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Cash on Sidelines: Your Best Investor Bet Amid Brexit, Fed Antics

investor scooping up handfuls of cash
(Dreamstime/Charles-Shapiro)

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Tuesday, 11 December 2018 10:04 AM Current | Bio | Archive

U.S. Producer Price Index (PPI)

The Producer Price Index for final demand edged up 0.1 percent in November. On an unadjusted basis, the final demand index moved up 2.5 percent for the 12 months ended in November.

The “core” index for final demand less foods, energy, and trade services moved up 0.3 percent in November, the third consecutive increase. For the 12 months ended in November, prices for final demand less foods, energy, and trade services advanced 2.8 percent.

So far, there is no sign of urgency why the Fed should pause its gradual easing path.

The interminably tedious process of separating the European Union (EU) and the United Kingdom (UK) remains tedious and interminable.

The government called off a parliamentary vote on the divorce agreement yesterday because it was obvious that the government would lose the vote. This has been obvious almost from the start of course. Now, that situation raises the chances that Britain could leave the EU with no agreement, an option that risks widespread economic disruption.

The British pound dropped below $1.27 yesterday.

Investors could do well keeping in mind that “if” the British pound should really tumble like for example in case Britain should leave the EU with no agreement that this would have, at least, a temporary negative effect on the euro and put upward pressure on the dollar.

For the time being, remaining on the sidelines and being in “cash” equivalents in dollars and Swiss francs are a couple of the safer places to be.

Prime Minister Theresa May goes to Brussels to try to renegotiate and will meet European Commission President Jean-Claude Juncker, who has already said there is “no room whatsoever” for renegotiating the Brexit deal.

Donald Tusk, President of the European Council has also said that the European Union will not renegotiate the treaty but it will help with ratification. That rather sounds like “some” renegotiation will take place. Soft renegotiation perhaps.

Unless there are major changes from the EU side, which seems very unlikely, the next UK parliamentary vote is not expected until January.

The UK labor market data showed there were an estimated 32.48 million people in work, which is 396,000 more than for a year earlier. The unemployment rate is estimated at 4.1 percent, which is lower than the estimate for a year earlier at 4.3 percent. Average weekly earnings increased by 3.3 percent year-on-year, its fastest pace since 2008.

These data explain perhaps why the UK consumer is largely indifferent to the whole Brexit story.

Riots in France

French President Emmanuel Macron has attempted to stem the recent tide of protests with a series of measures including an increase in the minimum wage urging employers to pay a tax-free end-of-year bonus and making overtime tax-free. Whether this is sufficient to stop the protests is hard to say as there is no coherent structure to the protest movement.

The disruption in France to date will have an economic cost of course, just as strikes weakened the French economy at the start of the year, so the protests will reduce economic activity in the fourth quarter, although some of it may be diverted. Shopping online rather than in stores for instance to avoid demonstrations.

Governor of the Reserve Bank of India Resigns

Meanwhile in India, politics has thrust itself into the attention of international financial markets with the Governor of the Reserve Bank of India resigning early. The Indian government has been pressuring the Reserve Bank to offer more monetary policy accommodation and to hand over some of the Reserve Bank’s cash to help pay for the government’s deficit.

The governor has chosen to resign for “quote” personal reasons.

By the way, India is about to get its third central bank governor in three years.

Whether or not this resignation was a direct consequence of political pressure, there has been a rising trend for global politicians to criticize or seek to influence central banks around the world.

All this raises a lot of questions for emerging market players.

The Indian rupee has weakened.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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For the time being, remaining on the sidelines and being in “cash” equivalents in dollars and Swiss francs are a couple of the safer places to be.
fed, rate, hikes, economic, data, brexit, cash
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2018-04-11
Tuesday, 11 December 2018 10:04 AM
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