- There’s a lot going on in the world this week. Economic numbers, central bank meetings, speeches and all sorts of political wrangling. Even an important and fiery speech by China’s President Xi Jinping criticizing President Trump, that took Asian markets by surprise, had a limited shelf-life in keeping traders’ attention. And a potentially pivotal Eurogroup meeting to debate Italy’s proposed budget isn’t getting nearly the attention it would normally merit. Bring any of these events up for discussion and you’ll receive the ubiquitous response, “Yes, but what do you think happens tomorrow?”
- It is an understandable but insufficient question to be asking. What will the vote result be is very different than asking what do you expect markets to do in response? Don’t mix up the two. We all have our base cases for the former. And the dispersion of predicted outcomes is pretty small. There’s a great deal of confidence out there despite how poorly polling data have predicted recent votes and referendums
- How asset prices respond is another matter altogether. And it won’t only depend on the ballot box but also on how all those other matters that are getting short shrift for today impact things. Trade disputes and European governance issues aren’t going to be suddenly solved. And, no matter the outcome, the social discourse is unlikely to suddenly become civilized nor constructive. For those of you who can’t wait for this all to be over, Wednesday begins high season for laying the groundwork for the general election
- Is gridlock a good thing or a bad thing? Certainly, it can be both. Even at the same time. Depends on the issue. Which party is more fiscally responsible and which will be more profligate? First you need to understand whose ox is being gored at any particular instance. As we’ve certainly seen, generalizing can simply mean being close-minded
- It’s also worth reminding yourself that your personal view of the results should have nothing to do with assessing whether equities, the dollar or the like will go up or down. It’s probably worth remembering that while this vote is domestic, the financial market response will ultimately be a global one
- NOTE: “Trader’s Notes” are authored by Richard Breslow, a former FX trader and fund manager who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
-R.W.N II, yours in 322.
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