With 54 days to go until the UK vote no-one can say with confidence, let alone certainty, what will happen afterwards. For the first time there are five English parties polling more than five per cent of the vote — Labour, Conservative, UKIP, Liberal Democrat and Green — while the Scottish National Party could be the third largest party in parliament.
Given the way uncertainty translates into volatility in markets for stocks, bonds and currencies, the simple conclusion is to be wary. Also worth considering, however, is the extent of what remains uncertain: interconnected constitutional questions around the shape of the Union, the relationship with Europe, a bill of rights and its impact on the 1998 Northern Irish peace agreement, English versus British laws, and the accountability and authority of future governments.
In fact, you may want to start by reading a recent report from famed political academic Vernon Bogdanor (click for the full document): Read more
This is a guest post from Tina Fordham, chief global political analyst at Citi. The full report discussed below is available here.
People power is on the march, for better or worse. Read more
Oh dear, Mongolia’s new dollar bonds “tentatively nicknamed Genghis Bonds” (h/t Katie Martin) have been hit by some shocking, hard to predict, political instability.
One of the members of Mongolia’s fragile coalition government has ordered its ministers to leave their posts, a move that has sent the country’s bonds into a tailspin and could threaten the passage of crucial legislation.
Risk assets have had a good run from western policymakers for several decades, says Morgan Stanley’s Gerard Minack. But that time is probably over. Read more
Eye-catching charts, for a type of risk that should catch investor eyes:
In 1996, the rule of law was written into the outline of the ninth five-year plan for national economic and social development and the long-range objectives to 2010, becoming an important principle for guiding China’s modernization drive.
– The People’s Daily, April 15, editorialising on ”Bo Xilai’s serious discipline violations” Read more
And now for something completely different..
Middle Eastern credit spreads could soon blow up amid an outbreak of political strife with potentially global consequences. Read more
OK, beyond the Nero jokes… we’re still very confused by this big movement to suppress political risk, or volatility, in the eurozone. Betting on “technocrats” to solve the debt crisis, as it’s called.
Nomura analysts touched on this familiar theme on Wednesday: Read more
Political risk jumps the shark, or Silvio Berlusconi’s Facebook page:
I guess you guys have to be creative here.
Spot the odd one out: Read more
If you’re trying to price political risk perfectly… you’re doing it wrong, we’d submit. The Greek referendum’s a case in point.
The referendum came out of the blue. It might not even go ahead, pending a government collapse or early elections. So, surely there’s not much point seeking to get in front of the truck (so to speak) on Greek politics at this point? The truck’s already run you over once before, with the referendum. Read more
…The President of the Republic shall by decree proclaim a referendum on crucial national matters following a resolution voted by an absolute majority of the total number of Members of Parliament, taken upon proposal of the Cabinet.
A referendum on Bills passed by Parliament regulating important social matters, with the exception of the fiscal ones shall be proclaimed by decree by the President of the Republic, if this is decided by three-fifths of the total number of its members, following a proposal of two fifths of the total number of its members, and as the Standing Orders and the law for the application of the present paragraph provide… Read more
Today in epic Reuters flashes:
Oct 25 (Reuters) – Euro zone leaders will call on the European Central Bank to go on buying bonds in the secondary market to support the likes of Italy and Spain, according to draft conclusions obtained ahead of a summit on Wednesday…
So the eurozone won’t be relying on the rather meagre EFSF balance sheet after all… maybe. (See below.) Read more
In which around 800 global investors polled by the Economist Intelligence Unit and BNY Mellon believe that deflation is as likely as a recovery in US housing — plus, other tail risk reflections in this chart here (click to enlarge):
As a kind of book-end to recent market analysis of events in MENA…
It’s 1987 — a year of vaulting stock indices, an autumn crash and – CLSA’s first ever research note into China. A blast from the past, below. Hat-tip to Duncan Weldon. Read more
Otto van Bismarck, who knew a bit about political risk, said the thing about revolutions was to intuit God’s movements in history and seize the hem of his garment as he sweeps by.
Easier said than done, of course. Read more
Country asks for another IMF bailout, after screwing up the first one. There are few signs of spending coming under control. The neighbour which really holds the purse strings demands ever more privatisation.
. . . Not Greece. Read more
Thursday’s political risk datapoint:
DIFC – Dubai, May 26, 2011 – Moody’s Investors Service has today downgraded Bahrain’s government bond ratings by one notch to Baa1 from A3, and assigned a negative outlook to the rating. Today’s rating action concludes the review for possible downgrade that Moody’s initiated on 23 February 2011… Read more
Or, will Greece eventually be the first sovereign default to leave private investors with nothing?
There’s another glitch in credit default swaps on Greece which is worth considering at the moment. It goes beyond the ‘will they trigger?’ question a bit, but it’s related: Read more
Q. What happens when your prized offshore banking system is occupied by Saudi Arabia?
A. This: Read more
Opec will reap $1,000bn in export revenues this year so long as crude prices remain above $100 a barrel, the FT reports. Fatih Birol, chief economist at the IEA, said a new assessment by the rich nations’ oil watchdog showed that the total number of barrels exported by Opec in 2011 would be slightly lower than in 2008, when cartel oil revenues reached $990bn. But if average prices remain around $100 a barrel, Opec’s oil revenues will still reach a record of $1,000bn this year. The estimate is not adjusted for inflation, but nevertheless underlines some Opec members’ reliance on high prices to finance anti-unrest measures. Saudi Arabia is busy printing extra anti-protest religious edicts, reports Reuters.
Rebels against Colonel Gaddafi claimed they had taken control of his home town on Monday, as part of a westward advance across Libya’s coast that has already captured several oil towns, Al Jazeera reports. Coalition air strikes had hit Sirte for the first time on Sunday night in addition to destroying Gaddafi loyalist ground forces that would have impeded the rebel advance, the FT says. The fall of Sirte cannot be so far confirmed, but would indicate that the rebels have now recaptured all the territory lost since the regime began a counter-offensive earlier this month. The rebels also say that Qatar has agreed to help them sell oil on international markets, Reuters reports.
Conversely: ‘sorry rebels – you still can’t get cash to fight the brutal dictator easily, at all’.
Oh dear: one great big flaw has emerged in any plan to buy oil from Libya’s rebels, despite them forming a parallel oil infrastructure. Read more
The Gaddafi-controlled National Oil Corporation and central bank have come under UN sanctions, making it harder for the Colonel to recycle oil receipts into cash for his armies. But what if other entities appeared outside his control, asks FT Alphaville? An odd line in the US Treasury’s statement regarding the UN sanctions suggests authorized dealings could continue if National Oil Corporation subsidiaries or facilities came under different ownership and control. Read more
Update (1245 UK time): Hold the prospect of any military action for a while, it looks like — flashes via Reuters:
RTRS-LIBYA DECIDES TO HALT ALL MILITARY ACTION-LIBYAN FOREIGN MINISTER Read more
By this point, the assets of the Libyan Investment Authority are frozen in just about every major financial jurisdiction. Except, of course, Libya.
So, a quick question. Is a sovereign wealth fund financing a war? Read more
Most of the world’s focus is on Libya-related contagion spreading into other Middle Eastern countries and kingdoms.
But, suggests a report from Standard & Poor’s research arm on Tuesday, it may be time to start looking a little further afield. Read more
How to hedge the Saudi monarchy?
We’ve asked it before on FT Alphaville, given how unrest would throw the oil market into extreme volatility. We’re sceptical you could even try, but we’re sure there’s more to it than the ‘all bets are off’ line we often hear about the prospect of Saudi protests. Read more