By Michael Every of Rabobank
I have the perfect visual metaphor for a day on which the headlines show:
The UK government openly admitting it is going to break international law --but just a little bit-- prompting resignations among senior legal staff and pointed questions from a former prime ministers asking how the country can ever be trusted again. Not to worry, Theresa: poisonings, assassinations, dismembering, and kidnappings all seem to have a short political half-life; then it’s back to business as normal – “because markets”. Not so sure it applies to GBP itself though.
The Hong Kong justice minister wades into a debate prompted by comments from CEO Carrie Lam over the ‘separation of powers’ to argue it “has no place” there. (The Hong Kong Bar Association rejects this as “unfounded and inconsistent” with the Basic Law.)
The US imposes more sanctions on China, again focused on Xinjiang and allegations of forced labor, and this time potentially impacting the entire textile complex, given it covers cotton, and staple foods, given it also covers tomatoes grown there. From the perspective of the market press, spilling a cheap frozen pizza on a cheap cotton T-shirt while day-trading at home may just have become far more expensive.
On which note, stocks were allowed to fall once again yesterday (Dow -2.3%, S&P -2.8%) as tech stocks in particular crumbled and the most favorite of recent favorites most so. Suddenly zillionaires are only jillionaires. Central banks will be watching carefully with fingers on their red buttons at all this dangerous instability!
Indeed, as yields tumble in general, New Zealand rates turned negative for the first time at 3-years: that as the RBNZ considers going the Swedish rates route. Question: when does Australia wake up and do the same? Another question: when do NZD and AUD bulls notice?
Not negative again (yet), oil prices have tumbled markedly too. Just market positioning, or something about underlying demand we don’t want to accept in this K-shaped recovery in which markets not only don’t care about those left behind, but don’t even bother writing about them?
Exhibit A for economic confidence: the UK is talking about cancelling Christmas if necessary, surely also breaking international law just a little bit(?), and is again limiting household gatherings to six people as the second virus wave being seen across much of Europe continues to surge. It was only August when folks were being told Mission Accomplished and to go and have fun, wasn’t it? And just consider we are now weeks away from the UK furlough scheme coming to an end and unemployment soaring, or the BOE bank-rolling millions to stay at home and do nothing for another X months while pretending we still live in a market-based system.
Exhibit B for economic confidence: Astra-Zeneca is halting trials of the ‘Oxford’ virus vaccine after a test subject suffered an unexplained serious illness. That is standard procedure, but is going to generate concern. Russia and China both seem very happy with their vaccines, however.
Bloomberg is reporting: ‘US-China Showdown Over Big Data to Leave Decades-Long Impact’. This correctly surmises the ‘Clean’ vs. ‘China’ Networks plans underway mean “walls around data [that] would eventually transform supply chains”. As it says, TikTok, WeChat, and Huawei are just the beginning of this process. Will that change breathless tech coverage elsewhere on Bloomberg and the like? Mmmm….
Bloomberg is also reporting: ‘Brave New Words Hint at a Less Democratic Future’, which (selectively) notes party political rhetoric around the West “points away from liberal democracy”. Indeed, in 2019 democratic states were not the global majority for the first time since 2001, it quotes a Swedish study as saying, and one third of mankind is living in a country becoming more autocratic.
Congratulations on seeing (some) of what is going on around you! This is of course something I flagged as a key risk back in early 2016’s ‘Thin Ice’, a time when Bloomberg was selling neoliberal rainbows and unicorns; and again in early 2019’s ‘The Age of Rage’, which warned of… rage!…and rising left and right illiberalism - and of politicized central banks; ‘The Next Normal’, out recently, also showed central banks are inadvertently helping us drift into just that illiberal political-economy with each step they take. Of course, none of that registers in the Bloomberg article (which sits alongside dozens of others urging central banks to do more, “because markets”). Instead, these kind of things ‘just happen’…and hence must presumably be resisted with equally vigorous selective blindness.
Indeed, there was a large leap in Aussie consumer confidence today, up 18% m/m, and a surge in Aussie home loans (up 8.9% in the month vs 2% consensus), which will be welcomed by the RBA. However, it also speaks to a K-shaped recovery. Does anyone actually think the economy suddenly improved markedly? Far more likely than a sudden economic miracle is that this is an echo of what we see elsewhere: white-collar Covid winners on full salary and able to work from home using low rates to move out to the suburbs where they don’t need to meet the scrofulous poor and all their petty unemployment, food on table, and virus concerns. And one wonders why we are in an Age of Rage?
Elsewhere, China’s inflation data were mixed: PPI was again deflationary at -2.0% y/y, so bad for producers, and inflation was 2.4% y/y, down from 2.7%, so still not-so-good for consumers.
So, what’s the perfect visual metaphor I claimed to have for all of this? Something I saw on Twitter last night, which seems very 2020:
In Turkey, a large bear with a cardboard box stuck on its head managed to enter into a military base, and then to climb up to the top of a tall communications tower, from where it stood on high not looking down on anything round it. (The link is here.)
In the other news, a bear with a box on his head managed to sneak into one of the Turkish military bases and climb onto the tower.— Status-6 (@Archer83Able) September 7, 2020
The animal is reported to be safe and managed to descend on its own. pic.twitter.com/dKoRTmwWHz
Personally, it works for me on many levels – but taste is of course subjective. (Or at least some people allow it to be.)
As the Tweet concludes: “The animal is reported to be safe and managed to descend on its own.” Somehow, I doubt we will be as lucky.