Ever get fed up with the Brexit thing ? At the risk of appearing thoroughly unprofessional, we have to confess that we sometimes feel a bit that way. In particular, since the jury is still out on the matter the "Brexit Blues" theme can get a little wearing. Even while maintaining total impartiality on the subject (of course), it's possible to wonder if one day some of the major news organs and opinion-shapers will look back and question whether their coverage has entirely evenhanded.
Ardent Brexiteers argue that many of these opinion-shapers, the liberal elite in their ivory towers they might say, are no closer to getting the point about the majority Brexit vote than they were 18 months or so ago when they staggered away from the referendum result ashen-faced and disbelieving. Their incessant pessimism about the economic prospects of post-Brexit Britain is driven by political considerations (and disappointment) rather than an open-minded assessment of the fundamentals, we are told. Furthermore, the UK runs the risk of their continually downbeat projections becoming self-fulfilling whether they actually reflect the reality or not.
Well ..... of course it's true that personal political bias should never play any part in making sound investment decisions, and that some commentators have probably let the boundary between the two become a little blurred on occasion. There is also an element of plausibility in the theory of self-fulfilling pessimism -- talking yourself into a recession, if you like. But surely no one with a modicum of nous would deny that the Brexit decision placed enormous obstacles in front of the UK economy, and if forecasts were downbeat they were only an accurate reflection of how difficult overcoming the challenges ahead is bound to be, at least in the short-term. But for many, the decision on how to vote in the referendum rested not on whether there would be substantial costs to the UK economy, but whether those costs were a price worth paying or not.
Anyway, imagine that you haven't been keeping half an eye on the value of Sterling and instead got your information from lazy mainstream television news channels and commentators whose allegiances on the issue are pretty clear, shall we say. In those circumstances, you might be forgiven for thinking that the Pound must have taken a bath over the last year. But as we know, that just ain't so. It has dropped something over 3% against a powerful Euro, but £ / $ (a.k.a. "Cable") gained nearly 10% in 2017.
The Dollar's been weak pretty much across the board of course, but the point is that the knee-jerk trashing of Sterling after the referendum result now looks like a classic over-reaction -- as it was always likely to unless or until negotiations collapse completely. There's a lesson there : one can assume there will be difficulties, big ones too .... but the fact is that nobody knows how this is going to pan out. It's perfectly possible that compromises will be reached, economic fundamentals will apply and Sterling will stand or fall on the UK's performance in the normal way and the attention paid to every minor disagreement at every one of a thousand meetings will fade.
Wouldn't that be nice ? For the present though, that possibility won't stop the hand-ringing ..... so it's refreshing to see a major institution making a bold call for continued gains for £ / $. You can't say it's bucking the trend ..... as we've said, the trend of the last 12 months has been higher, but whether you agree with it or not it's good to see a projection for Sterling based largely on fundamentals. It does incorporate a little guesswork of its own regarding Brexit negotiations of course, though on this occasion the view is rather optimistic ..... Hurrah !
Bloomberg highlight ING's forecast that Cable will rise to $1.53 by the end of 2018. That's nearly 3% above where it was trading before the referendum result, by the way. The Dutch bank sees Cable at $1.40 by the end of the first quarter, and whilst the median estimates were $1.33 for Q1 and $1.35 for year-end in a Bloomberg survey, the bullish call was supported by both Bank of America Merrill Lynch and Nomura.
According to ING, the initial move to $1.40 is "based on a one-off positive reappraisal of the UK economic story and the Bank of England". They are confident that a transition Brexit deal will be agreed by the end of March, allowing the market to concentrate on economic data more resilient than that priced into the market. That resilience will in turn prompt the BoE to take a more hawkish policy stance than the one currently expected. Later in the year, late-cycle dollar weakness will take cable towards and through $1.50.
Ah, that's what we want ..... some good old-fashioned fundamentals rather than just Brexit noise. But hang on a moment ..... isn't Brexit about as fundamental as it gets, at least in regard to the value of Sterling ? Well, put like that we suppose so ..... but you know what we mean.