You ain’t seen nothing yet

It isn’t all that it seems…

The big deal was the Brexit agreement and the subsequent revolt from (almost) all sides of the political divide. The political reaction soured sentiment across the sterling credit market as we might have expected, but we also had a contagion impact on euro credit markets too. The end game might just be a ‘no-deal’ and the disruption which follows will be significant, unless (in our view) the EU side acquiesces and takes a more reasonable stance. For investors, the end of the year can’t come quickly enough and caution is going to be the name of the game from now until then.

In addition, Mario Draghi was seemingly unmoved in his view that the Eurozone is only experiencing a soft patch. It’s just that when they decide/realise it is not a soft patch, it will be too late. QE ends in a few weeks, and the Eurozone’s (budget) recalcitrants will be left to fend for themselves. Anyone looking for a quick turnaround in growth (Germany contracted in Q3 versus Q2) is going to need to believe that trade talks, Brexit and the general malaise current impacting macro all draw to a swift and positive conclusion forthwith. Don’t position for it.

A vote of no confidence in May’s premiership is a nailed-on certainty, we think. That possibility left us to limp to the finish line for last week, with the markets licking their wounds and ensuring that we saw out the final session with little activity but in defensive mode. This week likely sees that confidence vote and comes ahead of the November 25 gathering where the EU’s 27 other leaders are expected to ratify the Brexit agreement. However, preceding it, there’s enough uncertainty in the air that we likely trudge through next week, and be on the defensive for choice. Thursday’s Thanksgiving/Black Friday will also bring proceedings to an early and premature end for the week.

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