Cambridge Weekly Update – 9th September 2019

Choppy water but no storm, yet

The week has, yet again, felt tumultuous. The government’s Brexit strategy has been halted in its tracks by a miscalculation of the official opposition and internal Conservative Party opposition. Many commentators were also confounded, and we would count ourselves among them. One can see evidence of the upset when looking at the probability of an October election – Betfair has reduced the chance of an election to 35% from over 80% when Boris Johnson became leader. Choppy political waters indeed.

Modern Monetary Theory

Over the last few months, expectations of central bank policy have been a driving force for markets. Policy announcements and central bankers’ comments have pushed risk-assets in both directions, and no bank has bore the brunt of market reaction as much as the US Federal Reserve. Even when they opted to cut interest rates last month, the accompanying press release was deemed hawkish (favouring higher rates) enough to sour investors.

China’s Hong Kong concession: a sign of weakness?

In September 1982, Prime Minister Margaret Thatcher met with paramount leader of China Deng Xiaoping, to discuss the future of British Hong Kong. Thatcher went in to the talks listing Britain’s desires for Hong Kong after its lease expiry in 1997, justifying them by reference to previous historic treaties signed between the UK and China. According to her memoirs, Deng’s response was unequivocal: “I could walk in and take the whole lot this afternoon”.

Read the full commentary here