LCG: Andrew Bailey for BOE? Brexit vote quadruple witching, & Nike

20 december 2019

INDICES: Brexit vote & quadruple witching

Stocks in Europe have opened slightly lower today following another record close on Wall Street and a muted session in Asia. The US yield curve near its steepest in a year shows you recession risks are subsiding and it’s all looking quite comfortable out there.

LCG pricing suggests a flat open on Wall Street which will see a quadruple witching today. The expiry of many futures and options contracts today should see expanded trading volumes but we expect volatility to remain suppressed. Democratic presidential debates and rumours the Trump impeachment trial in the Senate could be delayed are both getting a shrug from markets.

The FTSE 100 has opened just off 4-month highs with the new parliament set to vote on the Brexit withdrawal bill while a new Bank of England governor is to be selected. What a difference an election makes because passing the Brexit bill in today’s vote is a foregone conclusion.

EQUITIES: Nike earnings

Shares of Nike look like opening down around 2% after disappointing sales in North America took the edge off better than expected quarterly earnings. The results just needed to be perfect because Nike shares are at a record high. Nike has bucked the trend of disappointment in many areas of retail that have suffered in the switch to online sales. In fact Nike is at a crossroads with its online strategy, having ended its relationship with Amazon this year. Not many brands can afford to run up against Amazon but we think Nike is one of those that can. Disney is another, which is taking the same approach but in a different area with its new streaming service. For 2020, the slowdown in North American sales might be an indication that the new direct sales strategy will need some time to take hold.

FOREX: Andrew Bailey next BOE governor

The next Bank of England governor is expected to announced today and reports suggest FCA Chief Executive Andrew Bailey has got the nod. The new BOE governor will be announced at the end of the worst week for the British pound in over two years. We are still looking a Brexit bounce for Sterling after the bill gets passed today. But given the sharp declines in the run up, chances are that it will be more of a bump.

After over 3-years of Brexit paralysis at the Bank of England, Bailey is likely to preside over a shift in policy. The government will want him to be more neutral on Brexit after current governor Mark Carney has come under criticism for political interference. The reason we are not seeing our first female governor of the Bank of England is probably because the top candidate Minouche Shafik was a little too outspoken on Brexit. There will be a lot of pressure to get interest rates right when Britain leaves the EU.

Bailey has three decades of experience at Threadneedle Street so investors know him and see him as a safe pair of hands. PM Boris Johnson has bragged about his defence of bankers so accusations Bailey whitewashed the report on RBS doesn’t seem to have dented his chances of getting the top job. Its not the time for a maverick and Bailey will be ready to turn either way on rates depending on how both Brexit and global trade pans out next year.

Later today will  see the release of US PCE inflation and consumption data.