Comments for Hades Research

Comment on UK safe haven status ignores lurking macro problems by Hadesresearch

Hadesresearch — Fri, 12 Aug 2011 17:30:04 +0000

Thanks for your thoughts, there is certainly an element of the least ugliest sister going on! My thesis really is the market has been much more efficient in pricing European and US problems, but thus far has overlooked many of the risks that are unique to the UK.

The UK’s fiscal consolidation sounds impressive enough but it is highly dependent not just on questionable growth targets but how the structure of the economy also shifts, in thanks due to sterling’s adjustment boosting exports. There is also no political risk priced, if the economy worsens I think the coalition might prove to be a little shakier than most currently feel and as always the electoral cycle will play a big role – the govt has already proved its pretty adept a u-turns.

I think the chance of more money printing is higher than priced, King is pragmatic. The BoE certainly won’t be hiking rates for the foreseeable future no matter how unlikely dramatic Fed style pledges are too. So rate differentials between the two are probably not as greater influence as some may believe. Fed language does actually given them room to backtrack if the economy booms too, however unlikely this may seem.

Of course if growth returns the UK is well placed, but given how much further deleveraging has to run there is only room for disappointment. I won’t even get started on UK housing which holds up the whole UK pack of cards. At least in the US they have faced that painful demon.

I’m not exactly enthusiastic about the dollar but when the tipping point comes I think the USD will breakout first and technically GBP/USD is bearish. I’m not too averse to the idea of EUR/GBP longs either, although not at current levels.

Comment on UK safe haven status ignores lurking macro problems by Stephen

Stephen — Fri, 12 Aug 2011 16:47:04 +0000

Interesting analysis Nick…however if we look at the monetary policy outlook I think you get an understanding of the current pricing. So, we look at the US where the FOMC this week indicated further loosening of their Monetary Policy via indicating the Fed funds rate will remain unch. until mid-2013 (instead of for an extended period) and signalling they are prepared to employ tools necessary to promote a stronger economic recovery, which leaves the door open for QE3. This shows the US unnable to stand on its own two feet without assistance from the Fed.

The Eurozone is a different conundrum with a sovereign debt crisis ongoing which has had little recognition from the ECB, so the market is currently pricing in rate cuts and has an inverted monet market curve, suggesting cuts are required to deal with the issues in the peripheral countries. So the market is pricing in further easing in the eurozone economy too.

In the UK, we have low growth and an uncertain outlook but King has made it explicitly clear that QE2 is very unlikely and the market prices no rate cuts along the money market curve, showing a long period of unchanged rates. So there you have it, the UK simply has the most optomistic outlook in terms of market pricing and is the least bad of these three woeful economies.

Comment on Bank tests obfuscate the real points of stress by PrudentGeorge

PrudentGeorge — Tue, 19 Jul 2011 14:21:38 +0000

So you think the Euro has problems? Don’t underestimate the hole the US economy is in, the GOP want to crush Barack Obama at any cost, lots of problems to be resolved and no solutions. I think of the euro as the Deutschemark, it should be strong.

Comment on Pound trades peseta like as ECB exposes rate differentials by Alan Max

Alan Max — Fri, 08 Jul 2011 12:28:31 +0000

I appreciate your nice concise commentary and agree with you statement that the cable is the most interesting market technically. This is possibly because it is the cross rate with the least fundamental factors bearing down on it.
I would love to know more about some of the Eastern European/Nordic EUR crosses and the impact this rate decision will have on them. Any technical analysis on these markets would be a bonus.

Thanks
Alan