Banks

RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

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Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

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Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Categorized | Economy

Scare stories will not stop populists


Posted on September 25, 2016

epa05551353 A marquee advertises the opportunity to watch the upcoming US presidential debate between Republican nominee Donald Trump and Democratic nominee Hillary Clinton, at the American City Diner in Washington, DC, USA, 21 September 2016. The first of three presidential debates takes place on 26 September at New York's Hofstra University. EPA/JIM LO SCALZO©EPA

The US election. Mistakes made by the pro-EU camp in the UK are being repeated with the same enthusiasm

Britain’s vote to leave the EU has been the most cataclysmic global political event this year so far. Over the next 12 months, we may see one or more of the following: a victory of Donald Trump in the US; a defeat of Italy’s government in a referendum over constitutional reforms; a Marine Le Pen victory in the French presidential election; a rightwing anti-immigration and anti-euro party becoming Germany’s largest opposition party. Not all these calamities will happen. But one or two might. And to this list one could add a few minor misfortunes, such as the failure of bilateral trade deals between the EU and the US or Canada.

The lead-up to the Brexit vote offers four important lessons to those who are fighting the forthcoming campaigns from an establishment position. They matter because some of the mistakes made by the pro-EU camp in the UK are being repeated elsewhere with the same enthusiasm.

    The first is: do not rely on opinion polls or other forms of crystal-ball gazing. The crassness of the pro-Brexit campaign galvanised millions of voters who did not turn out in previous elections. I have been told that US polling techniques are technically superior to those in the UK. Maybe. But if the decisive factor in an election is turnout, then even the best polls cannot be relied upon. The same goes for betting markets. If there is genuine uncertainty, market mechanisms do not produce any information. It just means that more people are getting it wrong.

    The second lesson is: do not double down. An insurrection of sorts is under way against financial globalisation and its institutions. Real incomes for voters have stagnated in the US and the UK, and also some eurozone countries. People may be wrongly associating the fall in their incomes with a rise in immigration or with trade liberalisation. If you want to dispel these perceptions, you need to do more than pull out studies by liberal economic think-tanks. You should offer credible policies to address the decline in real incomes. The absence of such a promise was a major failing of the pro-EU campaign in the UK.

    This leads us to a third lesson: do not insult or provoke the voters. After the Brexit referendum, the losing side kept on pointing out that pro-Brexit supporters were older and on average less educated. Hillary Clinton’s infamous depiction of half of Mr Trump’s supporters as deplorable fits the same category. The more you insult the other side, the more you end up driving undecideds into their camp.

    Also beware of provocation. In Europe, where electorates are rebelling against EU integration, make sure that former European Commission presidents do not offer their lobbying services to large US investment banks, as just happened with José Manuel Barroso and Goldman Sachs. The European institutions should leave both parties in no doubt that this arrangement will be to their disadvantage.

    And finally, do not scare the voters. Project Fear was a disaster in the UK. If your median voter’s income has stagnated for more than a decade, they are not going to be scared by the threat of a recession. Why should a low income earner in the UK worry that the City of London will lose its financial passport? The argument is politically illiterate and economically dubious.

    US election

    The art of defrauding America, by Edward Luce

    Republican presidential nominee Donald Trump speaks at a campaign rally in Phoenix, Arizona, U.S., August 31, 2016. REUTERS/Carlo Allegri TPX IMAGES OF THE DAY

    Reality TV star turns liberal media values and voter cynicism to his advantage

    When I saw a study claiming that Mr Trump’s trade polices would cause a US recession, my immediate reaction was: oh no, not again. The problem with scare stories is not just that they no longer work with unpredictable electorates. More often than not they are also not true or vastly exaggerated.

    While the long-run effect of Brexit remains uncertain, the UK economy has so far defied predictions of a deep recession. I suspect the same would be true of a Trump victory, or a triumph of the populist Five Star Movement in Italy. The markets may panic the next day but the economic consequences will depend largely on the subsequent policies.

    These scare stories have added to a generalised loss of confidence in the economics profession and its reputation of independent judgment. With that loss also goes respect for international institutions such as the OECD and the International Monetary Fund, all willing participants in the anti-Brexit scare.

    As a result of a collective over-reach, the profession has lost influence in the important current debate of what form Brexit should take. This is now a debate between lawyers and politicians from within the Conservative party.

    Brexit is a fitting example of the dynamics of electoral insurrections in the north Atlantic democracies. It tells us how fast firmly entrenched establishment positions can crumble and how the improbable becomes the inevitable. The western policy establishment needs to smarten up.

    munchau@eurointelligence.com