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10/11/2016

Weekly News Bites: The epoch of incredulity

Our top picks from this week's Morning Chat

The epoch of incredulity: The exquisite unpredictability of markets was on full show yesterday. First, the most unexpected of all outcomes occurred: a Republican clean sweep. Then, let’s assume you were the one person in the World who knew this was going to happen, what would you have done? Short risk-assets? Go long safe-havens? Expect the volatility index to surge? Wrong, wrong, wrong. Equities? Up. US dollar? Stronger. Government bonds? Sold off. Gold? Fell hard from an intraday peak. The VIX? Way down. Lesson: trying to divine the future is impossible; it may also be useless. (10/11)  

Over the Hill: Hillary Clinton’s gracious concession speech helped markets embrace risk, mirroring the period right after Brexit when investors turned sanguine due to a quick and painless assumption of power by Theresa May. Back then, in July, the S&P 500 closed at a new record high, Brent crude moved towards $50, and the British pound surged past its then post-Brexit lows. A repeat for all three is possible again this week... (10/11) 

Slim fast: While President-elect Trump’s policies are somewhat fuzzy, one concrete promise has been to build a wall separating the US from its Southern neighbour. As a result, Mexican stocks, bonds and the peso are most notable exceptions to otherwise buoyant markets. Carlos Slim, Mexico’s wealthiest man, has alone lost $5.1 billion – about a tenth of his net worth – as his Mexican assets crumble in sync with their underlying currency. (10/11)       

Negative interest: In a twist, the most prominent policy hawk at the European Central Bank, Sabine Lautenschlaeger, a German, defended the bank's negative interest rates and quantitative easing measures. She was quoted as saying, "the phenomenon of low interest rates is more complex than the debate in Germany would suggest." Nonetheless, she added she was sceptical of any further easing, perhaps foreshadowing a rocky path to extending the ECB's bond-buying program beyond its March deadline. (08/11)

No walk in the Park: President Park Geun-hye of South Korea has asked rival political parties to recommend a new prime minister – a major concession – as the country continues to be rocked by a political scandal. The President is accused of being under the sway of one of her best friends, Choi Soon-Sil. She is the daughter of Choi Tae-min, a shamanistic quasi-religious leader many South Koreans believe exercised a Rasputin-like power over Ms. Park in the 1980s and 1990s. The entire matter has left the President with an approval rating of 5%. (08/11)

Prisoners of their own device: Oil prices were decimated last week – Brent crude fell from above $50 to below $46 – after OPEC failed to agree on production quotas. Every country, it seems, wants to be given a pass on cutting production for a mix of genuine reasons and greed, but at the same time, believes the largesse should only apply to themselves. The famous "prisoners dilemma" case study would predict this is likely to result in a classic lose-lose situation. (07/11)

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