Not Brexit

So the results of Europe's weekend votes are in, and the protest movement went one for two.  In Italy, Renzi's Referendum was on the receiving end of a crushing defeat according to exit polls, and the prime minister has already tendered his resignation.   In Austria, meanwhile, the pro-European Alexander van Bellen swept to victory has the hard-right candidate has conceded defeat.   In a somewhat amusing irony, the losing candidate blamed Nigel Farage's interference for helping to cause his defeat.

The initial reaction has been to sell euros and sell equities.  But let's be clear: this Italian result is nothing like Brexit.   It was neither unexpected nor a journey into uncharted territory.   Indeed, political turnover has been a regular feature of Italian politics since the second world war, and there is little to suggest that we won't see another caretaker government (as indeed was Renzi's) until fresh elections are held in 2018.

Ironically, while the passage of the referendum would have been taken well by markets, in reality it could potentially have opened  a Pandora's Box by making it easier for the virulently anti-establishment 5 Star Movement to seize effective power.  By retaining the bicameral system that has been so effective over the years in rendering successive Italian governments toothless, the No vote makes it less possible for a demagogue to wield effective power.

So sell euros (and global stocks) all you want, but do so with eyes open.   There may be good reasons for them to go down (in the case of the former, we'll know more come Thursday), but thinking that this is Brexit or Trump mark II isn't one of them.
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Anonymous
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December 5, 2016 at 9:55 AM ×

Once again we'd like to thank Nico etc for getting the Italian referendum market reaction so wrong. We all know by now that any risk event is a BTFD opportunity in equities. The "no" vote helped push Sp500 near all time highs today, as well as pushing Eu indexes up +1 to +2% in an hour.

Always nice to have the perma-bears donate us their money. Grazie.

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Nico G
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December 5, 2016 at 9:57 AM ×

you're such an idiot son, i covered at Globex auction just as planned. Read Friday. One gotta respect a market that doesnt want to go down

i wish we could meet.

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checkmate
admin
December 5, 2016 at 10:06 AM ×

I think it serves as a good example for differentiating between a market that's been able to price an event in and one that as not. Moreover is any calendared risk event ever going to be as systemic as one that was not. Rhetorical question.

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RH
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December 5, 2016 at 10:16 AM ×

tbh I thought the event of the weekend was Trump tweaking US policy re China to be more aggressive. The referendum result can have surprised no-one. Hardly a populist uprising!
So this relief rally thing seems a bit cargo-cultish if you ask me...

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Leftback
admin
December 5, 2016 at 1:04 PM ×

Markets now treat referendums like terrorist attacks. Yawn, NEXT!

Seriously, one assumes the swap lines were busy, but a change of government in Italy isn't exactly earth-shaking, is it?

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Maverick
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December 5, 2016 at 1:25 PM ×

Markets are clearly desensitized to repeat political shocks, seeking opportunities to re enter at better levels. One must not underestimate the QE support by the ECB. Markets betting it can always step in if things get messy. Quite a turnaround from Jan-Feb this year when loss of faith in QE was the order of the day following BOJ plumbing the depths of neg rates.

No was priced in as it consistently had the edge in op polls, and the only moderate uncertainty was over the resignation of Renzi, with some saying that he would stay before voting. With the sell-off contained and short-lived (clear eagerness to buy the dip, and not miss out), people could tick off the immediate concerns over Italy and continue focusing on the more exciting Trumpflation theme.

As others have noted, Italian political change is nothing new. Italy seems to exceed expectations in adversity (most do, I guess) and "muddling through", which it is also good at, seems preferable to something more shocking. I think the fear was the timing and worries a No could be the catalyst for a broader sell-off in banks and lend momentum to further fragmentation of EU cohesiveness.

Nevertheless, another unnecessary referendum and political shuffle on the cards. Definitely no Brexit. Indeed a Yes would probably have sewn the seeds for Italexit by allowing a possible future eurosceptic party (like 5*) from wielding more power.

Netherlands gen election more of a test in March 2017. Question is: will similar levels of desensitization to political risk stand?

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washedup
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December 5, 2016 at 2:11 PM ×

@Maverick - the desensitization to political shocks seems to be a result of an assumed liquidity reaction by CBs as a consequence of those shocks - as I posted Friday, this one was particularly benign because the ECB meets in 72 hours, so why tempt the beast? The catch here is that no one really knows the future evolution of CB policy (including they themselves), but one has to atleast raise the probability there will be some direction shift given the political changes worldwide - I actually thought Weber's comments on ECB ending QE sooner than the market thinks were pretty interesting.

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wcw
admin
December 5, 2016 at 2:15 PM ×

Copper is pushing $2.70.

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Maverick
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December 5, 2016 at 2:30 PM ×

@washedup Yes, absolutely. Going into the vote there was growing chatter around QE tapering in the fin press - firmly denied by several members of the ECB. I have a feeling they will extend in length, without changing the capital key, going more negative or focusing more purchases on peripheral EU nations. The subdued market reaction to Italy just makes that more likely. The ECB has more breathing space with higher rates and a lower % of neg yielding bonds. They will keep something up their sleeves in case they need it later. They may even introduce taper-like signalling on Dec 8th, given any ensuing tantrum will be less severe than before Nov 8th.

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Leftback
admin
December 5, 2016 at 4:01 PM ×

If Price is News, then the news today is that Bucky is tired, and following Weber's comments on the likelihood of tighter ECB policy ahead, the behavior of EURUSD is telling. If Weber is correct about tapering and a September 2017 rate hike (Really?) then we can expect the spreads between Bobl and US5y and bunds and US10y to come off its current 27-year wides. It is also interesting that Eisuke Sakakibara (aka Mr Yen) has a different take on Trump policy than most, says that Trump's policies will likely translate into a "weak dollar, America first" approach, that the BoJ is "out of bullets" and in short, is bullish JPY from here into next Spring with a target of 100 end of year and 90 by Summer.

http://www.japantimes.co.jp/news/2016/11/10/business/financial-markets/mr-yen-says-trump-victory-wont-change-trend-currency-market/

We still fancy a firmer EURUSD this week and perhaps beyond, with 1,1000 as a target for the time being. EZ data has certainly improved a little of late, and the ECB has less of a history of being behind the curve on inflation than does the Fed. Assuming the long € trade rolls on into Thursday's ECB meeting, with speculation of QE tapering growing, the odds of a reversal in risky European (and global) assets (cough: bank stocks) seems to be growing here.

Looking around the markets, since it was Bucky brought spoos to the dance, you wonder how long it will be before she notices that she is alone on the dance floor? Treasury shorts are just crying out to be locked into a crowded theatre that catches fire, and you can make a similar argument for a short squeeze in precious metals here also.

The "fake news" thing in the mainstream media is odd. One wonders how long before saying "stocks might go down", "stocks are over-valued" or even "stocks did go down today" is flagged as Fake News. The whole thing is actually quite disturbing; Fake News about fake news. We really live in Orwellian times.

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Anonymous
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December 5, 2016 at 6:08 PM ×

Thanks macro man! Woke up ungodly early, checked the markets, checked the news, checked the markets.. Thought wtf.. This cant be.. I am missing something. Then went to twitter, saw the post and realized i wasnt and went longer than on trump. Thanks!

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Leftback
admin
December 5, 2016 at 6:38 PM ×

Not many people here fancied the long EURUSD trade we touted here last week, and not many are going to like short USDJPY but I think that one is coming - soon, to a market near you.

Bucky is absolutely melting down today and (DX down 1.5% is a big move, this is the largest down day since Dame Janet whiffed on the June rate hike) in the face of what must be a strong short squeeze in EUR and JPY. Likewise, there are already signs of short covering beginning today in Treasuries and gold. DX is headed for 99 or lower before pausing (ahead of Draghi?).

A lot of today's price action was (arguably) predictable based on positioning and options open interest going into the weekend, where there were clearly a lot of hedges in place. Many a punter had purchased some European "protection for the weekend" in the form of Uncle Buck, and then not having used it, proceeded to fling it out of the window after markets opened.

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Nico G
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December 5, 2016 at 6:48 PM ×

the British Pound ! your currency of choice ! buy one get one for free today

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Leftback
admin
December 5, 2016 at 7:48 PM ×

Even the real FX pros now see a reversal in the dollar and a correction proceeding further to 99.00 or below:

http://www.marctomarket.com/2016/12/great-graphic-dollar-index-update.html

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Leftback
admin
December 5, 2016 at 8:35 PM ×

Slightly off-topic, PBS joins the herd in repeating non-news about fake news, finally jumps the shark and is revealed as the complete sham and propaganda organ that it has become since the financial crisis by repeating an extraordinarily shoddy piece of "journalism" from the Washington Post, citing "researchers" who identified "fake news sites".

http://www.pbs.org/newshour/rundown/russian-propaganda-effort-behind-flood-fake-news-preceded-election/

Hopefully, we don't see a return to the 1950s and see Thoughtcrime appear on the list of federal statutes. Perhaps these are simply the death throes of the most lackluster, intellectually bankrupt and vapid mainstream media ever to exist. The Post, CNN and the Times should hang their heads in shame at their own ineptitude in being played like a f*cking Stradivarius by the Trump campaign. The media hasn't been this out of touch with the American people since the mid-1960s:

Bob Dylan, Ballad of a Thin Man (1965)

You walk into the room with your pencil in your hand
You see somebody naked and you say, "Who is that man?"
You try so hard but you don't understand
Just what you will say when you get home
Because something is happening here but you don't know what it is
Do you, Mr. Jones?

You have many contacts among the lumberjacks
To get you facts when someone attacks your imagination
But nobody has any respect, anyway they already expect you to all give a check
To tax-deductible charity organizations

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Celeriac1972
admin
December 5, 2016 at 9:12 PM ×

Some quite choppy action imho. I'm short R2k at 1340ish and just taking a deep breath before my head is held under the water again. A position that looked great last week is now on the worry list...

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Anonymous
admin
December 5, 2016 at 9:19 PM ×

SNB U.S. equity holdings

https://pbs.twimg.com/media/Cy71CeuWEAAGeuV.jpg

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Anonymous
admin
December 5, 2016 at 9:35 PM ×

Extraordinary. Carney says globalisation not working, free trade doesn’t raise all boats, calls for redistribution

http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech946.pdf


Now he tells me...but then again Brexit and Trump voters had already figured it out:

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Anonymous
admin
December 5, 2016 at 9:55 PM ×

johno.

What´s your opinion on EURPLN?

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Anonymous
admin
December 5, 2016 at 11:26 PM ×

Some talk of Yuan devaluation. Early rumours:
"
BREAKING Talked to XE and they now confirm that upstream providers are affirming this rate (7.48 RMB to USD currently). This is bad."

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Anonymous
admin
December 5, 2016 at 11:30 PM ×

Looks like a false alarm.

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Anonymous
admin
December 6, 2016 at 12:40 AM ×

In other breaking news, Dennis Gartman is wearing no socks:

http://www.zerohedge.com/news/2016-12-05/dennis-gartman-appears-cnbc-sockless-clad-penny-loafers-declaring-top-oil

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