David Fuller and Eoin Treacy's Comment of the Day
Category - General

    The Brexit Declaration on Future Ties: A Guide to What It Says

    There is a great deal of commentary at the moment about Brexit so let’s look at what has been proposed in the draft agreement. Here is a section:

    The declaration opens up the prospect of adopting technological solutions to facilitate "the ease of legitimate trade" - including across the Irish border - calling for the
    use of "all available facilitative arrangements and technologies".

    "Facilitative arrangements and technologies will be considered in developing any alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing," it says.

    It envisages "a spectrum of different outcomes" in terms of the practical implementation of checks and controls on  movements across borders.

    Financial services
    The declaration calls on both sides to start assessing  one another's regulatory frameworks as soon as possible after Brexit, with a view to being able to declare them "equivalent" before the end of June 2020.

    Freedom of movement
    The principle of freedom of movement of people between  the EU and the UK will no longer apply. The two sides will aim to provide through their domestic laws for visa-free travel for
    "short-term visits".

    They will also consider future conditions for entry and stay for purposes such as research, study, training and youth exchanges.

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    Beijing to Judge Every Resident Based on Behavior by End of 2020

    Thanks to a subscriber for this article from Bloomberg news which may be of interest to subscribers. Here is a section:

    China’s plan to judge each of its 1.3 billion people based on their social behavior is moving a step closer to reality, with Beijing set to adopt a lifelong points program by 2021 that assigns personalized ratings for each resident.

    The capital city will pool data from several departments to reward and punish some 22 million citizens based on their actions and reputations by the end of 2020, according to a plan posted on the Beijing municipal government’s website on Monday. Those with better so-called social credit will get “green channel” benefits while those who violate laws will find life more difficult.

    The Beijing project will improve blacklist systems so that those deemed untrustworthy will be “unable to move even a single step,” according to the government’s plan. Xinhua reported on the proposal Tuesday, while the report posted on the municipal government’s website is dated July 18.

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    Email of the day on central bank balances sheets

    On the Morgan Stanley research document, you posted on Monday, there was "the most important chart in the world" as you describe it (QE globally). The "6-month rate of change" scale on LHS caught my attention. Recently, this QE tightening "rate of change" has moved upwards. Is this an early sign that CBs are starting to shy away from their QE tightening? If so, this is bullish for an equity market discounting future tightening. Maybe the tea leaves are not clear, but they must be monitored.

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    Stock Market Is Even Worse Than You Think It Is

    This article by Stephen Gandel for Bloomberg may be of interest to subscribers. Here is a section:

    The good news is that drops in valuations tend not to last long, especially big ones like the one this year. In a report last week, UBS strategist Keith Parker pointed out that on average the market has returned 16 percent in the year after one in which P/E ratios have dropped significantly. In fact, going back to World War II, there have been only two years in which the market has dropped after a more than 1 percentage point drop in valuations the year before. Parker predicts that the S&P 500 will rise to 3,200, or more than 20 percent, by the end of 2019.

    On top of the valuation drop, he points to a high consumer savings rate, a rebound in companies investing in the U.S. and rising productivity as reasons the market will climb next year. But there are also reasons to believe the traditional rebound won’t materialize this time. First of all, while down, the absolute level of stock market valuations are not that low. For instance, the P/E ratio dropped to 12.8 in late 2008 before the market rebounded the next year. The P/E ended at a lower point than it is now in six of the 10 years in which there were big valuation drops.

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    Natural Gas Climbs as Record Cold Seen Draining U.S. Stockpiles

    This article by Naureen S. Malik for Bloomberg may be of interest to subscribers. Here is a section:

    Gas volatility has soared this month as bulls betting on winter supply constraints clash with bears expecting record production to overwhelm demand for the fuel. Prices soared more than 20 percent on Wednesday before tumbling the most on record the following day. Though output from shale basins is at an all-time high, exports have climbed as domestic consumption rises, leaving stored supplies at a 15-year seasonal low.

    “We haven’t had this kind of weather in a long time where it gets cold right out of the block in November,” said Tom Saal, senior vice president of energy trading at INTL FCStone Financial Inc. in Miami. “That puts the industry on notice that we are going to need a lot of gas this winter. We could see a lot volatility.”

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