By Michael Every of Rabobank
A Musical Interlude
As Bloomberg reports with piercing insight today that “History Suggests Summer Lull for Markets Just Around the Corner”. So it is high time for a musical interlude. Specifically, in light of the British government’s attempt to get all its school children to wail “Strong Britain, Great Nation” in unison tomorrow, I felt it necessary to provide an alternative British anthem to rally behind: it’s the British, Boaty McBoatface thing to do. So here we go (to the tune of ‘Puttin’ on the Ritz’ by Irving Berlin – a song born in 1927 and butchered to death in 2021):
“Have you seen the well-to-do; And even those in Luton too; Billionaires and folks living on welfare; All breathing British air - High prices and friendly rozzas; White-collar crime and Eurodollars; Economy of housing and City; And weather not pretty - Now, if you like that Tory blue; But you don't know where they’re go to; At least it’s still where fashion sits; That’s right, it’s with the Brits - History’s the Blitz and the Small Boats; From Lands End to John O’Groats; Not so much the nasty bits; When you are the Brits
--Building Back Better really will be super; ‘specially when Boris says the gender’s neuter; Super duper--
Come integrate like Abramovich; Or gentrify like in Shoreditch; And then laugh at silly Euro kitsch; Because you are the Brits - And let’s Level Up a treat; To close the gap ‘tween those who eat; Hummus and fish and chips; Before the UK splits - House prices rise all the time; Yet to build on Green Belt isn’t fine; Nor’s the new H-S-2 line; Though it would save a lot of time - We love Brexit Red-White-and-Blue; But where next are we heading to; The Euros, Yankies, or Pa-ci-fics?; To be a ‘Global Brit’? - Don’t mention your chilled meat order; Or where the Northern Ireland border; Now has to fit; Eat a banger, be a Brit!
--Could The Quad now prove to be quite super?; As Chinese relations head right down the chute-r; Or shooter--
But forget that and mix your drinks; Get trolleyed or up to old high jinks; Like a punch-up with the Russkies just for kicks; Because we are the Brits”
This of course following a British naval vessel being involved in what could have been a serious altercation with the Russian military just off of the coast of Crimea. And having started out on this musical theme, I feel it is only fair to continue in the same vein with Europe, this time to the tune of La Marseillaise:
“Come on you Euros of all stripes; It’s time to sell cheese, and to sell cars - We also have a nice line in tourism; With lots of restaurants and good bars - But to sell more here’s the real trick; Let’s drop all the nasty realpolitik - Been there, and done that; We have even got the T-shirt - So come: let’s sell the cheese! And then, let’s sell those cars! Sell on! Sell on! To everyone we can – but please defend us all, Americans”
Which of course comes as US Secretary of State Blinken, on an official visit, says the US has “no better friend than Germany” - just as Berlin flags they are set on doing business with China rather than joining a US-led Cold War; and as they and Paris propose inviting Russian President Putin to an EU summit to try to revive relations. From a geostrategic perspective, it’s very hard to tell if this is part of a Nixonian EU attempt to reduce tensions on the Eastern front to allow more of a (soft) focus on China, or if it is just waving a giant white flag with the Franco-German coat of arms of fromage-und-auto emblazoned on it. Either way, the Merkel-Macron proposal won’t do much for intra-EU tensions given how central and eastern Europe feel about Moscow: remember those equal members of the Union? Apparently not.
And to complete the musical trilogy, here is a brief ode to America, to the tune of ‘When the Saints Go Marching In’:
“Oh when the rates; Go over there; The markets will despair - But we have no idea what number; Would make the rates go over there - Could it now be; In 22? Or is this all Fed rhetoric too? - How can they meet so many diff’rent targets; With just the rates to get them there? And let’s not start; On things fiscal; Or politics so dismal - We are all still none the wiser; Just how the rates go over there.”
This following two FOMC speakers (Kaplan and Bostic) diverting from Powell’s Dove From Above performance this week to argue US rates could rise as soon as 2022 - presumably just after the mid-term elections in December. So we have just had end-2024 as a hiking date; then end-2023; now end-2022: recall our recent report arguing nobody can forecast inflation correctly? Moreover, this shift is as Bostic also argued the US housing market isn’t in a bubble(!), and that high inflation will possibly last 6-9 months, not the 2-3 months(!) he had expected. Also, as news broke of a potential Senate agreement on an infrastructure bill worth $1 trillion over 5 years, of which $579bn would be new money. Yes, it isn’t trillions (plural), but around $200bn in spending (or 1% of US GDP) every year is going to mean more demand, more commodity price inflation, and a Fed that might have to re-dot its plot and sing a new tune.
Meanwhile, the summer interlude does not necessarily apply to China. Today sees the closure of Apple Daily media in Hong Kong, prompting a withering op-ed in the Financial Times. Bloomberg also reports “Hong Kong’s Accountants Push Back After Government Power Grab”, noting “the staid accounting profession is the latest to be rattled by the chaotic changes sweeping through Hong Kong”; and that “China’s Debt Reckoning Hammers ‘Too Big to Fail’ Borrowers”. Meanwhile, Xinhua says China will boost new forms and models of foreign trade to develop a new competitive edge: “Policies to support cross-border e-commerce development will be improved. Integrated pilot zones for cross-border e-commerce will be piloted in more areas. The list of goods in cross-border e-commerce retail import will be fine-tuned. Management of cross-border e-commerce import and export returns and exchanges will be made more convenient…. International cooperation in intellectual property protection, transnational logistics and other areas will be stepped up.” Does this mean cross-border trade in e-CNY? If so, who is first on the list to be paid in them, and on what payments system? The structural impediment of a largely-closed capital account remains, which is why CNY has not become a true reserve currency even though the IMF gave it a gold star when asked. Even so, this may be another (small?) step closer to a global paradigm shift.
Likewise, the summer is unlikely to be quiet on the Iran nuclear/oil front. Tehran reports another --foiled-- sabotage attempt at its atomic energy agency building as the US makes clear it is ready to resume negotiations (“Where do I sign?”) as soon as possible. Iran has stated the US already offered to remove over 1,000 sanctions to get a ‘yes’. Exactly which musical soundtrack provides the best backdrop to this is very much in the ear of the beholder: “We’re in the Money”, “I’d Like to Teach The World to Sing”, and “Tomorrow Belongs to Me” all seem to resonate with different global audiences. Brent crude was at USD75.36 at time of writing, above its 2018 peak.