Trump, May working together & How Dumb do you think Think Trump is?
In the next 24 hours the market, globally, will be focusing on one city - London.
2 Reasons:
- BOE Governor Mark Carney will speak tonight at 6:30 GMT, ahead of inflation data, to be published tomorrow. Higher inflation is expected, to correspond to the falling pound. This is import-price-driven, not the kind that is supported by a higher wages. Therefore, it is expected to increase pressure on the pound.
- PM Theresa May will speak tomorrow, and she is expected to say the UK is going for a hard Brexit - In order to regain control of UK borders and law, she is willing to forego the free passage of goods and services - according to the Sunday Times. That report sent the pound falling 1.6%, which included a gap of over half of one percent. Even Brexit didn't create a gap in the pound.
How far is May willing to go?
Her Brexit Secretary, David Davis said this: "We don't want the EU to fail, we want it to prospect politically and economically, and we need to persuade our allies that a strong new partnership with the UK will help the EU to do that.
It doesn't add up that Davis's reference of the EU failing is simply the fact that the UK is divorcing the EU, as it will create precedence of a member leaving the EU, because the better the deal the UK gets the more attractive it becomes for other members to follow in the UK's example.
Call me a cynic, but to me that sounds like a thinly veiled threat. In the movies, when someone is threatening someone's family, they say that they don't want anything unfortunate to happen to that person's family.
Does the UK have the power for the EU to fail?
May's finance chief, Philip Hammond, said the UK is willing to abandon "mainstream economic and social thinking" if it is unable to craft a favorable post-Brexit EU deal.
"...mainstream economic and social thinking." Sounds vague.
How could the UK hurt the EU?
Germany's Welt Am Sonndag newspaper has accused British finance minister Phillip Hammond of threatening to drastically slash corporation tax to turn the UK into an offshore tax haven if it is not given a trade deal.
The UK is a cornered wounded animal, which can be more dangerous than a healthy one. When someone has nothing to lose, he's willing to take the biggest gamble. Is that what Theresa May is doing?
The Bahamas is moving to the UK.
In "other" news this past weekend...
- Trump says NATO is obsolete. The members don't pay their fare share, and the US doesn't need it anymore.
- Trump said Brexit will be good for the UK, said he'll give the UK a "fair deal" and predicted more members will follow the UK's example in exiting the EU
- Trump attacked German car maker, BMW.
4. Trump favored lifting US sanctions on Russia
Can you connect the dots?
Here was a spoken headline on Bloomberg TV this morning: "Trump slams NATO and backs Brexit." The Bloomberg anchor blurted these two big news together, but made no connection.
Is it a coincidence that on the same day that the Sunday Times reported May will execute a hard brexit, Trump interviews to UK and German newspapers, in which he attacks the EU?
- Who relies the most upon NATO? The EU. Once the US and the UK withdraw their militaries, the EU's military is insignificant relative to, say, Russia. What about Russia and China? Russia, China and Iran? Russia, China, Iran and North Korea?
- the EU needs the US and the UK military support. If the EU will punish the UK economically, the UK and it's big-baby brother, the US, will hurt the EU militarily, by ending NATO.
- How much clearer can Trump be, having said he'll give the UK a "fair deal?!"
- Trump attacked Germany's BMW!
- Trump is cozying up to the EU's biggest enemy, Russia.
Coincidentally enough (or is it) Theresa May is to become the first British PM on the cover of American Vogue in April, to go on sale in March, the month in which May intends to evoke article 50. Might a softer, feminine angle, at the time of a hard Brexit execution - in the popular fashion magazine - win her the support of her countrywomen?
Trade Wars
The oft repeated Trump-risk by analysts is his protectionist rhetoric, which will surely lead to trade wars. Trade wars are detrimental for the global economy and they are detrimental for the US economy.
One question - doesn't Trump know this? Don't his billionaire and hot-shot Wall-Street advisers know this? And if Trump and his advisers didn't know this, after it's been blasted throughout the financial media, don't they all know it by now?
I submit that Trump and advisers are not so stupid, which leaves one other option - negotiation tactics.
Trump is a business man. He published in 1987 Trump: The Art of the Deal. Trump cited this book as one of his proudest accomplishments. Throughout his campaign Trump boasted his negotiation skills.
when both he and Theresa May are threatening trade wars on the same day, it is hard to believe it isn't coordinated.
The Case for Shorting the Pound
Brexit Not Priced-in
“Even if the pound recovers somewhat in London, it seems as though the realities of a hard Brexit are still not fully priced in,” said Sean Callow, senior strategist at Westpac Banking Corp. in Sydney. “It is difficult to make the case for the pound to avoid testing, probably breaking, the ‘flash crash’ lows in coming weeks.
Options Market
Volatility Hedge
Options for expected GBP swings are at a 3 month high, 3 trading days since flash crash, as traders sought protection against more turmoil.
Shorts
Hedge funds have doubled their shorts.
UK Government Officials
Government officials expect sterling to take another hit when Tomorrow, May speaks.
Treasury is preparing to speak to major banks in London to try to smooth the reaction.
It’s unusual for the prime minister’s office to anticipate a bad market reaction.
Upside Risk
If UK Supreme court rules that the UK government must go through Parliament before evoking article 50.