Japanese and Russian stock markets opening just after the bank holiday 24-Feb-2020

Global stock market plummeted on this Monday as Coronavirus (Covid 19) outbreak severely hit South Korea and Italy over the last weekend. One of the big Asian markets, Japan had a bank holiday this Monday and it is opening in a few hours from this time since the other market dived into the bloodbath. Japan is also facing uncertainty of Coronavirus spreading as increasing number of patients even excluding ones from Diamond Princess. Russia had a bank holiday on this Monday, too.

In the mean time, Japanese index Nikkei 225 futures market has gone down around 4.7%, and the index's opening price is also expected down near by the same level after the fair value adjustment.

Along with the Japanese market, other Asian and Pacific markets are also opening in the near time zone. If the other markets were bouncing back from the last miserable closing, the potential damage on Japanese market could be limited. This Monday, Australia's ASX 200 index has gone down by 2.25% but its future market does not indicate clear relief yet. US market was also bearish, which was the worst in 2 years. Dow Jones Industrial Average has lost more than 1,000 points equivalent to nearly 3.6%.

Sometimes, good news are suddenly coming in, but Asian and Pacific markets could not be optimistic yet, particularly Japanese market.

Here is the list of global stock indexes.

[Asia & Pacific]

(Australia) S&P/ASX 200
(China) SSE Composite Index

(Hong Kong) Hang Seng Index
(India) S&P BSE SENSEX

(Japan) Nikkei 225 Index
(New Zealand) S&P/NZX 50
(S Korea) KOSPI Index

(Singapore) STI Index

[Europe / Middle East]

(France) CAC 40

(Germany) DAX

(Italy) FTSE MIB

(Norway) OSLOStock Exchange All Index

(Russia) RTSI Index

(Saudi Arabia) Tadawul All-Share Index
(Spain) IBEX 35

(Sweden) OMX Stockholm 30
(Switzerland) Swiss Market Index
(UAE) Abu Dhabi Securities Market General Index

(UK) FTSE 100

[Africa]

(Nigeria) Nigerian Stock Exchange All Share Index
(South Africa) FTSE/JSE Africa All Share Index

[North/South America]

(Brazil) IBOVESPA

(Canada) S&P/TSX Composite index

(US) Dow Jones Industrial Average

How hard to reach the trade agreement between UK and EU?

At the end of last January, UK finally relinquished the EU membership in term. British MEPs, including Mr.Farage seen one of the most prominent Brexiter, have left Brussels.

Although it just started the transition period and people's activities are not practically changed until the period, it is likely the end of "Endless" talks between UK and EU about Brexit. Now, British government whose cabinet ministers were shuffled last week has to negotiate the trade deal with European Commission. The end of the transition period is set on the end of 2020 unless it is agreed to extend the period between UK and EU while Mr.Johnson does not want to do.

Even if UK (and EU) expect to reach the agreement, how it is realistic to reach a decent deal in a year?  Due to the tight deadline, both sides tend to prioritize the negotiation issue on top. But the free trade agreements between EU and other large economies took much more time to be finalized, which also requires ratification. Here are some examples.

[EU-Japan Economic Partnership Agreement]
 The negotiation had started since 2013,
 Reached at the agreement on July-2018,
 Ratified on December-2018,
 Has been effective since 1-February-2019.

About 6 years to the enforcement.

[EU-Singapore FTA]
 The negotiation had started since 2010,
 Reached at the agreement on October-2018,
 EU member states endorsed on November-2019,
 Has been effective since 21-November-2019.

About 9 years to the enforcement.

[CETA, EU-Canada Economic and Trade Agreement]
 The negotiation had started since ?,
 The negotiation ended on August-2014,
 The agreement was signed on October-2016,
 Has been effective since 21-September-2017.

More than 3 years + the negotiation period, to the enforcement.

Abolishing the relationship when UK was a member state of EU and building the trade agreement from scratch, one year sounds too short to enforce the agreed deal. It implies No-deal Brexit is inevitable rather than it as the worst option. In case of No-deal Brexit, WTO rules will be basically applied to the trades between EU and UK, which is likely to happen.
The market seemed not pricing in No-deal Brexit, but as soon as UK legally rejects any extensions of the trade talk, the market will pessimistically react.

[Updated on 16-Oct-2020]

UK PM mentioned Britons should get ready for no-deal Brexit today as it is still unclear to reach an agreement so-called Canada-style deal. He would seek an alternative like Australia-style deal.

The Guardian: Boris Johnson tells UK: prepare for a no-deal Brexit

“A lot of progress has been made on such issues as social security and aviation, nuclear cooperation, and son on,” he said, but “for whatever reason, it’s clear from the [EU] summit that after 45 years of [UK] membership they are not willing, unless there’s some fundamental change of approach, to offer this country the same terms as Canada”.

He said that given there were only 10 weeks left until the transition period ended, he had to make a judgment about the likely outcome and to prepare the country.

“I concluded that we should get ready for 1 January with arrangements that are more like Australia’s – based on simple principles of global free trade,” he told reporters in a pooled broadcast statement.

EU and Australia started their trade negotiation in May 2018, and it seems the agreement has not been made by now since the negotiation is kicked off. It looks unrealistic for UK to reach a full agreement with EU by the end of 2020.

Ref.
EU-Japan trade agreement on track to enter into force in February 2019
The EU-Singapore agreements explained
Canada-European Union Comprehensive Economic and Trade Agreement (CETA)
CETA – The European-Canadian Economic and Trade Agreement
Australia - Trade - European Commission

BBC news: Brexit: What is the transition period?

FX Volatility bounce back in 2020?

In 2019, FX traders probably wondered the volatility had diminished in pairs of the major currencies though GBP occasionally got bumpy ride because of the Brexit uncertainty.

[CBOE/CME] EUVIX

The volatility of EURUSD has been approaching to the lowest level at remarkable points. According to "FT: Traders twiddle thumbs as volatility fades in currency markets", EURUSD 1 month implied volatility is around the lowest in last two decades. The volatility marked around the lowest level (below 5.00%) in 2007 and 2014, and it now stays near that level.
In the mean time, central banks show little clue about when they are likely to tighten the monetary policies in a coming months or years. The traders cannot effectively use the monetary policy changes as trading opportunities in such market.
Even though few indications of tightening the monetary policy, the volatility is having less room to decline further, which has already reached the lowest in two decades.
Apart from the monetary policy, we are facing geopolitical events which are expected to significantly affect the financial markets, such as US presidential election, Brexit negotiation between UK and EU27 and US-Iran tension which arose very recently.
Whether it is anticipated or not, the market was quiet in 2019. Now in 2020, we will see if it was Calm before the Storm.

[Added on 21-Nov-2020]

Since EUVIX bottomed out early 2020, it peaked in March as financial markets were fluctuated by fear of spreading Covid-19. EUVIX is down from the peak but stays well over the bottom of early 2020.

Famous veterans stepped down quietly after louder Brexit election campaign

The UK election this month was mostly about Brexit while NHS is also one of the biggest interest of the people. The outcome, Tory's decisive majority, implies that the serial decisions will be made far quicker than before the election.

Looking at the parliament from a side way, some famous members have left the House of Commons as a result of the election or own wills. Even before the election, John Bercow had resigned as a Speaker, and Lindsay Hoyle, the former deputy speaker, was designated as a new Speaker.
sky news: Sir Lindsay Hoyle wins race to replace John Bercow as Speaker in House of Commons

Kenneth Clarke, the Father of the House until Nov 2019, retired after 50 years in politics. Like other former veteran MPs, we could expect to hear his voice through the media or public speeches perhaps.

The Guardian: Boris Johnson should 'stop campaigning and start governing', says Ken Clarke

Dennis Skinner, a veteran Labour politician since 1970, also known as Beast of Bolsover, has been defeated by the Tory candidate. Dennis Skinner has served as MP for almost a half century and is older than Kenneth Clarke who stepped down as mentioned. 

BBC News: General election 2019: How Dennis Skinner lost his Bolsover seat

Philip Hammond, the former Chancellor of the Exchequer, stepped down as a MP at the election. He has strongly opposed to "No-deal" Brexit. It implies that he was presumably uncomfortable with the recent Tory leadership that does not rule out crashing out of EU without the deal.

The Guardian: No-deal Brexit would be a betrayal, says Philip Hammond

Their resignations are because of their different reasons and wouldn't simply be attributed to a devision in the country. However, the veterans who have served for the last decades had some senses of unity, and they left the parliament. Hopefully, UK will be more united again in coming years.

Mr.Johnson won decisive majority, but the market doesn't look optimistic enough?

[EURGBP is approaching the level near Brexit referendum 2016]

The UK election yesterday resulted a big trophy for Tory and Mr.Johnson, and British pound scarcely reacted stronger before the exit polls released. While the FX market responded optimistically as concerns over the hung parliament faded away, it doesn't mean No-deal Brexit is ruled out from the plan.

On the Brexit day which is no later than 31-Jan-2020, UK actually doesn't get Brexit done, but they just start the trade talk with EU. The trade deal is expected to be agreed and ratified by Dec-2020, otherwise the consequence could be No-deal Brexit on Jan-2021 unless the extension is given.

Observing EURGBP market, GBP moved stronger yesterday but it is still weaker than the level before Brexit referendum 2016. It also implies that the market cannot be as optimistic as it was before the referendum. Perhaps, No-deal possibility is still priced in.

Ref. BBC News: Brexit: What happens now?

European Banks continue cutting jobs

It has been for about two years since I summarized job cut announcements by European banks. These days, the glooming trend still continues with a bunch of job cut announcements from large European banks.
As mentioned in the past post, digitalization play a role to automate the internal processes which were once handled by the employees whose salaries were relatively higher. More and more you get benefit from your retail banking on your smart phones or laptops, banking jobs not only of traditional services at the local branches, but also the intermediate process such as risk assessment are tightened. (Perhaps, no longer needed.)  This phenomenon seems be irreversible, and therefore this is considered as a structural change in the banking industry. Where the bankers goes after dropping out?

As if joining to the trend, the car industry is also about to squeeze jobs, attributing to a rise of the electric vehicles. A recent story tells that Audi plans massive job cuts in their home country Germany, a champion of the industry.

BBC: Audi to cut 9,500 jobs to fund electric car push
Carmaker Audi is to cut 9,500 of its 61,000 jobs in Germany between now and 2025 to make more money available for electric vehicles and digital working.
The cuts - which aim to save €6bn (£5.1bn) - will be achieved through an early retirement programme.
But the Volkswagen-owned firm also said its move into electric cars would mean the creation of up to 2,000 jobs.
It comes less than a fortnight after Daimler said it would cut more than 1,000 jobs by the end of 2022.
The car industry is facing a downturn in key markets, including China, as well as increased costs as it meets tougher European Union emissions regulations and the costly switch to electric vehicles. Audi saw falling sales, revenues and operating profits in the first nine months of 2019.

And some stories of job cut announcements in banking industry, too.

FT: Europe’s banks slash 60,000 jobs as outlook turns negative

Bloomberg: Global Bank Job Cull Tops 75,000 This Year as UniCredit Cuts

IBT: Italy's Largest Bank In Trouble? UniCredit To Layoff 8,000 Jobs Amid Western Europe Struggles

Some says it is "Japanification", the deja vu which Japan have experienced decades of economic stagnation. But we are facing structural changes in the industries rather than the market bubble. In Europe, it seems be even worse than Japanese deja vu in the last decade.

UK election and GBP on 12-Dec-2019

UK election is ahead on 12-Dec-2019, which held first time on December since 1923.
According to the latest polls, it predicts Tory's majority while it's not comfortable enough to avoid a hung parliament.

Evening Standard: UK opinion polls: Conservatives set for majority of 28... but hung parliament possible as support drops
YouGov has interviewed approximately 100,000 people about their voting intentions in the past seven days.
It said the margin of error could put the final number of Tory seats anywhere between 311 and 367, suggesting a hung Parliament cannot be ruled out.
Sterling fell by around a third of a cent against the US dollar after the news. Financial markets fear a hung parliament would extend the uncertainty over if or when Britain will leave the European Union, which it is currently due to do on January 31,

As mentioned on the above story, outcome of the hung parliament will drag GBP down sharply as the uncertainty over Brexit consequence.
EURGBP is currently near the level after the Brexit referendum 2016.
If British constituencies successfully avoid the hung parliament, the Tory's Brexit deal is expected to be passed before 31-Jan. (some days of technical extension maybe in the worst case.) In this case, GBP will be stronger, approaching toward the level before the Brexit referendum (EURGBP below 0.80).
If it resulted as a hung parliament, EURGBP could jump to around 0.90 - 0.92 up to the highest in 2019.

In the meantime, today's trend and momentum of EURGBP indicates the upward direction in a coming week including the UK election date, which implies the possible hung parliament outcome...
While we recommend to watch out the latest polls, it is also interesting to see if the indicator still reasonably work under the critical event against the market. Let's see tomorrow.


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