As I wrote this article from Nottingham England, the land of Robin Hood and Sherwood Forest, the Poetry of William Blake came to mind:
And did those feet in ancient time,
Walk upon Englands (7) mountains green,
I will not cease from mental fight,
Nor shall my sword sleep in my hand,
Till we have built Jerusalem,
In Englands green & pleasant land
Beneath the poem, Blake inscribed a quotation from the Bible: “Would to God that all the Lord’s people were prophets” – Numbers Chapter 11:29. Prophesying the outcome of the Brexit (notwithstanding the extreme caution being exercised by the Prime Minister Theresa May [pictured] in triggering Article 50) is becoming a serious career path for the punditocracy. The city of London is not the United Kingdom, though many would have you believe that the rest of the UK is hanging on the city’s coat-tails. One hundred thousand jobs would be at risk if clearing leaves the UK, said London Stock Exchange Group Plc chief executive officer Xavier Rolet. “We estimate, conservatively, that at a very minimum 100,000 jobs, in risk management, compliance, middle office, back-office support functions – by the way not just in London, up and down the country – are implicated in supporting this business and clearly could be at risk,” Rolet said in an interview with Bloomberg Television on Friday. “But the point is that there are very, very few financial centres around the world that could accommodate such a global business.” Rolet’s comments come after executives at global investment banks in London said they expect France and Germany will prevail in a tussle over the clearing of $570 billion of euro derivatives a day. We are now three months down the road from the Brexit vote. In that period, the sterling pound has corrected -12 per cent. The FTSE 100 Index has rallied +10 per cent (a great number of the FTSE 100 companies are export-facing, and the 12 per cent fall in the pound has been a boon), the FTSE 250 Index is +4 per cent and the 10 Gilt Yield has crashed 65 basis points lower to 0.73 per cent. The pound was last at 1.2960 versus a 1.2799 multi-year low struck in the immediate aftermath of the vote.
I remain constructive about the pound from these levels. My reasoning is that everything negative has been baked into the price and we are set to see some positive surprises. In particular, inflation will surely pick up and that Gilt Yields, which are being artificially suppressed by the Bank of England, will be impossible to suppress once we get a big inflation print. The BOE will lose control of the narrative. Higher yields will translate into strong support for the pound and the shorts will be burned alive. One could argue that we have entered a new age of populist policy-making, that the Brexit begat the interest rate capping bill and Donald Trump. The bill came into play at a time when private sector credit growth had already slumped from 21.4 per cent a year ago to 7.2 per cent in July this year. This might well register negative growth by year end.