Steen Jakobsen, Saxo Bank Chief Investment Officer, comments on the UK
election, the British Pound, and the Euro in a recent email report.
Dear All,
Please find my almost final version of the UK election presentation:
Main Points
Conservatives and PM May have executed a terrible campaign
– she has done ALL the mistakes of Clinton and the establishment:
- Safe pair of hands
- Not committing to anything
- Talking about energy regulation
- No committing to tax freeze
On the other hand, Labour has been able to reframe.
What kind of Brexit do you want? To what kind of country do you
want?
- Classic tax & spend, but this time the classic
middle class is safe, while “rich” & “corporates” needs to pay
more….
- Wild promises free lunch and education, 250 billion GBP
infrastructure program
- No commitment on Brexit
- Corbyn policy is economically naïve but he is getting
the young voters.
My final call:
- The election will end with Tories having EXACTLY the
same majority as now – hence a lost election and a muddy BREXIT mandate.
- Prime Minister May is the de facto loser independently
of the final results as her “management” has been poor and rudderless
leaving more doubt than the clear vision needed – hence the title:
Unintended consequences (May getting weaker mandate and populous empty
promises still attracting voters.)
Market calls:
If correct in my call… GBPUSD should correct 1-2% but
overall the next major level is 1.3500 (& 1.4000 in 2018 based on credit
impulse, weak dollar and terms of trade improvement & the better trade is
probably to be long EURGBP towards parity
(EU growth > UK growth, EUR undervalued, EU Current Account surplus vs. UK
Current Account)
Steen Jakobsen
UK Polls
A new set of UK polls is in.
Election Blowout?
If the latest poll is accurate, the election may be the slaughter that
many envisioned all along. I suspect the election will provide a
substantial pickup for the Tories, but short of an absolute blowout.
Long the Pound
I am long the pound vs the US dollar and have been for some time.
Near-term, Steen may very well be correct the better play is to be long
the Euro vs the Pound. However, the euro is a far riskier play. Any
number of events with Italy or Greece could impact the Euro.
The consensus opinion is the UK has more to lose in Brexit. I disagree
with that consensus.
Will French President Emanuel Macron achieve anything, even if his party
“en Marche” wins a majority of French parliament? Color me skeptical.
For now, a sinking dollar (I believe the dollar has peaked this
cycle) stands to benefit the Euro and the Pound.
Disruptions due to Italy, Portugal, or Greece are a substantial worry
for those considering the Euro.
Mike “Mish” Shedlock
