Markets politics

Xanax For An Anxious World

The new week dawned with most of the developed world breathing a collective sigh of relief after Joe Biden was declared the winner of a contentious US election.

“Our transatlantic friendship is indispensable if we are to face the greatest challenges of our time,” Angela Merkel said over the weekend. “We have a lot to do to overcome today’s challenges,” Emmanuel Macron dryly remarked, in France.

Donald Trump had a famously fickle relationship with America’s European allies, going so far as to brand them “foes” at one juncture. He habitually claimed Europe treats America “worse than China” when it comes to trade and dangled the threat of auto tariffs over the bloc like a Sword of Damocles.

Critics traced Trump’s inexplicably adversarial approach to transatlantic relations directly to the Kremlin’s doorstep. Trump, his detractors insisted, was keen to undermine NATO, quite possibly at the behest of Vladimir Putin. Trump wasn’t exactly shy about criticizing the alliance, and that criticism only served to raise further suspicion.

“A strong NATO is good for North America and good for Europe,” Secretary-General Jens Stoltenberg said, in a statement, adding that he “know[s] Biden as a strong supporter of NATO”. “We need this collective strength to deal with the many challenges we face, including a more assertive Russia,” Stoltenberg went on to say.

European Commission president Ursula Von Der Leyen sounded relieved. “The EU and the USA are friends and allies, our citizens share the deepest of links,” she said, in a tweet. “I look forward to working with President-elect Biden.”

You get the idea. It’s not a stretch (nor is it a partisan statement) to say that most advanced economy leaders are happy to bid Trump adieu.

It’s this kind of immediate, Xanax effect that markets find comforting, at least as it relates to foreign policy and the feedback loop from international affairs to risk assets. It’s not that everything Trump did on the world stage was destabilizing for stocks, it’s just that he was fond of gallivanting around, pistol tucked precariously in his waistband, with one in the chamber. He was, for lack of a more succinct way to put it, dangerous.

Equities kicked off the week looking for gains, and although we may indeed get further upside, consternation around the Georgia Senate runoffs could manifest in mild risk-off sentiment at some point between now and January. I spent a good part of Sunday discussing that (here and here for example). But markets may want to spend a few more sessions basking in the glow of a societal dawn not seen in years before moving on to the next worry.

“Risk markets are pricing out more election uncertainty as downside hedges uniformly topple like dominoes across the board Monday,” AxiCorp’s Stephen Innes wrote. “[The] pricing out of global geopolitical risk under a Biden presidency could be the most undervalued plus of them all, as supply chains could then redistribute goods in a more globalized fashion and could even return to the pre-pandemic status in the next 12- 24 months if a vaccine proves to be the ultimate recession stopper and a game-changing panacea for global growth,” he added.

China’s latest trade data showed exports rising 11.4% in October, more than expected. Imports rose less than anticipated, but managed a second month of growth nevertheless.

There are persistent concerns that aggressive COVID outbreaks in Europe and the US will eventually hurt external demand, but so far, China’s export machine is holding up as the global recovery continues, albeit with Europe now virtually destined to experience a double-dip downturn.

Some fear Biden will take the US back into lockdown, crippling the economy, but at a certain point, the country has to get serious about the virus. The pace of new infections is off the charts — literally. The US surpassed 10 million cases over the weekend. Biden has already put together his COVID team and will unveil the 12-member panel this week headed by former Surgeon General Vivek Murthy and former Food and Drug Administration Commissioner David Kessler.

“The problem today is that the number of hospitalizations is rising and closing in on the peak levels registered in April and July,” JonesTrading’s Mike O’Rourke said late Sunday in the US. “The number of patients in intensive care units has risen to 11,000, exceed[ing] the July peak,” he added, noting that “until we see the hospitalization and ICU trends reverse, the economic outlook is likely to become bleaker.”

At last week’s post-FOMC press conference, Jerome Powell repeatedly emphasized that the US economy will not recover fully until the nation’s response to the public health crisis is some semblance of adequate.

On deck this week in the US is NFIB, CPI, University of Michigan sentiment, and a bevy of Fed speakers. Not on the docket is a Trump concession speech. Or at least not as far as anyone knows. While some close to the president (including his wife) have reportedly implored him to face reality, he’ll always have enablers, chief among them his own ego.

It’s hard to imagine Trump will be much help on stimulus, and his legal team reportedly plans to launch new challenges in the coming days. Nobody from the campaign, including and especially Trump, has offered any credible evidence of fraud or illegality and none appears to be forthcoming. Frankly, it’s not even clear what Trump is contesting. Markets and the international community have moved on. He’s living in a fantasy world.

Meanwhile, it’ll be worth watching the Turkish lira. The currency came in riding an eleven-week losing streak and Recep Tayyip Erdogan fired central bank chief Murat Uysal early Saturday. On Sunday, Erdogan’s son-in-law, Berat Albayrak, resigned as finance minister. As usual, the market gave Turkey the benefit of the doubt, but the situation is dire.

Finally, Boris Johnson needs to strike a trade deal with the EU this week or risk exacerbating an already precarious economic situation in the UK by chancing a no-deal Brexit.


 

9 comments on “Xanax For An Anxious World

  1. gordon says:

    yes,
    trump was outspoken and often an ass-clown.
    but he had good reasons to pressure china. in the next 4 years we may see what china does to unravel our economy.

    • Or, we may see a coalition of countries speaking to Xi with one, rational voice saying: “No, seriously, enough is enough. Trump is gone, so that’s over. Let’s just all forget that happened. And everyone accepts that your rise to superpower status is inevitable. But we can make that rise very, very hard on you if we want to. And there’s no reason why it needs to be that way. So let’s talk through this before it gets any more contentious.”

      Don’t kid yourself. That’s the only option. You can’t really “pressure” China. They’ve got a strictly managed float and they’re sitting on $3 trillion in FX reserves. Nobody can afford to “decouple” from China economically. That’s not tenable. And, obviously, nobody wants to challenge them militarily because that’s a suicide mission.

      So, what are the options? Well, you go to Xi as a group and you speak with one voice. You can’t win a war with him– not a trade war or any other kind of war. So you gotta figure something else out. Otherwise, you’ll end up embarrassed and forced to hand out billions in subsidies to the farmers you accidentally bankrupted — like Trump did.

      • runamok says:

        Exactly.

        And it’s not just farmers. It’s the equity holders of the US tech trophy companies, companies that would be at risk of becoming merely regional companies. If the SP6 become merely regional, trillions in collective market disappear. Pick a number on how many billions have to be printed to replace the lost of capital gains tax revenues on this one.

        And then if the Internet splits, who wins that? We don’t speak Chinese.

      • fredm421 says:

        Yeah, the problem is that it is not necessarily up to us.

        Till fairly recently I would have been 100% for your approach but, in the last few months, speaking/listening to people like Bill Bishop, it seems clear that Xi’s declarations of ideological struggle to the death with the West aren’t merely communist platitudes a Chinese leader must say. It’s a heartfelt sentiment. China as the new Nazi Germany/Soviet USSR. We may not have a choice about whether to confront and defeat them – either economically, militarily or via remorseless cordoning off. Or a combination of the 3.

  2. Trump may soon be gone, but Trumpism won’t be. We have over 70 million ballots to prove it.

    The following piece from The Atlantic presents a persuasive case about the danger ahead.

    https://www.theatlantic.com/ideas/archive/2020/11/trump-proved-authoritarians-can-get-elected-america/617023/

    • runamok says:

      It’s an argument for refining the powers of the executive branch. I might be mistaken and mischaracterizing this, but I believe in post-colonial administrations after WWII, the US model of government was not used very often as a model, and, rather, the parliamentary system was. In large part, the rationale was that the executive office can become too strong, leading to future strongmen/dictatorships in these newly formed governments.

      I’m in favor of putting some smart harnesses on the branch. Obviously, has to be well thought out. But, there are many scholars who could be relied upon.

      Fact is, there is no guarantee that America would go Christian Fascist. For now, it looks that way. But, after a few more years, and perhaps societal near-collapse because of all the millions of hungry people living in despair, without any hope, the zeitgeist could change, and we could look fondly at 2020 as turning point, and America goes the other way. It’s in the interest of both parties to tune the powers of the office.

      Many reforms are needed in our system of government. Tuning the powers of the executive branch is just one such reform.

  3. runamok says:

    Geopoltics matters. The US is lucky that we’re gifted with a geography that is maybe the best in the world. Our populace can short geopolitics and go long being insular because of our geography. It’s a luxury few others can afford.

    Sure, the North Atlantic (the Atlantic) is not the most important ocean in the world any longer. Notwithstanding, if Europe and the US can continue to be allied, it’s like bedrock for the continuation of Western Civ against its rivals, notwithstanding Spengler. …So, ok, I’ll walk that back a bit, let’s say that the two together are the really hard sandstone upon which our lifestyles, and those of our heirs and their heirs and so on (get the message?), depend.

    I do feel bad for the future plight of Mr. Johnson’s UK, being a little archipelago off the west coast of MacKinder’s Eurasia and all. Perhaps our corporations will end up rescuing them in the future. The UK ends up a vassal state, a colony, to US corporate interests; but, US residents are able to continue to travel to visit London without the hassle of getting a visa. Win-win!

  4. With Trump on his way out, the Republican Party now appears to be the biggest threat to Democracy.

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