Brief Multi-Strategy: FLASH: UK Denying No Deal Does Not Reduce Risk and more

In this briefing:

  1. FLASH: UK Denying No Deal Does Not Reduce Risk
  2. U.S. Equity Strategy: Positive Outlook Intact; Cyclicals Leading; Opportunities in Tech Sector
  3. The Scooters
  4. UK Fiscal: Waiting While Brexit Burns
  5. Brexit Sucking up Oxygen from the FX Market

1. FLASH: UK Denying No Deal Does Not Reduce Risk

  • The UK parliament voted to reject leaving with no agreement, as widely expected. Shambolic management around that looks set to force ministerial resignation.
  • Parliament continues to indulgence itself in motions against leaving the EU without a deal, but that doesn’t stop it being the default defined by current laws.
  • I still see the relative probabilities of a deal, no deal, and no Brexit at 45:35:20.

2. U.S. Equity Strategy: Positive Outlook Intact; Cyclicals Leading; Opportunities in Tech Sector


The market’s bounce off of the December, 2018 low was a swift “V” reversal. While we often see a retest of such events, our outlook since that time has repeatedly suggested that a retest may not occur. We continue to believe the market remains healthy with overall and leadership remaining centered in the cyclical Sectors, mainly Technology.  In this publication we provide an overview of our U.S. equity strategy, and examine attractive opportunities in each of our 12 Sectors, beginning with Technology – our favorite.

3. The Scooters

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Software is starting to eat the mining world. Connected urban farms could start to disrupt the food distribution chain. Tesla backs off store closure plans after push back from retail REITs.

  • Mining Industry: Software is starting to eat the mining world as KoBold Metals seeks to build a “Google Maps for the earth’s crust”.
  • Food Distribution: Connected urban farms could start to disrupt the food distribution chain as Gordon Food Service partners with an urban farming accelerator.
  • Retail REITs: The dominoes continue to fall as Diesel USA and Z Gallerie file for bankruptcy and Charlotte Russe announces liquidation of all its stores while retail REITs push back on Tesla’s plans to close stores. 

My mind is still a whirlwind as I reflect back on the four days I just spent down in Austin at the SXSW Interactive conference learning about the latest societal, technological and economic trends, but there is one image I keep seeing: the scooters. These new stork-like two-wheeled species, which come in a variety of four-letter names (Bird, Spin, Lime, Jump [Uber] and Lyft), were everywhere I looked — sleeping in the middle of the sidewalk, flocking together in front of buildings, and charging dangerously toward me at all angles. It truly felt like the Wild West and I couldn’t help think about what caused the birth and explosion in population of this new invasive and disruptive form of transportation species? One word: convergence.

As Mary Webb discussed in her session “2019 Emerging Tech Trends Report”, the number of tech trends she observed last year rose 30% to 315 tech trends across 26 industries as a result of the convergence of different technologies and inflections across the board. As Alex Spinelli, the former Global Head of Alexa OS at Amazon, discussed during his session “The End of Websites is Nigh”, we have shifted from a linear to a branching world. And I loved the analogy proposed at the session “The Future of Augmented Reality in Sports”: when you connect devices together, it is like a symphony as the sum of the parts is more than the whole.

To understand the exponential rise in scooters, we need to look at the convergence of the three forms of capital. For example, from the customer capital perspective, scooters achieve dual social missions of accessibility and sustainability as they help solve the first and last-mile challenge as we shift from vehicle ownership to transportation as a service. From a structural capital perspective, the scooters are not just physical objects but connected devices on the digital layer. And in terms of economic capital, the scooters are able to capitalize on the sharing economy mindset established by Uber and Lyft.

4. UK Fiscal: Waiting While Brexit Burns

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  • The Spring Statement revealed marginally more fiscal room and no significant policy changes, consistent with the Chancellor’s intent to downgrade the event.
  • Fiscal policy can respond to the Brexit outcome, despite total financing rising on a heavy redemption profile. Net liabilities look weirdly skewed away from gilts.
  • Recent complaints about the RPI are being considered with a response planned for April. Changes to its use are more likely than to the measure’s methodology.

5. Brexit Sucking up Oxygen from the FX Market

  • Brexit fear diminishing boosting GBP and other currencies
  • Eurozone IP rebounds, the first sign of stabilisation
  • Pressure increases for a rate cut in Australia

We can see a case for GBP to rise towards 1.40 helping recoveries in EUR and AUD, and weakening the USD more broadly.  But the outlook for a more sustained period of low EUR rates, no structural underweight in EUR, and limited demand for Euro assets suggest that its upside may be limited.  Rate cut expectations have reached a new peak in Australia, and the AUD should continue to remain heavy.  Chinese economic reports (trade, credit, PMIs) have been weak, Jan/Feb activity data are due later today.  The overall outlook for the USD remains mixed and cautious trading continues to be advised. Event risk will keep traders playing the short game.

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