Notes From Underground

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.

*Further gains are possible in Labor Market;

*NUMBER OF PART-TIME WORKERS WHO WANT FULL-TIME IS HIGH;

*Growth of U.S. output has been remarkably slow;

*Productivity growth is VERY SLOW;

*MISERABLE pace of recent probability growth

Tags: Brexit, British pound, ECB, Euro, Fed, FOMC, Janet Yellen, Mario Draghi, QE

This entry was posted on May 31, 2016 at 5:23 pm and is filed under ECB, Fed, UK. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.