Notes From Underground: Sorry Mr. Eliot, June Will Be The Cruelest Month

Memorial Day has gone and now the political elements of the world’s turmoil will be front and center. The last two days we were presented with the “coming  attractions” of what awaits the long dormant ills of the global economy, starting with contradictory polls in the U.K. on the Brexit vote. On Monday the British pound rallied to above $1.47 as the REMAIN VOTERS WERE POLLING STRONGER, while a Guardian Poll released Tuesday showed the LEAVE THE EMU VOTE to be 3% ahead in both and online and phone surveys. The interesting part of the Guardian News Poll was that the online revealed the same results as the phone. The phone poll reflects older voters, who favor LEAVE so it’s expected to be favorable for Brexit, while the online tends to be a younger constituency, which purportedly favors REMAIN. The Guardian poll resulted in a significant 2% drop in the POUND from its highs.

Making matters worse for traders and investors was a Financial Times article, “Hedge Funds and Banks Commission Brexit Exit Polls.” The article said, “Hedge funds and investment banks have commissioned private exit polls in an attempt to make profits from the result of the U.K.’S referendum on EU membership.” The mainstream media will now be reacting to the planted tweets and other social media postings that emanate from hedge funds and algos. This will create volatility from unsubstantiated rumors and innuendo all based on the private findings of mercenary pollsters. What’s also making matters more difficult is the U.K. election laws allow exit polling on the day of the vote as long as the results are not released until after the polls close. How is the FED going to weigh the impact of a Brexit vote at its June meeting when the fiber optic cables are streaming continual conflicting privately paid for polls. If Brexit is a factor  for the FED there is no chance of a rate hike amid all the potential confusion.

***The ECB meets on Thursday and my prediction is FOR NO CHANGE IN ANY FORM TO THE CURRENT POLICY. There are currently six EU countries who have two-year yields below NEGATIVE 40 BASIS POINTS, which prevents the ECB from buying those debt instruments and creates a dearth of paper for the ECB‘s QE program. Beginning tomorrow, the ECB will be allowed to purchase investment grade corporate debt and this will provide Draghi with an enlarged asset pool, THUS NO NEED FOR A POLICY CHANGE and risk of being vilified for playing politics with the Brexit vote.

The Draghi press conference will be filled with innuendo and policy possibilities, as usual, but no change will be announced.The buying of investment grade corporate bonds should improve the financial situation of many European non-financial companies so it would MAKE SENSE FOR EUROPEAN EQUITIES TO OUTPERFORM OTHER DEVELOPED EQUITY MARKETS. As always, do your TECHNICAL work to find relative value opportunities. Many U.S.-based private equity firms have initiated European-directed funds for equity and debt purchases so with the recent test of the EURO 200-day moving average, a positive relative trade profile may put a BID to the EURO. It’s just something to watch but of course the BREXIT VOTE makes everything a trade and not a position.

***More from the Chair Yellen Harvard appearance on May 27: Regardless of the media and tweets, I still believe Yellen was far more dovish than the initial market reaction assumes. It was not just the insistence on the Tobin concept of social justice but from these summations posted in real-time by Bloomberg News:
*Further gains are possible in Labor Market;
*Growth of U.S. output has been remarkably slow;
*Productivity growth is VERY SLOW;
*MISERABLE pace of recent probability growth
I just don’t believe this is the language of a “hawkish” Fed Chair so the idea of “in the coming months” will be defined by the head of the FOMC and not the squawkers filling the airwaves. As usual, I respect the power of markets and will always live to fight another day.



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4 Responses to “Notes From Underground: Sorry Mr. Eliot, June Will Be The Cruelest Month”

  1. Frank C. Says:

    The EU met last Friday in an “extremely sensitive” meeting regarding Brexit.

    The concern is becoming more palpable.

    I agree with your comments on volatility increasing and misinformation being rampant.

  2. david cooper Says:

    yra do think funds have told not worry about yuan? nobody seems to care that it really drifting down. no reaction at all.

    • yra Says:

      david–i think the Yuan is an issue on the sidelines and the Chinese authorities are using it as a message sender to the G7—we will not sit idly by so proceed at your own discretion but be prepared for a policy response–especially so with the YEN/YUAN cross rate currently residing at 16.60 Yen to the YUAN

  3. david cooper Says:

    thanks for the quick response yra. i hope to run in to in the cbot/cme building someday.

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