge in fiscal stimulus, funded by a benevolent and compliant Fed. Why this latter should necessarily be bearish for the dollar isn’t clear to me, especially not if it led to stronger growth in the U.S. compared to the rest of the world. By contrast, the idea, voiced in some corners of the market, that the U.S. is on its way to print away its exorbitant privilege—in effect losing its reserve currency status—seems even more ludicrous to me, even in world where China is now emerging as a potential adversary.

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Markets and Trading, US politics and societyclaus vistesenDXY, dollar, USDCNY, China, Joe Biden, Donald Trump, U.S. elections, U.S. politics, U.S. treasuries, yield curve control
Finding the Cracks

I have a lot of sympathy for pen-wielding strategists at the moment. Every day the empty white sheet of digital paper is staring at them, the little cursor tauntingly flickering in the top-left corner. The most obvious course of action, to copy-paste their previous note, is just about the only thing they can’t do. We economists at least have a steady flow of new data, however mundane and useless, to write about. In other words, the main questions remain the same, and they remain largely unanswered. Economic activity has collapsed, and is now staging what appears to be a painfully slow rebound. Even in the best of worlds, however, it’s difficult to escape the notion that significant damage has been wrought in on both the demand and supply-side. This puts equities on the spot. A reflexive rebound from the nadir in March was always coming, but could it be sustained, and would we re-test the lows? In a normal recession the answer to those questions would be “no” and “yes”, but there is nothing normal about this recession. U.S. equities have roared higher, and the ubiquitous growth stocks, which outperformed before, are leading the charge again. The S&P 500 growth index is up a cool 32% from its March lows, and is now flat year-to-date. By contrast, the S&P value index is up “just” 21% from the lows, and are still carrying a 20% loss year-to-date.

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China, Asia, Markets and Tradingclaus vistesenChina, USDCNY, equities, Trade Wars, U.S. elections
Treading water

Last week was docile compared with the fun and games we were treated to earlier this month; no imminent Lehman moment at a major European bank and no flash crash in the GBP or other G4 currencies. Still, we had a number of interesting moves in the major asset classes and indices. The continued squeeze in yields probably was the stand-out move. Starting with the benchmark, the U.S. 10-year yield broke range and a move to 2% is starting to look like a good bet in my view. For once, it appears that can we apply relatively plain-vanilla macroeconomic narrative here. Inflation in the U.S.—and indeed globally—is nudging higher and the Fed intends to act accordingly. The slightly more cynical interpretation is that the Federales are desperate to get another hike in before the end of the year, but that underlying fundamentals haven't really changed that much.

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Markets and Tradingclaus vistesenequities, bonds, EURUSD, oil, commodities, Trump, U.S. elections