Monday, 23 November 2015

A few macro thoughts today

A few macro thoughts today...

Security and impact – with Brussels locked down for another day the FT notes that ‘David Cameron will set out a five-year defence review on Monday with a focus on tackling Isis, including a 30% increase in the counter-terrorism budget, £2bn on special forces and a new emphasis on cyber defences. The British prime minister will hold talks on the Isis threat with French president François Hollande before returning to the Commons to promise to provide the resources needed "to help keep our country safe" ’.  

Meanwhile in economic impacts the CEO of Siemens quoted as noting ‘my biggest (business) concern is the fallout of the geopolitical distress…we’ve seen a new quality with the sad events in Paris.  Investment will wait'.  Additionally the Italian finance minister observed that the attacks could do ‘serious damage’ to the Eurozone economy. 

Certainly a serious issue for investors to be thinking about...

...even if history suggests even the highest profile terrorist challenges can - at a market level only - be transitory: 

 (h/t @EdMatts)

In Southern Europe over the weekend:

Greece – ‘Greece Secures Bank Funds as Tsipras Seeks to Build Consensus’ (link here). A small positive step but much more needs to be done

Italy – a bad bank the next move?  Probably would be sensible...but raises the issue as to why it has not been done already:

That Europe still has challenges is wonderfully shown by the below chart which contrasts Europe vs US on cyclicals vs defensives –

So what should Europe do - loosen policy again?  Well as per this report  'Monetary policy risks becoming ineffective in low growth world as per the ECB’s Coeure'.  Which of course is why they are planning QE2!  Meanwhile the euro down to low 1.06s against the US dollar...  

Commodities – some further weakness this morning e.g. ‘copper sinks to below the USD 4500/ton level for the first time since 2009’ but this article in particular caught my eye and is worth reading: “A depeg of the Saudi riyal is our number one black-swan event for the global oil market in 2016, a highly unlikely but highly impactful risk,"   

Ahead of the Autumn Statement – fiscal blackhole in the UK? surprises to see equities yielding more than bonds but the below shows the huge (i would argue) relative value:

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