Boris Johnson And Other Fun Tuesday Notables

There are a smattering of notables on Tuesday, despite a dearth of stories that anyone would call “surprising”.

Boris Johnson is set to be UK Prime Minister, as expected, after winning the Tory vote. He’ll need to negotiate a new Brexit deal with Brussels in under 100 days or risk crashing out of the bloc without a deal at the end of October.

This is obviously a cartoonish outcome befitting of the Austin Powers-esque world in which we now live, but it was a foregone conclusion. Still, the inevitability of it won’t stop the social media jokes, which immediately proliferated across the Twitterverse.

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The beleaguered pound trimmed losses and gilts were steady after the announcement. “Congratulations to Boris Johnson on becoming the new Prime Minister of the United Kingdom. He will be great!”, Donald Trump shrieked, in a tweet.

(Goldman)

Earlier in the day, the BoE’s Michael Saunders suggested during an interview with Bloomberg that he’s not in a hurry to press for more rate hikes given rampant uncertainty around what Brexit will look like under Boris. Saunders spearheaded calls for previous rate hikes.

Switching gears, the RBNZ told Bloomberg it’s in the process of updating its approach to unconventional monetary policy in New Zealand as rates test the lows. “This year the Reserve Bank has begun scoping a project to refresh our unconventional monetary policy strategy and implementation”, the bank said in response to an Official Information Act request, without releasing further information, which it says could affect the country’s economic fortunes. “This is at a very early stage”, RBNZ added.

The brief remarks hit the kiwi. “The announcement shows that the NZ economy is no longer immune to unconventional policy”, ANZ said.

This stokes more speculation about QE and other unconventional policy measures as the bank is expected to grapple with the prospect of operating with limited capacity to cut rates in a world where growth is slowing and central banks are compelled to act.

In China, the PBoC offered 297.7 billion yuan of targeted MLF at 3.15%, a 15bp discount to the 3.3% rate on 200 billion yuan of “regular” (if that’s what you want to call it) MLF. The total on offer essentially rolls 502 billion in maturing MLF.

The point, obviously, is to replace some of the liquidity with cheaper funds. It’s probably a stretch to call it a “stealth rate cut” (which is how someone will invariably pitch it, if they haven’t already), but it’s certainly another nod to looser policy from Beijing. The 7-day repo rate dropped to a one-week low.

Expect more easing from China going forward as trade talks look set to proceed at a snail’s pace. Trump’s much ballyhooed meeting with Huawei suppliers on Monday produced almost nothing in the way of headlines. The administration has agreed to expeditiously process requests for licenses to supply the blacklisted company. That’s about all anybody knows.

Finally, Bloomberg’s Tasos Vossos offered an amusing anecdote on Tuesday. “Nestle, Total, Walmart or Unilever are leading the race for the first 10-year euro corporate bonds with a negative yield”, Vossos wrote, in a short blast, adding that the four companies “are the only ones with euro bonds stretching 10 years or longer with a yield to maturity of less than 0.4%”.

He goes on to note that “negative-yielding 10-year corporate bonds will be more of a headline-grabbing milestone than a fundamental change in the current status quo”. That is, of course, the whole point. Aberrations like that are a sign of the times, just like negative-yielding “high” yield bonds across the pond.