The division bells are starting to chime.

Bells have always been important in my life. From the first bells I heard in my Teddy’s ears, called Rawhide for some odd reason, through the fact my dad was born within the sound of them through to the daily closing bell of the market they have always resonated. I started thinking of bells when I met up with two old colleagues indeed great friends this week. Not alarm bells although the assault I got from one of them certainly had me alarmed by the ferocity of his friendship. It was a story that they reminded me of that featured Bells. A stag party for a legend called Nelson who at the time owned Bellfinito held at The Belfry golf club, and a Pit broker nicknamed Dips. I should say now that Dips was called thus for his unerring ability for always buying the market dips and not the fact he could occasionally be dippy.

The full details of the stag are of course not fit to be published in public or even on my website but suffice to say copious amounts of liquor were consumed. The highlight of the tales was a story featuring Long, a very tall and very good spread trader, an empty bag of crisps and a lady of dubious reputation. I can say no more apart from it ended up with the shower overflowing as the resalted crisp bag blocked the plug hole. Or was it the clingfilm from the loo ? Sorry to dangle these details but those that were there know the story and those that weren’t…well you can always ring me. The part that really stuck in my mind was that of Dips who turned up at the party in disguised as a woman with a false nose,  female wig and of course fashionable high heels. Now consider that Dips is a Bermondsey Boy at least 6ft 4ins, with a voice more akin to Joe Cocker than the Queen. I hope you will have painted a picture of this great guy appearing. I hear you question why he had dressed up like this? Simply why? He had parted company with the broker the day before but was determined to attend the party and thought that the drag outfit was sufficient disguise.

Of course it was no more efficient as a disguise than Europe is using over the Italian elections. They, as I must say I warned, were a triumph of populism over common sense. It almost like horseshoe politics where the two opposing sides, simply left and right, join in the middle and find common ground over subjects such as immigration. Of course a country that is the birthplace to both Machiavelli and Leonardo the shenanigans in the background that will now play out will be hard to follow but will have a profound impact on Europe. With Renzi suffering a major setback and Berlusconi falling short it’s the new bambini, Luigi Di Malo and Matteo Salvini who hold the cards. Amongst all the horse trading that will take place, over many months, there is the spectre of the Italians running a parallel currency, based on THE ISSUANCE OF PERPETUAL T BONDS, to the Euro. What could possibly go wrong? Ah well as least Mutti is back in power, just.

The division between Southern and Northern Europe was, and is, always going to be a problem. If the North is epitomised by Luxembourg and Germany, where I visited this week , than The City of London also has problems larger than I had thought. Much larger. I last visited Luxembourg some twenty five years ago when I stayed with a broker friend who was locally famous for playing the piano. That is playing the piano so badly that the local Restaurants used to ask him to play at closing time to hurry people out. Whether his playing has improved I don’t know, as he has retired, but what I can report is that it’s a different country. Modern, open to do business and accommodating to anyone especially it seems those coming from London. The short, but frighteningly expensive Taxi ride from the Airport downtown was more than enough to convince me that the City has a problem. The infrastructure of institutions we are so proud of is also there for all to see and as you drive past every major financial institution all housed in gleaming modern office blocks the point sinks home. A different world to the sleepy backwater that it was. If you need further evidence just stand on the roadside for 15minutes and count the luxury cars. Easily as many as Knightsbridge.

Good news and bad news from Europe and a feeling from everyone that I spoke to was that it was a great mistake that the UK was leaving Europe and that it will be punished for doing so. Sad I’m afraid and if I was the other side of the channel I would take the same attitude. I do however feel that we are fast approaching the closing bell and that the UK will be left with little option but to walk away.

Whilst we gaze at our naval and fret over European fishing areas and the fate of the Euro important events are happening with the Dollar. Not just the potential impact on European car makers of Mr Trump’s impending trade war but the impact, that I wrote some time ago about, that the changes to the US tax system are having. I am not as great a follower of data as I was once was but two little snippets have caught my eye this week and both I think are reflections of the flight home of US Dollars. Firstly the USD LIBOR/OIS* spread has widened dramatically from 25 to 44 in the last week . Is this a sign of liquidity drying up in USD? Interestingly the Euro, Yen and other majors, spreads have stayed pretty tight. As commercial paper is sold to enable repatriation of funds there has been a flood of attractive T-Bills to finance the US government which has acted as a carrot at the same time that the Fed is pulling back from QE and rates are edging up acting as a stick.

This alone would be seen as a solo cloud on the horizon but the HKD has taken a pounding and is at its lowest level against the USD for 33 years. The HKD has been pretty much pegged to the USD for all those years so a meaningful move is of interest and whilst HIBOR has weakened the carry trade has widened to 103 basis points the widest since 2008 what could possibly go wrong? As the repatriation of Dollars gathers pace there will be more spots of local difficulty and the challenge will be joining the dots quicker than anyone else to see if there really is an impending crisis. For sure the dots that are already joined are looking like a bell but it’s certainly not one from a Rawhides ear.

The LIBOR/OIS spread is the difference between LIBOR and the Overnight Index Swap which oftentimes is based on the Fed funds rate. This spread can be read as an indicator of a flight to quality as the spread widens commercial paper is being shown as increasingly less attractive than Government paper.

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