The moment of truth is fast approaching for Brexit.
Whatever the outcome, right now the whole thing is a massive game of chicken.
Now you might think that the game of chicken is UK versus the EU but in a 500m population 18 wheeler truck in a standoff with a 60m population two door compact the outcome is not very 50/50.
The game of chicken seems to be between the government and parliament, with parliament soon to be offered a head on collision of no-deal Brexit with an overwhelming and unstoppable EU. Sign a deal you don’t like or go off a cliff is on offer. The only alternative is a ‘kill Brexit’ intervention which most in power want but don’t dare execute.
Time is running out or running down, depending on your point of view.
Either way the outcome is going to be historic. A deal or killed Brexit should lift the UK markets. A no deal should smash the market down, but wait, in this crazy world it might send the market up because a no deal Brexit will bring out the Government on a massive program of damage limitation and this of course means QE.
When people say QE, everyone thinks of the Federal Reserve or the ECB or the JCB, few think of the Bank of England. This I would guess the Bank of England is happy about but the BOE have dome equivalent amounts of QE to the Fed and ECB while few people have noticed.
Here it is:
There is not a hint of QT (tightening) to be seen and if you imagine the first two blocks of QE were to hold the floods of the Global Financial Crisis at bay, you can see the UK central bank considers Brexit to be almost as bad even before it becomes a reality.
So if new of a Brexit is worth £200 billion of QE what is a catastrophic hard Brexit worth?
This chart throws up lots of observations and questions but the key to making money from the markets is going to be watch this sledge hammer of economic adjustment as we go forwards.
If we get a soft Brexit or a dead one does QT start? Now that would certainly could turn on its head the idea that a no-Brexit or soft Brexit would rally the markets.
Make no mistake QE/QT is no longer an ‘unorthodox monetary policy’ it is now the BFG in the Central bank armoury. How it is used sets the trend.