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UK Times reports government secret no‑deal Brexit preparations leaked

Via the Sunday Times (gated), the paper say they have the full copy of an unprecedented leak of government documents

“This is not Project Fear-this is the most realistic assessment of what the public face with no deal. These are likely, basic, reasonable scenarios-not the worst case,” a senior government source told the Sunday Times.
Britain faces shortages of fuel, food and medicine,
  • a three-month meltdown at its ports,
  • a hard border with Ireland
  • rising costs in social care in the event of a no-deal Brexit
Says the Times:
  • The documents … have emerged as the UK looks increasingly likely to crash out of the EU without a deal.
  • Compiled this month by the Cabinet Office
Apart from that, how was the weekend?
Via the Sunday Times (gated), the paper say they have the full copy of an unprecedented leak of government documents 

German Finance Minister says could deploy up to 50bn EUR of extra spending if needed

German Finance Minister Olaf Scholz spoke on Sunday,

  • Said Germany has fiscal strength
  • is thus able to counter future economic crisis “with full force”
  • could spend up to 50bn EUR extra
Germany’s economy is showing signs of slowing, Scholz floating the idea here of dially back government promises to target balanced budgets and instead borrow to fund investment.
  • if we have a debt level in Germany in relation to economic output that is below 60 percent, then this is the strength we have to counter a crisis with full force

Mid-August major central bank overview

The central bank rundown

The weekend is a perfect time for a quick catch up for where the major central banks are at. The central banks will be listed with the most bearish central bank first which will be, drum roll please, and no surprise it’s the Bank of England winning the current battle of the bears ECB, Central Banks   Bank of England: Most Bearish central bank The single cloud which obscures the BoE’s view is Brexit, or more specifically, the chance of a no-deal Brexit. Over the months the belief that Britain would get a deal out of the EU has changed with the growing realisation that a no-deal Brexit may be impossible to avoid. Boris Johnson’s new approach of ensuring that Briatin leaves the EU by October 31, with or without a deal, is now being taken seriously by the markets. My view is that a deal will be struck, only after the event of a no deal. However for now the BoE is unable to assess the incoming data properly. Recently wages have stood firm, CPI was good across the board, UK retail sales were robust,but UK Q2 preliminary GDP was a miss at -0.2% vs 0.0% q/q. All in all not too bad a data set, but for now expect GBP sellers on rallies as the GBP takes the top spot for the most bearish central bank with a no-deal Brexit at the front of investors minds. European Central Bank: Bearish The market expectations are now for the ECB to ease by 10 basis points in their September meeting. There is also the potential for a tiered rate system, which stops every day savers paying to save their money, and a new round of asset purchases. Since the ECB signalled this easing bias the German economy shrank by 0.1% QoQ from 0.4% QoQ in the first quarter. This means that the EU’s powerhouse has shown a stagnating economy since 3Q 2018. The data prompted the German Economy Minister to say that the Q2 GDP data was a ‘wake-up call’ and a ‘warning sign’. Expect EUR sellers on rallies. Reserve Bank of New Zealand: Bearish The RBNZ cut interest rates by a surprise 50bps at their last rate meeting. Governor Orr was very bearish in his language at the press conference and he didn’t rule out the RBNZ needing to take further action. He saw negative interest rates as an option and even the prospect of QE. It was a great opportunity for a quick leveraged NZD short, so worth noting a surprise interest rate cut fora decent opportunity as I flagged a few hours after. Since Orr spoke at the presser, there has been a New Zealand Treasury paper stating that the RBNZ could reduce the interest rate to -0.35% (currently at 1%) , but that QE was seen as a less appealing tool. Expect sellers on NZD rallies with the RBNZ’s bearish outlook Reserve Bank of Australia: Bearish potentially turning neutral The RBA is at an interesting point having cut interest rates in back to back meetings this year (after an extended period of being on hold). The RBA have lowered their GDP growth forecast and inflation forecasts adding that their economic forecasts assume rates will move in line with the market pricing to 0.75% by year end and 0.50% by H1 2020. However, the data has been generally robust for Australia and Governor Lowe spoke of the economy being at a possible ‘turning point’. See a piece here I reported on Wednesday in the week about the divergence between Australia’s OECD leading indicator and the value of the AUD. The strong July employment data on Thursday helped and just after the data the odds of a 25% rate cut by the RBA are now seen at ~23% vs ~50% at the start of the week. One final aspect to mention is that the Australian economy is closely tied to China’s fortunes with apx 30% of its GDP coming from trade with China. Therefore, AUD will be pushed or pulled along with the US-China trade sentiment too. Federal Reserve – Neutral to weak bullish Mid-week, after the Trump administration announced a delay to tariffs, Justin reported that the Fed funds futures scaled back on the 50bps rate cut with odds falling to 19% from 31% in the week. RBA, RBNZ, BOJ, ECB Justin made the point that you have to wonder whether or not the markets are getting too ahead of themselves in pricing such a move with the US and China hitting the brakes on further escalation for now. He went on to point out the relatively strong domestic picture means that the Fed could end up shifting to a more neutral position at next week’s Jackson Hole symposium. However, in only one day that risk sentiment changed as the market went into full melodrama. Risk is elevated and fear is clouding reality. So, this is hard to call. Will calmer heads prevail as the US economy is in good shape, and the Fed can hold rates for now, or will the Fed go along with the panic and cut 50bps at the next meeting?So, the Fed is one to watch as it may be on the point of shifting to a more neutral perspective. If it does shift, expect dollar strength. Bank of Japan – Neutral to bearish (but JPY is bullish!) The reason that the JPY is bullish is that the Yen has been bought for its safe haven status on a number of ongoing risks. There is a risk of a no-deal Brexit, US-China trade tensions, slowing global growth concerns and political risk out of Italy. All of the above have kept JPY bid. However, the Bank of Japan are very bearish as a bank. Inflation in Japan continues to miss the 2% target and the BoJ have stated that they will ‘keep very low interest rate levels for an extended period of time’ until at least through spring 2020. Eamonn posted in the week that JP Morgan’s reported that they consider that the Bank of Japan has now shifted to a ‘pre-emptive easing stance’ and that the ‘BOJ is now willing to ease in response to risks of weakening momentum, rather than waiting for hard evidence’. Reuters reported that 30 out of 38 economists see the BOJ’s next move as being ready to ease policy. The 100 level is seen as the ‘line in the sand’ level at which the BOJ will be ready act. The sub 105 will see verbal intervention. So, if the JPY is bid any further on some risk factor then expect to see some response from the BOJ. Swiss National Bank- Neutral to bearish (but CHF bullish) The CHF is being bid on exactly the same reasons that the JPY is being bid;as a traditional safe haven currency. The SNB interest rates areat-0.75% and haven’t changed at a scheduled meeting since 2009. However, with the strengthening Franc hurting the Swiss export economy a number of large institutions, like UBS Group, Raiffeisen Bank International AG and Bank J. Safra Sarasin,have recently called for a rate cut at the September 19 meeting. This is as the Swiss franc increases more than 4% versus the Euro over the last three months. However, the median forecast is still for the SNB to remain unchanged.Expect CHF strength (like the JPY) on ongoing risk off concerns Bank of Canada- Neutral The Bank of Canada remains the only major central bank to not turn explicitly dovish. However, in an increasingly bearish central bank world the pressure is increasing on the Bank of Canada to follow suit. Canada is the fourth top exporter of Oil behind Saudi, Russia and Iraq, so the recent downturn in oil pricesfrom $60 in mid July down to a low near $50 in early August has been an extra weight on CAD. The recent domestic picture has been less robust too with July’s Core MoM retail sales disappointing at -0.3% vs +0.3% expected and the last employment data showing a decrease at -24.2K vs 15.2K expected and an uptick in unemployment at 5.7% vs 5.5% expected. This means that the Bank of Canada is in a neutral position and its next move will likely be decided for it by global growth sentiment aiding or hindering oil prices. Keep an open mind on CAD for now
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Gibraltar releases Iranian tanker

Not clear where the tanker is headed

Not clear where the tanker is headed
A Gibraltar court released the Grace 1 tanker on Saturday and the ship is preparing for departure.
The move came despite US objections and appeals. The US government issued a warrant to seize the ship, saying all oil aboard the ship is subject to forfeiture due to a “scheme to unlawfully access the US financial system to support illicit shipments” of oil in violations of sanctions.
Refinitiv datea shows the status of the ship changed from ‘at anchor’ to ‘underway using engine.’
Iran seized a British oil tanker in the Strait of Hormuz earlier this month, likely in retaliation for the seizure. At the time, the move heightened tensions and boosted oil prices.
WTI closed the week at $54.87 and Brent at $58.64.
In other oil news, a Saudi oil plant in the Shaybah field was attacked by drones Saturday, causing a limited fire. Saudi officials said the fire was contained and operations were not affected.