BlueBay AM's CIO Mark Dowding: "It takes a strong woman to stand up to a bully"

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Bold Boris sets himself up for a fall?

Elsewhere, we have seen Boris Johnson on his tour as he seeks renegotiation of the Brexit deal and elimination of the Irish backstop. We believe that these efforts are destined to fail given the need for unanimity within the rest of the EU on any agreement or changes that would need to be made.

Moreover, there is a sense in Brussels that there are enough MPs in Westminster who will seek to avert a ‘No Deal' in order to render some of Boris Johnson's bluster as a bit empty for now. 

The first week in September promises to be an interesting one, when the UK Parliament returns. Clearly a hard Brexit on 31 October cannot be ruled out - but it certainly isn't our central view. We can't overstate enough how unprepared the country is for ‘No Deal'. 

If this ever were to be the Brexit strategy, it may be possible to deliver this with a greater notice period and longer to adjust (as was meant to be the case with the proposed Agreement on the Transition period). 

However, the one thing we can say at this point is were such an event to occur, we widely expect Johnson to be back in Brussels with his begging bowl by the middle of November - ready to take the Theresa May deal - when the full reality of this hits the UK.

Looking ahead

The Jackson Hole conference on monetary policy will be a focus this coming weekend, with investors looking for clues on monetary policy. As things stand, we see the Fed cutting by 25bp in September and then taking no further action in the context of their ‘mid-cycle correction'. 

In the eurozone, we are sceptical of the merits of ECB rate cuts given how low rates currently are. Consequently, a 10bp rate cut (if delivered) should be the ECB's last, with more focus on measures such as an extension of QE. 

We believe that an open-ended commitment to QE may be given, linked to a policy target. In this way, the ECB may be as clear as it can be that it is creating the space for a more accommodative fiscal policy in the eurozone. 

We see the ECB raising the 33% issue limit on government bonds up to 50% and also implementing deposit tiering. This should ultimately benefit spreads and flatten yield curves in the region. The move towards a more expansive fiscal policy is already underway - but likely at a rather glacial pace. Unless Trump decides to shock the eurozone with some auto tariffs, or there is another new down-side risk, it seems likely that progress to more fiscal easing will only be gradual.

It has been an eventful August and the month is not yet done.  In emerging markets, the fall-out from Argentina continues and it is interesting to see how this impacts investor risk sentiment more broadly.

For now though, our risk is focused on the EU periphery, as this is where the value seems most obvious to us. In the weeks ahead, it is possible that we could reduce exposure should spreads rally further and we may be looking for value that may be starting to come about further afield - particularly with Trump's tweets now a seemingly reliable source of periodic volatility.

Over the past couple of years, Trump has seemed to be deft at silencing his critics and undermining his detractors - and so perhaps it was encouraging to see Danish Prime Minister, Mette Frederiksen, finally deliver an unequivocal ‘No' to the US President, rebuffing his seemingly left-field idea to purchase the country of Greenland. Sulking afterwards, Trump has cancelled a planned visit to Denmark. Given Trump's lack of ‘green' credentials, the whole episode seems pretty ironic - even more so to muse that the Prime Minister of Greenland is named Kim (has Donald got a major Kim fascination?). 

More pertinently though, it has been interesting to see how it has taken a strong woman to put Trump in his place, on an issue which is really none of his business. Can you learn from this Jerome?  After all, at some point it is the right thing to stand up to a bully.

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