Germany is like (proper) f*cked

⚡ The Spark
Germany is like, f*cked

German data is causing BIG headaches for the ECB…

Have a look at this complete shower of 💩 that came out this morning, courtesy of our data man, PiQ — Tweet thread below.

Here’s a free trade idea for you, even if you’re not subscribed to premium…

Start looking at 1-3y European bond ETFs.

Seriously.

A little hint for you…

Lyxor have a nice one (Premium guys, we are going to delve into this further over the coming week or two, but check the Discord for more).

Irony: I will always bang this drum — Brexit has largely been inconsequential in comparison to what has happened to Germany.

In fact… Brexit has largely been inconsequential in general!

Makes for great headlines though, for sure.

The IEA released a paper yesterday, written by Catherine McBride, which details the lack of impact that Brexit has truly had on the UK economy.

Weird data: we wrote a piece as well on the GDP methodology change in 2020 which caused the media to go into a frenzy, suggesting the UK was far worse off than we were.

In fact, we were not and our GDP declined due to the new methodology being wildly sensitive to something like a pandemic shutting the entire world down.

Bottom line: there are no two ways about it — the fate of Germany is going to be decided by whether they can pivot back to being an industrial superpower again or not over the next 5 years.

This is going to be painful, nasty and will have a lot of political upheaval stemming from it…

I would not like to be Germany’s Finance Minister right now!

🧠 The Big Brain
Will Japan Hike Before The Turn?

The clock is ticking. Germany’s economy is in turmoil, while the Bank of Japan sits patiently waiting for the right conditions to hike.

We’ll get to Germany in a second. The BIG question is if the Bank of Japan is rapidly running out of time.

The second big question is if they’re even bothered about hiking rates.

They keep chatting about the virtuous cycle between prices and wages, which is great, but will it be a one off circle?

Or something that self-sustains and forces the BoJ to act….?

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💡 The Lightbulb
What if it’s all just been shorts getting out?

That’s what banks think has caused the US equities market rally in the past week or two!

Here’s a little bit from Deustche on this…

And they say the rally then was caused by a build up of volatility premium going into last week’s double event of the Quarterly Refunding Programme and the Fed meeting…

In layman’s terms, people were betting too much on the market being volatile and when it wasn’t as mental as first thought, this sold off leading to the rally.

Key: the first bit there from Deustche is key though, where it says equity positioning was underweight at a 5 month low…

Think of an elastic band — if it gets too stretched and then has some release, it snaps back.

This is effectively what happened with the market and then the double event last week ended up lowering bond yields making stocks a bit more attractive — investors then bought their shorts back!

VolaTim: I must reiterate how right Tim is, because he said this would happen (nerd) — even the steeper volatility premium part!

Telling the future: where do equities go from here?

We’re going to give that a mention in tomorrow’s Premium, so make sure you’re subscribed.

PS. Our call from October 17th on McDonalds and NovoNordisk is up 7% already.