Oh look, the Pound is at levels not seen since the last time and the FTSE is at a number. So say all my twitter feeds over and over again. No comment on where it goes next, just where it is now. Which is as useful as a bag of sick.
One of the most important trading indicators of the last 3 years, in this effectively mean reversionist market, has been journo-noise. Toys out of prams, headlines, panic screaming and pointing at numbers with no reference to what may happen next, other than pulling out a ruler and pencil and implying that something terrible will occur (have you ever heard them do the reverse and imply something wonderful will happen in the future?). I am convinced that journo-noise trumps fast moves, rulers and pencils as a signal and I am convinced that this morning’s cacophony of Sterlingness is a signal.
The price of GBP has fallen and it is assumed that it is related to Brexit. Though the chance that it is related to Brexit is pretty high, it's worth pointing out that no one actually knows for sure. Correlation, causality and all that. The reason GBP is lower is that the natural equilibrium between buyers and sellers has moved. Or in 'spot shag' talk, someone sold it and no one bought it. Now, unless you wish to ask every seller of GBP in the market why they sold GBP you will never know for sure why GBP has fallen. I know this sounds pedantic but though the probability is hugely skewed towards it being Brexit, it is important to know that it isn’t a 100% certainty on which to base secondary assumptions, which is what our brains tend to do with anything over 50%.
Anyone who as worked in the FX markets will know that momentum is a major factor for model trading accounts and they will follow trends no matter what the cause. Technicians will trade no matter what the background and VaR models respect no macro. But we all like to think we know why things happen.
But, pedantry out of the way, if we take it that the move is Brexit linked, does it tell us anything about tomorrow? The news was out on Sunday. The news was that Article 50 will be triggered. No surprise other than to those still at the ‘Denial' part of the Kubler-Ross curve of grieving. So no, it doesn't really.
Next is the assumption that a weak GBP is terrible, terrible news. Most G7 nations would give their eye-teeth for a currency devaluation. One of the main reasons for the economic stresses in Europe is that Germany is benefiting from an artificially low exchange rate. A weak pound can benefit the UK in the same way. We should also note that attention is always applied to the most spectacular GBP cross. GBP/USD may be at impressively long time lows, but EUR/GBP was toying with parity much more recently. USD strength over the last couple of days is exaggerating cable moves.
Here I may be opening myself up for abuse but I feel that May and Hammond are actually very smart people, especially compared to the last incumbents, and despite the sound-bite sniping that is aimed at them, will handle things in a sensible manner. The fact that they are not telling us their every move is to be expected. I am sure that there are multi-layers of diplomacy at work and, as one of the most important issues for all sides is ‘face saving’, staying quiet and avoiding a 'them and us' media sponsored battle is to be expected. Of course, everyone wants to know what will happen, but as with Christmas, we will probably have to wait for Christmas.
Last suggestion, which I’ve made before - Any comment on where a price is should be accompanied by a view as to why it matters.
I am adding Long GBP/USD through today. It could be called an emotional trade but GBP is an emotional trade.
Long USD/JPY from friday, so call that long GBP/JPY
Long USD/TRY still.
Long Oil still.
Short BTP’s still post Draghi
Long Trump to win. Wild prices but back at 25% it still looks cheap as a hedge.