"Friends don't let Friends drive drunk"

Obama weighs in on the Brexit debate in a 3 day UK visit clearly voicing an opinion that UK is stronger in the EU that outside.

BBC Video Interview on Brexit

It may yet backfire to have an outgoing US president to influence a UK referendum of this nature, but my hunch is it will help influence the 20% or so that are still undecided over to the Remain side.

Those firmly in favour of Brexit will only have had strengthened their resolve to leave by Obama's explicit comments.  

With around 2 months to go the vote and following Obama's visit, i lower my probability of a Brexit from 40-45% to 30-35%.  This should support the Pound in coming weeks,  and we have already seen some upward creep in Cable, but suspect this main movement has yet to occur following the vote.  

Risks are however asymmetrical, and  skewed to the downside if indeed we wake up to a positive Brexit vote on June 24th.

Central Bank Action Today - ECB and Riksbanken

9.30 CET today Swedish Riksbank will announce monetary policy.  A split committee will may vote in favour of continuing QE via bond purchases beyond the current 30/6 end date in a bid to weaken the SEK vs EUR and boost a moribund inflation rate.   The hawks will argue against further intervention in particular after Riksbankens strong move in February to cut rates further into negative territory by slashing 15 bps.

Later in day ECB is unlikely to move rates at this meeting, opting to save their powder for summer / post summer turbulence.  Instead Draghi will probably engage forward guidance (or as Mohammed el Erian calls it - "linguistic gymnastics") to keep the Euro weak which is not easy.

On a side note, continued dovish rhetoric from the ECB has knock-on effects on other smaller European but non-euro countries, clearly influencing the decision makings by their central banks such as the Riksbank in Sweden which is pressurized to act in kind to maintain relative weakness.

Interesting comment from Bob Janjuah today on currency wars:  Bob Janjuah Blog - Currency Wars

Where did the USD bull go?

On of the safest trades on the street was the long USD short anything else trade which had a decent and asymmetric reward to risk profile over the last two years (2014-2015).  That seems to have come to a crashing halt in 2016 as the dollar bulls have run inside for cover.  Chart below shows USD performance against EUR, GBP, SEK, JPY so far in 2016

While EUR and SEK have appreciated some 4% vs the greenback, the truly dramatic story is the pace of appreciation of the Japanese Yen.  Mr Kuroda and Mr Abe wont be too pleased about this and will only serve to ramp up currency war measures.   Japan desperately needs a weaker JPY to service their export oriented economy and import inflation to show that Abe's third arrow stimulus program is effective.   Japan needs to do something fast and I suspect there will be some major new central bank stimulus packages to weaken the JPY in in the next 6 months.  

  

Positive Q1 from Telia

TeliaSonera, or now better named Telia Company is an olden goldie in terms of dividend payers.  today it released Q1 results which came out better than expected, notably an EBITDA increase of 10.4% before one-off items,  and an increased EBITDA margin by 3.1 percentage points to 30.4%

Still topline continues to shrink,  declining 1.1% in SEK terms and is likely to continue to fall.   Future lies is fiber broadband and build out of services and capacity for coming 5G networks.

The ongoing investigations by the US (DoJ), Dutch and Swedish (FI) authorities regarding transactions in Eurasia (alleged improper payments in Uzbekistan) hang over the company like a cold damp cloth.   I hope they disclose more information around these investigations in the near future so the company can move on.   I suspect the DoJ penalty will be substantial.

Q1 report can be found here:  Q1 2016 Report

Kinnevik return of capital

Picked up a small batch of Kinnevik B shares this morning at the open at 250 kr on the news that they will propose an extraordinary cash distribution of SEK 18 per share in addition to common dividend of 7.75.  

Been discussing the merits of investment holding companies vs a funds with my brother and we both agree some are interesting propositions as often valued below NAV and provide focused yet diversified investment.  This is a minor side step from my usual fundamental dividend investing strategy, but I like Kinnevik as a growth story given their focus on long-term tech and online new ventures so a small position is acceptable. 

Positive market open

Feels like we are finally leaving this sideways trading and into marginally more bullish territory this week, mainly attributed to better than expected earnings so far.  Not that earnings have been great, many top-line earnings have been revised down over the past quarter but expectations have been too pessimistic relative to actual results.    Markets are also shaking off the sad OPEC meeting with both Brent and WTI abobe $40, and downward pressure on the greenback persists.

So far only a few of the US banks and blue chips have reported and we have the bulk ahead of us this week and next,  but already i believe we will get out of this Q1 reporting season better than already expected which will lead to a short lived rally (2-4 weeks).  

Overall this mini rally based on minor adjustments to quarterly results vs expectations doesn't  alter my conviction that we are in a multi year bear market based on anemic global growth and still excessive leverage since the GFC

I suspect we'll see the usual summer time volatility come June / July when Q1 is out of the way, and the markets turn their focus to Greece (which needs another tranche from the IMF's €86bn bailout programme in order to repay the ECB in July). Without the IMF, the EU/ECB will be much less supportive to Greece.   The other higher impact summer risk is the Brexit vote on June 23.  An exit is closer than many people think and even if bad for the UK (in my opinion),  it is equally bad for the EU and the euro-zone.  This uncertainty is difficult to predict how each outcome will play out and could cause a big upset this summer...

Utilities reverse some of gains from anticipated (but ultimately failed) OPEC deal today

Nordic utility Fortum bounces back and beyond Friday's close, despite initial 2.2% slump at the open following OPEC news

French utility EDF shows clearly price action around OPEC news, jump overight Thursday to Friday in anticipation of an OPEC deal and then reaction down this morning.  Side-ways price movement today,  still above thursdays close (before the event)

Whilst i have not tested it statistically for significance, the stock price movement suggests that there is some correlation between producers of wholesale electricity and global crude oil prices.  Whilst lower oil prices are bad for utilities, the overall market benefits (as it benefits industry and on some level consumer) and so we see a firmer tone in broader markets today

Interesting also to note the weaker USD trend so far in 2016 causing problems for the rest of the world, but mostly China (ill get back to this in a later post). If this trend continues, it should help commodity prices edge slightly higher over time