European Central Bank meeting will continue Euro tightening
By Peter Rosenstreich
At next Thursday’s meeting of the ECB’s Governing Council (20 July), we expect the Governors to continue their monetary tightening, but to do so in a ‘kind and gentle’ way. That is, they will try to soften the blow so as not to roil markets more than necessary.
Next Thursday, we expect ECB Chairman Mario Draghi to act hawkish while trying not to sound hawkish. We believe he will begin plans for a tapering of Quantitative Easing to start on 26 October. We expect QE to end in mid-2018 (depending on market reaction and economic data), and we look for an ECB rate increase by the end of 2018.
Central banks worldwide are shifting toward normalization of interest rates, and this is sending shockwaves through financial markets, pushing yields up 25bp across the yield curve. Draghi recently smashed conventional (dovish) wisdom with hawkish comments, sending the EUR on a bullish tear. He seems inspired by the Eurozone’s solid growth and not too fearful of inflation.
Bitcoin: trade the fork out of it
By Yann Quelenn
We remain bullish on Bitcoin, and we target $2500 for one bitcoin in the short-run. We consider a Bitcoin split into two currencies as unlikely.
Bitcoin faces a big day on Tuesday, the 1st of August. Due to some technical complications, the digital currency’s computer-code will on that date be modified: it’s called a fork.
What the fork? Well, like Brexit, it can be soft or hard. A soft fork means business as usual, no significant changes in trading or in operations by miners, wallets and merchants. A hard fork, however, means that historic transactions will be more difficult to trade on. Indeed, the hard fork’s worst case is that the currency would be split into two currencies. (This is what happened to another digital currency, Ethereum, which now consists of Ethereum and Ethereum Classic.)
At this stage, markets believe the soft fork will win, and so do we.
Brexit clarification will boost British pound: buy GBP
By Peter Rosenstreich
We are bullish on the British pound, which pivoted off a Wednesday low of 1.2831 USD/GBP and is headed toward 1.3048, where we believe it will encounter some resistance. For the long term, we believe the GBP will strengthen, as the threat of a ‘hard’ Brexit recedes. Our ideal strategy for sterling remains: buy on panic Brexit selling.
The strength comes in reaction to the UK Government’s formal acknowledgement that Brexit will come at a cost. Of course it will! While this is obvious to onlookers, Government officials have frequently acted and talked as if separation from the European Union would come at no expense. Their recent glimmer of honesty will foster a constructive dialog at next week’s Brexit negotiations. It shows that Government is squaring up to its commitments and to logical and legal realities.
Moreover, it lessens the likelihood of a ‘hard’ Brexit, i.e. a UK with a minimum of EU ties. If nothing else, a ‘soft’ Brexit will be necessary for the UK to monitor capital allocations and usage.