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Macro Clouds Lift As Brexit Path Clears, Trade Deal Coalesces, Lagarde Settles In

The fog is lifting...

Although it’s too early to sound the all-clear, a trio of albatrosses looks to have been removed from the market’s neck on Thursday.

Most obviously, Donald Trump signed off on an interim trade agreement that avoids Sunday’s planned tariff escalation, and potentially paves the way for the rolling back of some existing levies. Additionally, Christine Lagarde delivered a calm, balanced message in her debut press conference, dispelling any notion that the passing of the proverbial torch at the ECB might go awry. Finally, Boris Johnson scored a huge victory, winning an 86-seat parliamentary majority, setting the stage for a prompt Brexit on January 31.

Sterling surged as much as 2.7%, in the largest rally since January of 2017. “The numbers that people expected were 330 maybe 350 so to see 368 on the screen is incredible”, Nomura’s Jordan Rochester told Bloomberg TV, referencing the Conservative landslide, which would give the party its biggest majority since 1987.

Of course, Brexit is still Brexit – a geopolitical earthquake of epic proportions. It’s important not to lose track of that. And there’s still more wrangling to be done. But over the past year, uncertainty around the fate of Brexit became arguably more vexing for markets than Brexit itself. Unless the exit polls are totally wrong, much of that uncertainty is now over – that is, the Withdrawal Agreement will get through parliament.

“For Brexit, [this result] almost certainly means that Johnson’s deal will be ratified, most likely allowing the UK to leave the EU at the end of January, but more importantly, it could give the prime minister the political breathing room to ask for an extension to the transition period”, ING said, in a quick take, before cautioning that “until we get more clarity on the transition, this all means the start of 2020 will [still] be an uncertain phase for the UK economy”.

The hope is that business investment can now bounce back, but let’s not get too far ahead of ourselves.

“I hope you enjoy a celebration tonight”, Johnson said in an e-mail to his supporters. “With any luck, tomorrow we’ll be getting to work”.

Labour will likely come away with just 191 seats. Apparently, that is the worst performance since 1935. “It would also be the first time since the inter-war years that Labour has won fewer than 200 seats”, The Telegraph notes. That means Jeremy Corbyn is done. Or at least that’s the common sense read.

In any event, the overarching takeaway headed into the last trading day of the week is that the macro narrative is considerably less foggy.

Take that for what it’s worth, which could turn out to be absolutely nothing in the event Donald Trump finds a new windmill at which to tilt or somebody steps on a land mine somewhere – figuratively or literally.


 

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