Ed Moya, Chief Market Analysts at OANDA joins me to update us on the progress of Brexit. With the October 31st deadline looming the market, as per Sterling, is pricing in a no-deal Brexit. Just how likely is this and where could Sterling drop to if it happens? We also look into the precious metals and how they continue to move higher and more importantly why.
With limited economic data on tap for next week Marc Chandler and I focus on the tensions between the US and China. The trade war has been the largest influence on the markets recently and will continue to be as Marc predicts that things are only going to get worse. We discuss the possibility of China dropping out of the WTO or the US setting up a whole new organization that restricts China from joining. A lot of questions still to be answered and the markets will be volatile through it all.
Marc Chandler, Managing Partner at Bannockburn Global Forex and Editor of the Marc To Market website joins me for a look ahead to data on tap and that has already been released. There is a lot of negativity as we turn the corner into Q2 but Marc has a different take of things. He thinks the economy could be in for a period of slightly better data and a little reprieve from the downtrend. Remember markets tend to lead the data.
The Battle of Britain (1940) was one of the most famous and important conflicts in history. The Battle of Brexit is proving no less decisive even if the weapons are financial and political, not kinetic.
The U.K. joined the European Communities in 1973 and that membership was ratified by a U.K. referendum in 1975. Membership divided the right and left in U.K. politics in the late 1970s and 1980s with the left initially opposing membership.
Over time, the left began to favor the concept and it was the right, led by Margaret Thatcher, that voiced opposition. In 1993, the European Communities transformed into the European Union, EU, as a result of the Maastricht Treaty. The U.K. was a full member of the EU and seemed set to remain a member indefinitely.
Your correspondent on St. James’s Street in London during a recent visit to the U.K. The period 2016–19 has been one of the most politically fraught in U.K. history. A referendum on exiting the EU (“Brexit”) was announced in February 2016 and held in June 2016. Subjects voted to “leave” the EU, but that vote merely started the turmoil and did not resolve anything. Politicians have been arguing over Brexit terms ever since.
While the U.K. joined the EU, it did not join the eurozone of countries that adopted the euro as a common currency. The U.K. rejected the eurozone and maintained its currency as the pound sterling (GBP). Given the size of the U.K. economy (fifth-largest in the world), this made for an awkward relationship with other major EU members including Germany, France and Italy, which all adopted the euro.
Yet the economic benefits of EU membership, including free trade and the “passport” concept (a business licensed in one member country can expand throughout the EU with minimal registration requirements) were undeniable. Both the EU and U.K. prospered as a result.
Still, opposition to EU membership never disappeared in U.K. politics. The right’s concerns were transferred from the Tories to a new U.K. Independence Party (UKIP), which grew in popularity from the 2010s forward. Despite UKIP, Euroskeptics remained a force in Tory politics.
The U.K. held a general election in 2015. Tory leader and Prime Minister David Cameron promised a referendum on leaving the EU as a way to shore up support from the Tories and attract votes from both Euroskeptics and some UKIP members. Cameron’s party won, and in February 2016 he announced the referendum scheduled for June 23, 2016.
Cameron would probably have won the election without the referendum pledge. His decision to hold the referendum was based on his overconfidence that the U.K. as a whole would vote to remain in the EU. This turned out to be one of the greatest miscalculations in the history of U.K. politics.
On June 23, 2016, the U.K. voted to leave the EU by a margin of 52% for leave and 48% to remain. Cameron promptly resigned as prime minister and party leader. He was succeeded by the current prime minister, Theresa May.
Theresa May favored remaining in the EU but promised to fulfill the will of the voters by commencing the negotiations to leave. On March 29, 2017, the U.K. formally notified the EU of its intention to leave under Article 50 of the Treaty on European Union.
May compounded her political difficulties by calling a snap general election scheduled for June 8, 2017. May expected to expand her Tory majority to give her more leverage in the Brexit negotiations. The opposite happened. May lost her majority and had to form a coalition with the Democratic Unionist Party (DUP) of Northern Ireland to remain in power.
However, the DUP favored a “soft Brexit” (leaving the EU relationship mainly intact), which further limited May’s negotiating power. May’s snap election decision was as misguided as Cameron’s referendum decision. Together, the two elections left the U.K. in the worst possible position when it came to Brexit itself and the exit negotiations.
The biggest political problem in the negotiations is that the 2016 referendum offered two choices (“leave” and “remain”), but the political parties have argued over four choices: a “hard Brexit” with no exit plan, a “soft Brexit” that retains features of EU membership, a “no Brexit” that wants to leave things as they are, and a “new referendum” that hopes to undo the results of the 2016 referendum.
All of these choices are highly problematic. A hard Brexit could lead to financial and economic turmoil along with damage to the U.K. economy for years to come. A soft Brexit lacks support from the Euroskeptic hard-liners. The no-Brexit approach is viewed as a betrayal of those who voted to leave and could lead to demonstrations and civil unrest.
The new referendum approach favored by globalists at the Financial Times and Economist is also a betrayal and could shock the political class by producing another “leave” majority, despite expectations to the contrary.
Political differences aside, a four-way division means there is no majority for anything.
Successive votes in the Parliament have resulted in one plan or the other being defeated, but no single plan gaining support. The U.K. Parliament members have been playing a gigantic game of chicken with the fate of one of the largest economies in the world hanging in the balance.
The Brexit talks between the U.K. and EU have continued for the past two years. Some political posturing was always to be expected. Significant progress has been made. But now the crunch has arrived. The deadline to leave the EU is March 29, 2019, just four days away.
Yet regardless of the outcome, the prospects for the U.K. economy are decidedly negative. Either a hard Brexit or soft Brexit will damage the U.K.’s trading relations with the EU. The U.S. has recently announced its intention to renegotiate its own trading agreements with the U.K. in ways that can only lead to a reduction in U.K. exports to the U.S.
The U.K. itself is caught in the global slowdown from which the only escape seems to be devaluation designed to import inflation, export deflation and stimulate exports. All paths point to a cheaper pound regardless of the specifics of the final Brexit plan.
But we could soon see some real fireworks at a time when the global economy can least afford it.
for The Daily Reckoning
The U.K. Brexit referendum on whether to remain with or leave the European Union (EU) took place on June 23, 2016. The result was a clear victory for the “leave” forces. But markets were shocked. All the “experts” had predicted voters would elect to stay.
I was among the few to prepare investors for that shock. In the days before the vote, I urged my readers to short the British pound and buy gold. Those who did made huge gains. Some readers even wrote to me to say thanks for paying their kids’ college tuitions for that year — that’s how much money they made.
Why was I so convinced of the outcome that shocked virtually the entire economics profession?
Since the original vote, the U.K. government has been negotiating with the EU about the exact terms and timing of Brexit. But there has been no resolution. And those negotiations are coming to a head because a deadline for final exit with or without negotiated terms is just four days away, March 29.
U.K. Prime Minister Theresa May has been caught between a rock and a hard place. Many members of Parliament are opposed to Brexit and have done nothing to support her in the negotiations with the EU.
Other members of her own party support Brexit but believe May’s compromises in the negotiations leave the U.K. too close to the EU and defeat the purpose of the original referendum.
In other words, that many existing EU regulations and political control would still come from Brussels instead of London. Some of these involve the hot-button issues that led to Brexit in the first place, like immigration.
Also opposing May have been officials in Northern Ireland and Scotland who are strongly anti-Brexit and do not want to see their relations with the EU disrupted.
Between the anti-Brexit forces and the hard-line Brexit forces, May cannot get a majority to support her. I was watching C-SPAN last night and saw footage of May appearing before the House of Commons last Wednesday. Let’s just say the debate was heated.
Meanwhile, the anti-Brexit forces have been trying to undo the original Brexit vote with calls for a new referendum.
Among these uber-globalists is Anatole Kaletsky, a financial analyst and global activist. I debated Kaletsky in Switzerland last year. He was condescending and a bit arrogant, which is what one expects from the globalists. He was also out of touch with popular sentiment, which is why he got it wrong in his original Brexit “remain” forecast.
Kaletsky has been banking on widespread opposition and political stalemate to force another referendum as a way to ratify the final deal. He has been convinced that a new referendum would reject Brexit.
But this is wishful thinking on Kaletsky’s part, the same wishful thinking that caused him to miss Brexit in the first place. But it’s a good lesson in the relentless methods of the globalists, who treat all setbacks as mere pauses in their quest for one world government.
Now we’re just four days away from when Britain is scheduled to leave the EU. The EU has offered two alternative deadlines — one if the U.K. can agree on a deal, and one if they cannot.
If May can convince Parliament to accept her most recent proposal, Britain will have until May 22 to finalize the details. But if she can’t persuade Parliament to accept the deal they’ve already rejected twice, Britain will only have until April 12 to sort out the next steps.
If Britain can’t figure it out by April 12, “the option of a long extension will automatically become impossible,” says Donald Tusk, president of the European Council.
The latest Brexit uncertainty comes at a very bad time. Global growth has hit a wall, and a poorly implemented Brexit could only bring additional head winds to the global economy. And it will spill over into U.S. stocks.
That’s why Brexit could affect you personally, even if you don’t think you have a stake in the outcome.
You might want to stock up on gold and keep your wealth in dollar-denominated assets. You definitely do not want heavy exposure to the British pound, which is set up for a significant fall.
for The Daily Reckoning
Marc Chandler, Managing Partner at Bannockburn Global ForEx outlines the key Brexit vote tomorrow and what could follow if the vote is a no. There are a number of different scenarios that can play out as the March 29th deadline approaches. We also address the fact that everyone has jumped on the global slowdown bandwagon. It is understandable since data around the world has continued to be quite weak, however in the short term it would not be out of the question for a small relief rally.
Click here to visit Marc’s daily blog. It’s well worth your time.
Marc Chandler, Managing Partner at Bannockburn Global Forex and Editor of the Marc To Market website joins me today to outline the drivers behind the recent pullback in the markets. With so much volatility day to day we address the fact that markets are being primarily influenced by headlines that don’t matter in the long term. We look at what will matter in the long term.
This post World’s “Elite” Just Sent a Chilling Warning… But There’s a Silver Lining appeared first on Daily Reckoning.
It may look like a peaceful winter wonderland. But if you visit the Davos ski resort in Switzerland this week, you’ll hear some forecasts that will chill your nerves as an investor.
Fortunately, there’s a silver lining. One that will set you up for luxurious gains on your 2019 brokerage statement. But to lock in these profits, you’ll have to be brave!
Let’s jump in and see what’s happening in this snowy winter summit.
Cold Warnings from the World Economic Forum
Each year, the most influential investors, business executives and world political figures visit the tiny ski retreat of Davos in Switzerland to attend the World Economic Forum.
It’s a time when these leaders can meet face to face and discuss the state of the world economy, and how to promote the best growth possible.
I’m always intrigued by this gathering because there are so many different opinions and agendas represented. While it is interesting to hear the different perspectives that are presented throughout the week, it’s important to remember that each perspective is influenced by the person’s experiences, professional role and personal biases.
So far this week, the conference has featured a number of ominous warnings when it comes to global economic growth.
After strong “synchronized” growth in 2017, last year featured an environment where the United States grew while the rest of the world faced economic struggles. A big part of the success here in the United States came from lower taxes and a healthy business environment that created millions of new jobs.
The question this year is whether the U.S. will join the rest of the world in struggling to grow, or whether our economy will continue to buck the trend and continue to expand.
Of course, the academic “analysts” presenting at the World Economic Forum are warning of a slowdown for the United States. They’ve been singing out of the same hymnal since the bull market first began 10 years ago.
But even in their dire warnings, there is a silver lining. Because the presentations that I’ve heard so far explain that the U.S. will likely experience a “slowdown in growth” rather than a full-out recession.
The difference here is key.
A “slowdown” in growth means that our U.S. economy will still continue to grow. We will add jobs, and corporations will grow earnings. Heck, we’ll likely see workers continue to get bigger paychecks and spend money on more discretionary purchases.
That’s far from a recession — which is when the economy actually contracts, people lose their jobs, and the environment becomes much more challenging. While recessions are a part of the overall economic cycle, the U.S. economy isn’t showing signs of entering that type of environment any time soon.
So despite the warnings of slower growth coming from Davos, the underlying data still points to a healthy U.S. economy. And that’s great news considering the picture for the rest of the world.
There’s Only One Place to Invest…
One of the most encouraging discussions I’ve been listening in on is the question of whether to invest in the United States or the rest of the world.
Even with the sharp pullback in the fourth quarter, the U.S. has been the best place for investors to put their capital. After all, our economy continues to grow and corporations are reporting record earnings!
Looking to the year ahead, there’s no reason to believe this year will be any different.
After all, China’s economic growth has been slowing dramatically. And yet stock prices for many Chinese companies still reflect optimism that the country will get back to the growth levels from a decade ago. That’s simply not going to happen.
Looking at European investments, the Brexit discussion has left European markets in a place of extreme uncertainty. And many European banks have financial risks that are becoming much more worrisome.
Elsewhere, the low price of crude oil has put governments and economies in energy-dependent countries into an uncomfortable place. And investors in those countries are looking for safer places to put their capital.
That leaves the United States as one of the few healthy places to invest. And thanks to the fourth quarter pullback, U.S. stocks are actually cheap compared to the earnings that these companies are generating.
That’s why here at The Daily Edge, we’re confident investing in thriving U.S. companies with growing earnings. We’ve had some volatility as stock markets have fluctuated. But investing in the best American opportunities has allowed us to weather the storms in late 2018, and should set us up very well for a profitable 2019.
So don’t listen too closely to the warnings from Davos. Instead, keep your capital invested in the safest economy for the year ahead.
Here’s to growing and protecting your wealth!
The post World’s “Elite” Just Sent a Chilling Warning… But There’s a Silver Lining appeared first on Daily Reckoning.
Chris Temple joins me today to recap some significant news from yesterday. The Brexit vote failed by a wide margin however the markets more or less brushed it off. China is stepping in again to help save/support its markets which is helping the US markets as well. We wrap up the call by looking at the technical picture for the US markets and provide a general prediction of what this year will look like in a broad sense.
Marc Chandler, Founder of MarcToMarket.com and Managing Partner Bannockburn Global ForEx joins me to recap the major events that have international investors nervous. Europe is a situation but now its Brexit and France leading the worries. We have the ECB meeting on Thursday which should make form some interesting talking points. Also to tack on to the US/China trade disputes we have the arrest of the Huawei CFO in Vancouver now facing an extradition hearing. There’s a lot going on at year end.