Does populism pose a risk to markets in 2019? Yes! but not from the expected quarter. 2019 brought a surprise on the European front. The support for traditional parties has been plummeting for a long time. We call this the European souffle where support for the centre ground continues to cave over time. Populist parties gained 20% or more of the vote in many national elections this year, thought there were signs of their vote stabilising in the most recent polls.
Chart pack and analysis attached.
Better performance from industry during November, IP and manufacturing production both rising 1.1% mom. Partly this was due to one-offs, following disruptions from the GM strike, which flattered November’s bounce. There are still a couple of sectors that look weak, notably chemicals and machinery, the latter in particular important given this is basically the capital goods part of activity.
Another batch of soft numbers. Although we saw another m/m rise and a mild upward revision, the y/y growth rates continue to look fragile, particularly when stripping out more volatile items like gas and vehicle sales. The control group reading in fact dropped to the weakest rate since March, when comparing to the period a year earlier.
We have no strategic positions on Italy. But we went there to check on our prejudices and met with a wide range of wise people. This confirmed that we should not short Italian sovereign debt right now - or anything else in Italy.
Chart pack and analysis attached.
The strong upswing in Chinese consumer price inflation in November has a very straightforward explanation. The swine flu epidemic and the devastation this has inflicted on Chinese pig herds – reducing total numbers by over 40%. Indeed, meat prices are up 74% yoy, driven by pork which is now up 110% compared to the same period last year.
Charts and analysis attached.
