Category Archives: Election

UK election – GBP surge may last a while but…

maycorbyn

So May calls and election, saying she’s fed up with having opposition from the – er – opposition, and also from the Lords. Someone should tell her an election isn’t going to have much impact on the unelected House of Lords, but it’s true it may have the desired effect on the House of Commons. In practice, she is likely to increase her majority because even though she may lose a fair few seats in the South to the Lib Dems campaigning on a Remain ticket, she looks like picking up a lot of Labour seats in the North, and also gaining votes from UKIP now the Tories have become the party of Brexit.

What I find depressing is the process of British politics. I suppose it is no surprise that politicians are power hungry – it is in their nature – and they will grab as much as they can given the chance. That is probably true pretty much everywhere, but let’s not pretend there is any higher motive for the election than that. But it is particularly depressing in the UK, where the first past the post system means the governing Tory Party already has a degree of power that is unrivalled is the vast majority of western democracies which generally have some form of proportional representation. The desire for an even bigger majority than the 17 the Tories currently have, so that there is no effective opposition at all (even within the Tory Party) is, in my view, faintly obscene, but that’s (British) politics. What is mystifying is why Corbyn and the Labour Party seem so happy to accede to her wishes. Sure, he was calling for an election after the referendum, but she refused. Now he should refuse. That’s the point of the Fixed Term Parliament Act. The timing of the election should not be based on the whim of the governing party (or any other party). His agreement to an election just underlines that Corbyn is a political idiot.

Anyway, it looks like May will get her wish and get an election and a bigger majority. The market consensus is that this is a good thing in practice, because it will give her more negotiating power at the Brexit table. This is true, in that there will be no election looming over her as the end of negotiations approach. However, the idea that she will take a more moderate and compromise friendly approach because she will be less dependent on her right wing looks a little speculative to me. It’s possible, but I don’t detect an air of compromise in her recent statements. I think it’s just as likely that the elimination of an effective opposition will allow the government to take a much more hard line approach. The security of the Conservative political situation domestically will allow them to indulge prejudices that are not necessarily optimal for the long term health of the economy.

While she will of course say she wants the best deal for Britain, what does that actually mean in practice? No-one really knows what the best deal is. Although the vast majority of economists believe something as close as possible to Remaining would be best economically, it is clearly not just about economics. In fact, it is probably not about economics at all. For politicians, the best deal is the deal that will given them the best chance of winning the next election with the biggest majority. The economic impact of Brexit may be large or may be small, but it will not be easily observable because there is no counterfactual. We won’t know what a good Brexit looks like any more than what a bad one looks like. We won’t know if Remaining would have been better. Even if the next election isn’t until 2022, the economic impact very likely won’t be clear by then.

But some things will be easier to measure. The level of immigration for instance. If the government manage to restrict immigration significantly they will probably benefit in the polls (regardless of whether that is actually beneficial). If they win the June election with an increased majority it seems likely to send them a signal to continue to work the nationalistic angle. This is not a conviction government. May has U-turned on Brexit and U-turned on an election. She will go with what works, and if she can sell an image of the UK battling for independence from a sclerotic Europe she will do it. I could easily be wrong here, but markets must beware of believing politicians are thinking about the economy. They are thinking about politics, and right now the economics isn’t clear enough (at least to the layman voter) for that to be the main factor.

As far as FX is concerned, for now at least, there’s no point bucking the market consensus. GBP is benefiting from the more positive view of Brexit, helped in large part by the heavy short positioning that has been evident for some months in the futures data. Some of that has now been eliminated, but the wind is still with the pound. I stick with the view that there isn’t much long term value in the pound here, but there may still be some more upside in the short term. In the absence of news from the US on tax reform the USD looks to be on the back foot for the moment, with expectations of Fed hikes fading, and we are likely to see GBP/USD gains beyond 1.30.  The EUR’s near term chances depend largely on the French election. If Macron gets to the second round he should win and the EUR should benefit modestly from this, but will suffer sharply if the run off is between Melenchon and Le Pen. On the positive EUR outcome I would see EUR/GBP as a buy below 0.83.

Looking a little further forward, the election may not be quite as smooth a victory as the polls currently suggest, and the current perception of the strength of the UK economy seems to be lagging behind what looks like a fairly sharp consumer slowdown in Q1. I would still be looking to sell GBP post election, or possibly before if the current euphoria dies down or we have some positive developments for the EUR or the USD.

 

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A strange time to worry about the euro

An interesting survey from Central Banking shows central bank reserve managers have apparently lost faith in the euro, with the stability of the Eurozone supposedly this year’s greatest fear. Apparently concerns over political instability, weak growth, and the European Central Bank’s (ECB) negative interest rate policy have led central banks to cut euro exposure, with some eliminating it completely. This strikes me as very strange timing.

Now, there is of course uncertainty about the Eurozone. But it seems odd to me that these reserve managers have chosen this year to start worrying. Where have these guys been for the last 9 years? There has been uncertainty surrounding the Eurozone since the financial crisis (and before). Greece’s woes have hardly been a secret – they have had two debt restructurings in the last 5 years. Yields in the Eurozone periphery blew out to extreme levels when the Greek crisis was at its height, reflecting concerns about Eurozone break-up. Back then, concerns were not confined to Greece either – Spain and Portugal were also very much in the firing line. By comparison, the current bond market spreads show very little evidence of worry about Eurozone break-up. So why are the central bankers in a tizzy all of a sudden?

One of the reasons they give is the negative interest rate policy from the ECB. It is understandable that investors aren’t happy with this, but it is hardly a new phenomenon. The deposit rate went negative in mid-2014. Furthermore, concern on this issue shows a worrying degree of money illusion. Using the OECD’s forecasts for 2018 inflation, the table below shows real interest rates across the G10.

real yieldsSource: FX Economics, OECD, national central banks

On this basis, the real policy rate and real 10 year yield for the Eurozone (using France as a proxy for the 10 year yield) aren’t really that low by international standards. In fact, the real policy rate is higher than in both the UK and US. I have ranted about money illusion many times before, so I won’t bore on, but you would have hoped that international reserve managers were a little bit more savvy than to look just at nominal rates.

So maybe they are worried about politics. I find this ironic. The UK votes for Brexit and the US votes for Trump and reserve managers are worried about politics in the Eurozone? It’s true that the Eurozone is existentially more vulnerable, and therefore you can regard political instability as more dangerous. But in reality the chance of a Le Pen victory in France is tiny, and even if she did win, the chance of France leaving the EUR given she has no parliamentary support is similarly tiny. The bigger danger is Italy, but again, despite the anti-euro lead in the polls, there is unlikely to be an election this year, and forming a coalition that would genuinely be prepared to take Italy out of the EU would be extremely difficult. Of course, Italy leaving would be disastrous (for Italy but also for the EU) so this is not a scenario that can be taken lightly. For this reason it is also extremely unlikely to happen, but that doesn’t mean there wouldn’t be major market concerns if the possibility started to look more real. Nevertheless, it is surprising that yield spreads haven’t blown out much further is this was a genuine concern.

As for weak growth, this has been an endemic problem in Europe, but it is again strange to worry about it now when Eurozone growth is picking up and looks set to record its fastest rate since 2010.

There is no doubt that the EUR has suffered from a lack of foreign capital in the last year. In 2016 there was a reduction in Eurozone portfolio liabilities of EUR66bn – foreigners sold a net EUR66bn of Eurozone assets – compared to net buying of nearly EUR400bn in 2014 and Eur300bn in 2015. As long as this continues – the net portfolio and direct investment outflow more than offsetting the current account surplus – investor concerns about the EUR are likely to be self-fulfilling. But I am not sure how long this attitude can last. The EUR is already very cheap by long term measures, and the economy appears to be picking up. If Le Pen loses – as seems very likely – I suspect it will be hard for the markets to maintain this negative attitude indefinitely. But then I don’t really understand why reserve managers have turned so negative in the first place.

What will it take for the CHF to weaken?

real-chf

Source: BIS

Equities have certainly had a good run this year so far, and there should still be more to come for European equities as long as the European economy continues its modest growth, with EuroStoxx still well below its highs and value relative to bonds looking excellent. But despite the strength of equities and good Eurozone data, EUR/CHF continues to test the lows, even on a day when the Swiss GDP data reports a disappointing 0.1% q/q and 0.6% y/y rise, underpinning the expectation of continued easy Swiss monetary policy. Why is the CHF so strong?

Well one reason is likely to be concern about European politics. The markets seem to have got themselves in a state worrying about the possibility of a Le Pen victory in France and even about Wilders in the Netherlands. People explain their concern by pointing to the victories for Brexit and Trump as illustrations of the populist movement sweeping the world and the unreliability of polls. But Brexit and Trump were not huge outside bets according to the polls. They were marginal outside bets. Sure, the markets seem to have treated Leave and Clinton as foregone conclusions, but that was never justified by the polls, which always suggested the votes would be close. But the polls don’t suggest Le Pen will be close to winning the French presidency. They suggests she needs to turn around 8 million French people Fascist in the next 2 months to win. That isn’t just unlikely, it’s wildly improbable in a way that the UK “Leave” vote and the US vote for Trump never were (at least not once he was the Republican candidate). Similarly, Wilders Freedom Party could just about be the largest party in the Dutch elections, but has effectively no chance of forming a coalition as no other party is prepared to join with them. Even with their most optimistic poll results, they will need double the seats they would achieve to form a government. So worries about European politics seem overblown, and European equities seem to get this, but the Swiss franc nevertheless remains near its highs.

This is puzzling because the Swiss franc is normally seen as a safe haven. Valuation wise it is always expensive relative to purchasing power parity (PPP) because it is seen as so safe. But safe havens will normally weaken in risk positive, strong equity environments, because safety is in less demand. The Swiss franc is a little weaker than it was at its peak, but it is lagging well behind the recovery in the European economy and European equities, even though yield spreads remain very unattractive with Swiss yields significantly negative out to 10 years.

 

So what will it take for the CHF to fall to more normal levels? The underlying problem is that money has stopped flowing out of Switzerland. Normally, surplus countries like Switzerland see heavy portfolio outflows looking for better returns elsewhere in the world, but the Swiss balance of payments data shows that portfolio outflows have effectively dried up since the crash. The SNB’s intervention has dealt with speculative and hedging  flows – captured in the “other investment” category of the balance of payments – but until portfolio outflows recover properly they will not be enough to cover the current account surplus – which remains substantial. This will be required if the CHF is to reverse its uptrend. Of course, it would also at some stage make sense if the speculative flows that have gone into Swiss francs – making a tidy profit – were to go out as risks decline and appetite for foreign assets returns. This other investment category has totalled more than CHF410bn since the beginning of 2008, and has been offset by an increase in reserves of more than CHF600bn. If confidence returns, this cash should flow back out and push the Swiss franc back to fair value, which is around 10-15% below current levels.

When will this happen? Well there are obviously a lot of uncertainties. But if Le Pen doesn’t win, and Trump/the House Republicans produce a detailed infrastructure/tax reform proposal by the Spring the Swiss franc could be under pressure from May for the rest of the year.

swiss-bop

swiss-bop2

Source: SNB

Trump: the new Reagan for the USD?

EUR/USD (equivalent) under Reagan 

eurusd-under-reagan

Source: FRED

Both have been involved in the entertainment industry and both are tax cutting Republicans. Beyond that many Reagan fans would see comparisons with Trump as an insult. But can Trump have a similar influence on the economy and the USD? Reagan’s presidency saw the USD embark on a huge roller coaster rise almost doubling in value against the DEM in 4 years before falling back to its starting level by the end of his presidency. Can the same happen under Trump?

Reagan’s presidency was notable for its big tax cuts, strong growth and roller coaster move in the USD. Trump is also looking at a big tax cut and a big increase in infrastructure spending and they have the potential to mimic the impact of the Reagan years in broad brush terms. While there may be criticism of the efficiency and sustainability of his tax proposals, the markets will initially react more to the brute power of any fiscal expansion. All such efforts have a price and often end with a bad hangover, but by dint of its status as the global reserve currency and the global superpower the US is able to take fiscal actions that might be seen as reckless elsewhere without a major short-term risk.

How big an impact on the economy Trump will have will depend on how much of his proposals he can get through Congress. With a Republican House and Senate he is in a better position than Reagan was, who faced a Democrat House for his whole term, but nevertheless was able to push through some radical tax cuts. I am not going to go into too much economic detail about Trump’s proposed tax cuts and infrastructure spending, in part because his proposals are bound to change, in part because what he gets through may look more like the House Republican package than his current proposals. But it is worth noting that his election proposals involve around $7trn of tax cuts over 10 years and at least $550bn of infrastructure spending. His tax plans will likely be bargained down but even the House plan will involve a corporate tax cut to 20% and personal tax cuts. Some think that the economic impact will be modest, in part because a widening US budget deficit will push up yields and hold back private sector spending.This is possible, though in my view it will take quite a large move up in yields to have this effect, and with yields very low elsewhere rising US yields will make treasuries too attractive internationally for yields to rise too far.The infrastructure spending in any case looks to be the main agenda item for the first 100 days, and this will have a substantial direct growth impact. Tax plans will probably take longer to pass, but should also have a significant impact.

But even if the impact on growth is quite modest because of the impact on yields, the rise in yields will itself be supportive for the USD. We have already seen the start of this. It is here that the comparison with the Reagan presidency looks most apt. Not only are US yields likely to rise in response to more expansive US fiscal policy, the Fed were in any case set to embark on a steady rise in short-term rates. Meanwhile, yields elsewhere have much less potential to rise, with the BoJ locking 10 year yields to zero and the ECB debating an extension of QE rather than tightening. The Euro also looks likely to struggle under the same surge of ant-establishment political uncertainty that has helped to elect Trump, with elections in France and Germany next year and a significant referendum in Italy approaching. While these could also lead to more expansionary fiscal policies in Europe, eventually reducing EUR weakness, in the medium term the political uncertainty looks more likely to weigh on the EUR.

As a reminder of the impact of the Reagan presidency on the USD, the chart above shows the US 10 year yield spread over bunds and EUR/USD (based on USD/DEM). EUR/USD nearly halved from 1.23 in January 1981 to 0.67 in February 1985 when the Plaza accord was initiated to halt the rise of the USD.

There are a lot of questions about timing with Trump policies and the USD. Reagan didn’t really get many of his policies implemented until late 1982 after being inaugurated in January 1981, and the chart suggests this was the second leg up in yields after the first had been triggered by the policies of Volcker at the Fed. However, the USD started to rise almost from the moment Reagan was elected. Of course, some of this was down to Volcker rather than Reagan, who had come in under Carter and had raised rates sharply to bring down inflation. But anticipation of Reagan’s policies played its part. In the case of Trump, he may well get things through faster than Reagan, and with the Fed already primed to hike the USD seems likely to react immediately. It has already started.

In addition to the potential impact of fiscal policy on growth and yields, the Trump presidency offers the possibility of new Fed appointees favourable to his more hawkish preferences for monetary policy, and the intended corporate tax cuts could also lead to huge repatriation of funds held abroad by US corporations, both of which could exacerbate the USD boost.

Of course, there are aspects of the Trump presidency that may not be seen as being so USD positive. Severe restrictions on immigration could be expected to have a negative impact on growth, as would major changes in trade agreements. But it remains to be seen whether these “populist” policies will be implemented aggressively. While in theory the President can make changes to trade agreements much more easily than he can to spending decisions, Trump’s election promises may turn out to be negotiating positions. His post-election statements suggests some backtracking, but even if they don’t restriction of labour supply and restriction of imports could result in significant inflation and higher yields, possibly even boosting the USD further.

Of course, none of this represents an opinion as to whether Trump’s policies are good for the US or the world. The strength of the USD is not a barometer of good or bad policy. It’s a price, and right now it looks like it’s going up.

 

 

A crisis for UK democracy?

power-of-the-press-5-638

A bit on the markets in a minute, but first a bit of a rant.

If the Daily Mail call High Court judges “enemies of the people” simply for saying that parliament has to sanction the triggering of Article 50, what will it do if some MPs choose to vote against the wishes of their constituents?

This is a difficult issue for some MPs. After all, some are in constituencies that voted to Remain but themselves support Brexit. Others are in Leave constituencies but were in favour of Remaining. The Daily Mail would argue that the people have spoken with the referendum, but the result was close, and had more young people voted might have gone the other way. It might go the other way if it was done again today. So in my view MPs should vote in line with their own views. But they won’t. Even if they are in “Remain” constituencies, and are pro-Remain themselves, very few MPs will vote down a bill to trigger Article 50. Partly because they will be put on the front page of the Daily Mail if they do. And they remember what happened to Jo Cox. This is not a good way to govern a country, and reminiscent of some unpleasant regimes.

Unless MPs are prepared to act as responsible human beings and stand up to their party, the press and the noisy section of their constituents, they are becoming an irrelevance. They are mere ciphers. They are not being allowed to make their own decisions about anything important. It is important to have a role for personal conscience.

The further irony is that Brexit was (according to the Leave camp anyway) supposed to be about taking back control of our government from the EU. But if MPs are effectively just servants of the government, we are effectively being governed by royal prerogative. Come back Oliver Cromwell.

Anyway, rant over. The markets.

Sterling has managed a little rally in response to the High Court decision that parliament has to trigger Article 50, but this doesn’t look like it will be enough to sustain a strong rally in GBP for at least two reasons.

1) Although GBP is now a lot cheaper than it was, it is not dramatically cheap against the USD or the EUR given the big UK current account deficit and the lack of (real) yield attraction available in GBP.

2) Even if the High Court decision is upheld by the Supreme Court, it doesn’t mean no Brexit. Brexit is still extremely likely to happen. There might be some impact on the shape of the Brexit, but even this isn’t clear. If the government sticks to its guns on rejecting free movement and the EU sticks to its guns on making free movement a condition for single market access, it seems doubtful that parliament will really be able to have much real effect. What does seem likely (though not certain) is that there will be a significant delay in triggering Article 50 because of the time it is likely to take to put a bill through the Commons and Lords (average time one year). There could be a simple resolution to speed things along, but this would mean parliament would have to have its say at a later date.

So the vote has created extra uncertainty around Brexit, and has perhaps increased the chances of a softer version and a longer delay. This is mildly supportive for GBP, but some argue that the delay and uncertainty only makes things worse as firms are unable to plan for the future. I’d say this is outweighed by the increased chance of a softer Brexit, but not so much as to justify a dramatic GBP rally. EUR/GBP may manage to get back to the 0.86 area, but unless there is a lot more promise of a soft Brexit or some evidence on Eurozone weakness and/or UK strength gains beyond this are hard to justify. Still, it looks like it might be enough to stabilise GBP in the 0.86-0.91 range.

I have put this in terms of EUR/GBP rather than GBP/USD because coming into the US election the picture for the USD is obviously very uncertain. Most take the view that a Clinton victory will be USD positive, and market behaviour in the run up to the election suggests this is the case, but with a Clinton victory now priced as around an 80% chance, the market reaction may not be huge. The Fed is very likely to hike if markets respond positively – even neutrally – to the election, and that should be enough to sustain the USD against most currencies, though which currencies it gains most against will to some extent depend on the (uncertain) medium term equity market reaction to the combination of a Clinton win and higher US rates.

This is all pretty much the consensus view, and I’m not going to speculate too much on what happens if Trump wins, except to say that I’m not sure the impact will be that sustained. In the end, Washington will put fairly substantial limits on what he is able to do.

Debate brings US election into focus

tvc_47732667c8ca4df6beb95e6e9e08b4b7The first debate between Trump and Clinton tonight should mark the start of a period in which the US election is the dominant theme in the markets. As far as FX is concerned, USD/MXN looks to be the best barometer of political sentiment. As Trump’s popularity rises, so does USD/MXN, and it has continued to make new highs in recent weeks. Of course, the trend rise in USD/MXN started some time ago, with the decline in the oil price and the general strength of the USD the prime drivers, so Trump isn’t the only cause. However, these other factors have been less notable this year, with the USD and the oil price both broadly stable, so the Trump factor is probably currently the major driver.

Having said that, we also have an informal OPEC meeting starting today in Algeria, so the oil price could once again become a factor this week. Expectations for a deal are, however, not particularly elevated, despite this morning’s statement from the Algerian oil minister saying that all options were open at the meeting and “we are not coming out of the meeting empty handed”. Few believe that Saudi and Iran can agree a production freeze (or cut) at this stage, so the risks of a sharp move may be to the upside, though the most likely move may be that the price drifts lower on disappointing news.

However, USD/MXN will be focusing primarily on the Trump/Clinton debate. A perceived Trump victory in the debate will no doubt force it higher again in the short term, but current USD/MXN levels look too high from a medium term perspective. The sharp decline in the MXN in the last two years will continue to benefit the trade balance going forward, and whatever Trump says, the consequences of a Trump victory are unlikely to be dramatically negative for the Mexican economy. Mexican growth is comparatively solid, and the current account deficit manageable. The MXN trend is still down, and should not be opposed in the absence of clear MXN positive news, but there is more potential on the MXN upside medium term.

For the majors, the significance of US politics and the oil price are less clear. Many see a Trump victory as more likely to lead to higher US rates and a higher USD, in part because it would be expected to bring an easier fiscal policy and consequently higher bond yields, but the Fed seems unlikely to react quickly so I wouldn’t place too much weight on this idea. Nevertheless, decent US numbers from now on seem likely to solidify the market expectation of a December Fed hike (currently seen as near a 60% chance) and with the T-note/bund spread at recent highs of 170bps, it’s hard to make a strong case for EUR strength, even though the Eurozone economy has remained comparatively resilient this year (and may even grow faster than the US). This morning’s strong IFO survey should also be EUR supportive. For now though, EUR/USD looks stuck near 1.12, and until we get something more clear-cut on the Fed outlook, seems likely to stay in the 1.11-1.13 range.

There is more scope for action in USD/JPY and GBP/USD. The JPY’s recent strength has been based on the combination of a lack of further BoJ action, the slightly dovish interpretation of the last Fed meeting, and some jitters about equity market levels. Personally, I think these are all very bad reasons to like the JPY. The BoJ continues to run the most aggressive QE program around, the Fed was as hawkish as it could reasonably be given recent data, and while the US equity market may start to look expensive if US rates go up, most other developed markets still look extremely good value given low bond yields. If US rates do go up and push equities lower, The JPY may gain on the crosses, but not against the USD. Having said this, I can’t currently justify opposing JPY strength given the market mood and the upcoming presidential debate. Technically, it looks like we may well be heading for 95.

GBP weakness at the end of last week was supposedly on “renewed Brexit concerns”, though it’s hard to point to a single reason why these should suddenly re-emerge, and this explanation has become a catch-all for journalists when the rationale for GBP weakness is unclear. I remain long term bearish on GBP, especially against the EUR, where fair value in the long run is nearer 0.95 than 0.85, but I don’t see the current rationale for a break above the 0.8726 August high. That doesn’t mean it can’t happen, but levels above 0.87 look a little too extended near term and should offer a short term selling opportunity in the absence of news.

EUR/GBP rally – if not now, when?

After flirting with the 0.75 area for a few days, EUR/GBP has pushed through on this morning’s weak industrial production data and has potential to start making real ground to the upside. Technically, there are some reasons for caution. Although last week saw a strong weekly close at the highest level for a year, we have had seven consecutive up weeks and the weekly channel top at 0.7525 hasn’t broken convincingly. But, if not now, when?

GBP has been overvalued for a long time, most particularly against the EUR, it’s largest trading partner. It is also a lot more overvalued than it looks, for two reasons. Firstly, because UK inflation has been much higher than inflation in other major economies since the financial crisis. While inflation has recently been subdued, CPI in the UK has risen 10% more than CPI in the US or the Eurozone since 2008. So 0.75 now is equivalent to 0.68 in 2008 in real terms. Secondly, the UK is running a current account deficit of 6% of GDP – the largest in the developed world – while the Eurozone is running a surplus of 3% of GDP. While the UK deficit has come about mainly because of declining UK investment income rather than a rising trade deficit, it won’t be closed by improved export performance at this level of GBP. Historically, current account positions DO matter for valuation over the long run, and the widening of the UK deficit suggests to us that long run fair value for EUR/GBP is more like 0.85 or 0.90 than 0.75.

But this has been the case for some time Why should GBP suffer now?

  1. The long awaited UK rate hike still seems to be disappearing into the distance as wage growth stalls, so those looking to buy GBP on yield spread grounds have little support in the short run.
  2. GBP has already fallen a long way against the USD, and while it may fall further, yield spreads between the US and Europe have also stalled or narrowed of late as US data has slightly disappointed since the Fed rate hike, so there seems limited downside for EUR/USD from here in the short run, suggesting at least as much GBP downside potential against the EUR
  3. The EU referendum question. The possibility of Brexit is clearly negative for GBP and while I personally think there will be a strong majority in favour of staying in the EU, the foreign investment that the UK needs to funds its current account deficit is unlikely to be too enthusiastic while the question is in the air.
  4. Policy wise, there is nothing the government or the Bank of England would like more than a weaker pound. They will never try to force it, but I wouldn’t be surprised to see a little verbal encouragement of GBP weakness.
  5. A weak oil price is more supportive for the Eurozone than the UK, given the Eurozone is a much bigger net oil importer.

By the time we get to the referendum (maybe June) I expect we will already have seen the big decline in GBP, and we may see a recovery after the referendum if, as I expect, we get a vote to stay in. The recovery may start before the referendum if it looks like the “remain” campaign is going to win easily. There is no time like the present for the GBP bears to get the ball rolling.