Thanks A Lot: Full Week Ahead Preview

Well, this week is Thanksgiving which means everyone will have to remind Donald Trump that the customary pardon applies only to turkeys and does not generally extend to co-conspirators in a plot to undermine America’s democracy by colluding with hostile foreign powers.

This is also the week when Nassim Taleb gets to point to a dead turkey and claim he’s found still more proof that he was right about black swans.

U.S. markets will of course be closed on Thursday and might as well be closed on Friday. On Tuesday, Yellen will join Mervyn King in a moderated chat at an event hosted by NYU Stern, so that should be amusing. The audience will apparently get to ask questions.

Claims will get pushed up a day and we’ll get the Fed minutes on Wednesday too – the minutes should be a non-event for obvious reasons. The ECB minutes will be out Thursday and you’ve got to know Draghi will be a hot topic around holiday tables in the U.S. – because what better way to bond with relatives you haven’t seen since last year than to debate the PSPP taper over greasy mashed potatoes and congealed cranberries.

The big news on Sunday evening was this:

  • MERKEL’S PUSH COLLAPSES TO REACH FOUR-PARTY COALITION AGREEMENT

Long story short, the FDP walked out. “The four discussion partners have no common vision for modernisation of the country or common basis of trust,” FDP leader Christian Lindner said after the four parties missed multiple self-imposed deadlines thus failing to resolve disputes on migration and energy. “It is better not to govern than to govern badly,” Lindner added.

Merkel will now need to try and form a minority government. Notably, Martin Schulz again ruled out another grand coalition, reminding everyone that “the voter has rejected it.”

“It’s a day at the very least for a profound examination of Germany’s future,” Merkel lamented, adding that “as chancellor, as caretaker chancellor, I will do everything to make sure this country continues to be well governed through the tough weeks ahead.”

The euro careened lower on the news:

Euro

“Given that there were some expectations that if a coalition was formed, the next Merkel regime would provide fiscal stimulus, the collapse in talks is negative for the German economy and what’s negative for Germany would be bad for the EU,” Mizuho’s Daisuke Karakama said on Sunday evening.

Meanwhile, things aren’t going well on the NAFTA deal front. U.S., Canadian, and Mexican officials are meeting in Mexico for the fifth of seven rounds of talks and apparently, about the only thing positive anyone could come up with was this (via Reuters):

Negotiations in Mexico to update NAFTA have not made much progress on tough U.S. demands that could sink the 1994 trade pact, but the current round of talks are progressing with civility, some participants said on Saturday.

So everyone is acting like adults. That’s a step in the right direction, but I’m not sure it counts as a giant leap toward successfully renegotiating a trade deal. Unifor President Jerry Dias isn’t optimistic. “Talks are really not going anywhere,” the head of Canada’s largest private-sector union said on Sunday, adding that “the odds of Nafta succeeding I will say are something less than zero.”

Yes, “something less than zero” – so about like the odds that Jared Kushner won’t end up getting indicted.

Here’s Barclays on NAFTA:

Uncertainties related to NAFTA bring another idiosyncratic risk to MXN this week, as the fifth round of the negotiations will conclude on 21 November. Last month, the US made proposals that were unpalatable to Mexico and brought an upward level-shift to USDMXN. Mexico is expected to make counter-proposals in this round. However, any major concession from the Mexican government could be seen as sign of weakness that could be used by AMLO to score political points, resulting in a weaker MXN. In the medium term, we expect that NAFTA negotiations will continue to be a drag on the currency and a cause of increased volatility in H1 2018.

That could potentially spell trouble for the peso and as Bloomberg’s Mark Cudmore writes this evening, that’s not the only thing that could weigh on LatAm: “It’s not just failing Nafta negotiations, the Chilean presidential election is another spanner in the works for the region [as] market-friendly Sebastian Pinera took a much smaller-than-expected percentage of the vote in Chile‘s elections on Sunday, according to an early count [potentially] reminding investors that, even if Pinera does still win the 2nd-round runoff, he’ll likely be facing a hostile Congress.”

And speaking of EM, don’t forget that there’s all kinds of trouble on the Turkey front. This Reza Zarrab boondoggle is spiraling rapidly out of control and it looks as though Robert Mueller is going to end up trying use the former gold trader to implicate Michael Flynn and Erdogan in a plot to kidnap the latter’s arch nemesis Fetullah Gulen. If you think relations between Washington and Ankara are strained now, just wait until this boils over. With the lira already on the back foot, there’s significant headline risk here, especially given that Erdogan was back out on Friday blaming high inflation on monetary policy that’s not loose enough (and no, there are no typos there).

Also notable is the UK budget on Wednesday. Here’s Goldman on that:

Chancellor Hammond will present the 2017 Autumn Budget to Parliament. We expect the Chancellor to reduce the degree of fiscal tightening planned for 2018/19 from 1.0% of GDP (as presented in the March Budget) to around 0.5% of GDP. This would repeat a recent pattern of postponed deficit reduction. Further out, we expect the Chancellor to maintain adherence to his key fiscal rules.

It kind of seems like the risks for sterling are skewed to the downside, but that’s just an off-the-cuff take.

As for Heisenberg, barring some unforeseen circumstances I’ll be spending the week at home, which is a notable improvement from last Thanksgiving, which I spent in the ICU quite literally knocking at death’s door.

And on that cheery note, here’s the full calendar via BofAML

Calendar

 

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