The Dream Team

Say this for Theresa May:  when she said that "Brexit means Brexit", she wasn't kidding, at least according to her Cabinet appointments.  Indeed, at first glance it's a Brexiteer's dream team, with arch Eurosceptics in charge of negotiating the UK withdrawal (David Davis) and international trade (Liam Fox), an arch buffoon as Foreign Secretary (Boris, who else?), and a new Chancellor notable only for his utter blandness (Philip Hammond.)

In a sense, these are refreshing appointments, as we'll now have firsthand evidence whether the breezy assurances of quick free trade agreements will come to pass.  If they do, then the Dream Team can pat themselves on the back for a job well done and an important promise fulfilled.   If not, well  then one might have to consider whether they were telling porkie pies to begin with.

Today marks a potentially significant milestone, with the BOE perhaps set to break half a decade's worth of lethargy and actually doing something.  Contrary to yesterday's commentary, it is perhaps not quite so certain that the Bank moves today; in addition to five years or so worth of inertia to shake off, one could argue that a comprehensive easing program is best enacted in the context of next month's quarterly inflation report, which will have at least an initial read on post-Brexit data and be able to provide a better forecast than merely sticking one's moist finger into the breeze and hazarding a guess.

For choice, Macro Man still reckons that the Old Lady cuts by 20 or 25 bps today in the effort to prop up the "Brexit ain't so bad" narrative being promoted by both the Dream Team and the FTSE.   QE is probably going to wait for the QIR, however.  In the event of a no-go, one can imagine a further squeeze in sterling...though as noted yesterday, Macro Man would tend to view that as a selling opportunity.

It seems clear that while positioning may be large relative to liquidity, it's probably less large than it was at the end of last week.  Here's a fun fact for you: Monday's 4.07% squeeze in GBP/JPY was the third largest daily rally in that pair since the end of the Bretton Woods system in 1993 1973.  Unfortunately for believers in the "Brexit Bounce", the history of prior rips in GBP/JPY is not particularly encouraging.  

Friend-of-the-blog Matt Gittins of SpectraFX cobbled together an interesting table showing the top 10 daily squeezes of the post-BW era, then plotting what happened next.   This is reproduced below.    As you can see, while the rally usually carried on for another week or so, returns over the more meaningful 30-50 day periods were generally negative.  That GBP/JPY couldn't even manage to follow through yesterday isn't terribly comforting for would be bulls.

Oh, and in case you were wondering, VW still sucks.  They had the temerity to bid your author $500 for the car, or less than the bill for the work they've already done on it.  Amusingly, there's a class action lawsuit seeking recompense for the very problem that Macro Man has had.   Hey VW, what's another billion or two between friends?