Acronyms, Acrimony, And Anagrams

By Michael Every of Rabobank

Due to the US Labor Day holiday yesterday, markets were quieter than usual. The world wasn’t.

Germany reeled from the far-right AfD and far-left BSW taking 42-49% of the vote in two eastern states. It could even have been worse: only a late “computer glitch” removed a seat the AfD looked to have won in Saxony, preventing it having a 1/3 blocking minority over the appointment of key state officials. Both there and in Thuringia, all other parties will have to combine to keep the AfD out of power, but that means huge political compromises as well as the populist pro-Russia, anti-Ukraine BSW in office. While some in markets may assume this is noise not signal, we are under a year from a federal election, and Germany’s political class arguably still doesn’t grasp how much public anger there is at their epic geostrategic policy errors of relying: on Russia for energy, with alternatives now meaning German industry is uncompetitive; on China for exports, as trade flows invert and deindustrialise them; and on the US for security, just as the US tires of the role and its cost. Nor does it know what to do next. Unlike in the US, it isn’t market positive to imagine electoral gridlock, especially when the same is true in France at the same time.

Then things got worse economically, risking the same politically after a lag. The German manufacturing PMI survey was 42.4. Worse, auto giant VW said it may shut German factories for the first time in its 87-year history, shed part of its 300,000 local workforce, and definitely end its job security programme in place since 2009: a clash with powerful unions seems likely. As the CEO put it, “The economic environment has become even tougher and new players are pushing into Europe. Germany as a business location is falling further behind in terms of competitiveness.” Head of brand Thomas Schäfer added: “The situation is extremely tense and cannot be overcome by simple cost-cutting measures.” Note this is the same VW who lobbied the EU against imposing tariffs on Chinese EVs undermining their domestic market share over fears of “retaliation” in the Chinese market.

Such a threat, of “severe economic retaliation”, was also made to Japan by China if it further restricts sales and servicing of chipmaking equipment to Chinese firms (after being pushed by the US). This could include China cutting access to minerals needed for auto production. In short, Japan either sells China tech that allows it to move up the value chain to the point where it can push Japanese firms out of global markets, as with Germany; or China punishes Japanese auto makers, gaining a greater Chinese share of that market… which seems set to happen anyway on current trends.

Relatedly, key Dutch tech firm ASML is also being pressured by the US to further restrict its business with China. On Friday, PM Schoof say the government will consider the economic interests of ASML when deciding on tighter export rules for chipmaking equipment; the US will have its own considerations; and so will China.

Meanwhile, Turkey announced that it is applying to join the BRICS. Of course, it also wants to join the EU. And while it is a member of NATO, it’s also looking longingly at the Shanghai Cooperation Organisation (SCO). It also wants to join a local library and a gym, where it promises it won’t skip leg day. More seriously, BRICS membership is going to be a lot easier to obtain than that of the EU, and a lot less impactful, and the same is true of SCO membership vs. NATO.

To underline that point, BRICS member Egypt is sending 10,000 troops to Somalia to hold joint military exercises, a threat to the unrecognised breakaway state of Somaliland backed by Ethiopia, as it allows it direct access to the sea, or perhaps to Ethiopia directly given its plans to dam the Nile, which Egypt rejects. Would-be BRICS member Turkey just signed a deal with Somalia to allow oil and gas exploration in its waters, which involves areas Somaliland claims, as well as to boost Somalia’s naval power; Morocco — a phosphate giant and EU trade partner that exports more autos to it than China— is also applying to join the BRICS, and it is siding with Ethiopia; and nearby the Houthis, backed by BRICS member Iran, continue to attack commercial shipping, including an oil tanker belonging to Saudi Arabia, another BRICS member. In short, you might think EU meetings get acronymic and acrimonious, but that’s nothing compared to what’s going on in the BRICS.

That’s as in the B in BRICS, Brazil, the Supreme Court has backed one of its justice’s earlier ban on the app Twitter/X in the country, a move applauded by President Lula. On one hand, we have the argument of the importance of national sovereignty over bullying billionaires and US corporations. On the other hand, we have (sometimes offensive) free speech vs. the (sometimes offensive) words of politicians and judges. How does this clash play out? The same question might also be asked in the EU, UK, and US, of course. Indeed, in the latter, the attorney general of Minnesota, Keith Ellison, ironically, just tweeted “obrigado Brasil” (Thanks, Brazil), to 1m views.

So, AFD, BSW, PMI, VW, ASML, BRICS, EU, NATO, SCO and, if you want, X. Not a bad acronymic haul for one day: but what does it spell out?

That’s up to the reader. Nothing much, or a great deal, depending on how you look at things and how you are trading them. I lean towards the latter personally. Yet the letters themselves, as an anagram, have their own hidden messages. If you leave out X, they include the likes of:

Cowardliness swamps ovum fact bib
Cowardliness swamp vat of cubs IBM
Cowardliness swamps if VAT cub mob
Cowardliness avows facts bump IBM
Cowardliness swift vamp scuba mob
Cowardliness swift vamp cub sob am

If you also use X, they include:

Ambidextrous scowls if BMW vans cap
Ambidextrous wolf scans vis BMW cap
Ambidextrous fawns vows cap climbs

Doesn’t that actually read as well as some of today’s hot (or superficial) market takes, especially the ones that just say RATE CUTS?