UK’s Brexit referendum is about peace and prosperity

40 years ago, the vast majority of the British people were in favour of joining the European Economic Community. 67% voted in favour, in the 1975 referendum to confirm the UK’s entry.  Virtually all mainstream politicians were in support, with only the left-wing of the Labour Party strongly anti on the grounds that it was a “capitalist club”.

As the photo shows, the Conservative Party was overwhelmingly in favour of entry, with Margaret Thatcher campaigning strongly for a Yes vote.  Later, as prime minister, she welcomed the 10th anniversary of membership:

“The unity of Europe is a goal for which I pledge my government to work”

Today, of course, that bedrock of support has disappeared, if the opinion polls are right.  Why has this happened?

  • One argument is that Europe changed direction, and began to focus on social reform rather than wealth creation
  • A second is that many Conservatives never got over the trauma of being forced out of the European Exchange Rate Mechanism by George Soros in 1992
  • A third is that the UK doesn’t admire the economic performance of the eurozone, in the way that it used to admire Germany’s economic achievements

All these arguments have some truth in them, but they miss the critical point.  As the Nobel jury noted when awarding their Peace Prize to the EU in 2012:

The dreadful suffering in World War II demonstrated the need for a new Europe. Over a seventy-year period, Germany and France had fought three wars. Today war between Germany and France is unthinkable. This shows how, through well-aimed efforts and by building up mutual confidence, historical enemies can become close partners.”

In 1975, everyone in the UK knew about the dreadful suffering in World War II.  The older generation had endured years of nightly bombing raids, even if they weren’t actually fighting for the lives.  And the younger generation could still see evidence of destruction all around them, as bombsites were a prominent feature in the major UK cities.

Families also retained powerful memories of the horrors of World War I and its aftermath:

  • Millions of people had died in the trenches between 1914-1918, and countless others had been maimed for life
  • Tens of millions died in the inter-War years, as political instability led to the rise of the dictators, Hitler and Stalin
  • This political failure also led to economic failure and the immense hardship suffered in the 1930s Depression

Today, of course, all of this history has largely been forgotten.

The facts also show that the UK today has a vastly improved standard of living compared to 40 years ago:

  • Young people’s earnings today are twice what they were in 1975, when adjusted for inflation
  • The basic rate of tax has fallen from 35% to 20% today and the top rate has fallen from 83% to 45%
  • Millions of people every year now routinely travel across Europe for business or holiday
  • Nobody now has to go to their local post office with their passport, in order to claim their allocation of £50 travel money – which only ended in 1979, when capital controls were finally abolished

Was this all due to the European project?  Could the UK have done better outside Europe?  Who knows?  Life is not a spreadsheet, where we can go back and decide to do a different “what if?” calculation.  But clearly, the UK has done well since it joined the EU.

The UK referendum is not about immigration, or whether Brussels should decide the shape of the UK’s sausages, or any of the other populist issues being raised by the Leave campaign.  It is about one over-riding issue – namely the best way to preserve peace and prosperity in the UK and across Europe.

The great statesman Winston Churchill wisely remarked that “democracy is the worst form of government, except for all the others.”  We can all argue about aspects of the EU today, but in terms of safeguarding peace and prosperity, all the other alternatives would be worse, and probably far worse.

Brexit vote will hit UK, Eurozone and global economies

Brexit Mar16Slowly, but surely, a UK vote to leave the European Union is becoming more likely.  In any referendum, the Yes campaign (in this case called Remain) have to argue a positive case.  But  this is not happening in the UK – and the vote is less than 3 months away.  Unsurprisingly, therefore, as the poll above from the Daily Telegraph shows, voters are currently evenly divided on the issue.

The Leave campaign have an easy job in these circumstances.  They simply have to argue it will be “business as usual” after the vote for the UK, Europe and the global economy.  But a moment’s thought makes it hard to imagine anything less likely, given the weakness of political leadership across the continent.

1. NOBODY IS ARGUING THE CASE FOR THE UK TO STAY
UK voters need to be given positive reasons to vote “Yes”, as happened in the 1975 referendum.  Yet, so far, nobody seems capable of doing this, and so the Leave campaign is gaining momentum:

  • The Cameron government is too scared of its Eurosceptic supporters to put forward the benefits of membership, and the Labour leadership are too busy fighting each other
  • This means the Leave campaign is free to claim that voters have nothing to lose by voting to leave

Another problem is that the two major parties – Conservative and Labour – no longer command the same confidence with voters.  In last year’s election, they won only 2/3rds of the vote between them.  By comparison in October 1974, ahead of the 1975 Referendum where the UK confirmed its EU membership, they won 75% of the votes.

Equally important in 1974 was the fact that the 3rd party – the Liberals – won 18% of the votes and also argued for a Yes vote.  But in the 2015 election, the Eurosceptic UK Independence Party came 3rd with 13% of the vote.  So voters are no longer being given a consensus view by politicians whom they trust.

2. OTHER EUROPEAN GOVERNMENTS HAVE SIMILARLY LOST THE VOTERS’ TRUST
We can see the same issue with other major EU governments:

  • The 2 main French presidential candidates won only 56% of the first round vote in 2012; even in relatively stable Germany, the 3 main parties* only won 75% of the vote in the 2013 election
  • By comparison, the 2 main French candidates won 75% of first round votes in 1974, and the 3 main German parties won over 90% of the vote in 1976
  • Equally significant is that today, as in the UK, the 3rd party in both countries (National Front in France, Alternative für Deutschland in Germany) are Eurosceptic
  • The impact of this political fragmentation can also be seen in Spain, Portugal and Ireland, where recent elections confirm the practical difficulties of even forming governments today

This lack of political consensus would make it very difficult to have a quick Treaty renegotiation to maintain the status quo if the UK did vote to leave – in fact, it might prove impossible for the other 27 countries to agree anything at all.  As former EU senior diplomat and NATO Secretary-General Javier Solana warns:

“Brexit would deal a major economic blow to the UK and the EU. But that is not all. It would also weaken the security, foreign policy, and international standing of both parties.”

3. SCHENGEN’S COLLAPSE HIGHLIGHTS THE PROBLEMS AHEAD
One example of the potential chaos ahead can be seen in the continuing collapse of the Schengen Agreement, as I warned in my BBC interview last summer,  This used to allow borderless travel across large parts of the EU – but even the town of Schengen itself now has border controls on the German side.

According to the European Commission, Germany, France, Austria, Denmark, Norway and Sweden have all re-introduced border controls as a result of the Syrian refugee crisis and the bombing tragedies in Paris and Brussels. Already, therefore, Europe has moved away from “business as usual”.  Few people now expect the Schengen deal to survive.  And as the Commission’s President warned 3 months ago:

“A single currency does not exist if the Schengen fails.

Against this background, it is very hard to believe that politicians would sit down calmly to develop new arrangements which basically preserved the status quo with the UK.  A Leave vote is far more likely to make the UK the scapegoat for all of the EU’s current problems. It would also create major problems for European financial markets themselves, as I argued last month:

  • How high would UK interest rates have to rise, to persuade investors to buy its large and growing debt?
  • How high would Eurozone interest rates have to rise, to compensate investors for the risk of buying the debt of increasingly unstable governments?
  • And in the worst case, what would be the impact on an already uncertain global economy, if financial panic were to hit the UK and EU economies?
  • How would a new US government, under President Trump, or President Cruz, or President Clinton or President Sanders react?

None of us can know the answer.

We can of course hope that all these problems will magically disappear.  But the risks are already much higher than even 3 months ago.  And yet at the same time, there is widespread complacency about the likely outlook.  It is a classic case of an outcome being so painful, people prefer to simply ignore the potential for it to happen.

It is hard to avoid the conclusion that we are living in a very uncertain, and potentially very dangerous, times.

 

* Germany’s Christian Democrat party is allied with Bavaria’s Christian Social Union party, with the main opposition party being the Social Democrats

WEEKLY MARKET ROUND-UP
My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:
Brent crude oil, down 61%
Naphtha Europe, down 58%. “Demand for naphtha continues unabated amid a relatively light spring cracker turnaround schedule in Europe”
Benzene Europe, down 51%. “One factor to consider with regards to the price volatility in Europe is the growing lack of liquidity in recent years”
PTA China, down 41%. “Demand from the downstream polyethylene terephthalate (PET) and polyester fibre industries are expected to peak in the April-June period”
HDPE US export, down 34%. “Expectations of tightening supply because of the onset of the plant turnaround season.”
¥:$, down 11%
S&P 500 stock market index, up 4%

Great Unwinding creates Great Divergence in financial markets

Index Dec15

Most traders prefer to be with the crowd – then, at least, they can’t be personally blamed if things go wrong.  Instead, they can claim that “nobody could have seen the change coming”.  So as we approach year-end, many traders are becoming very nervous as the Great Unwinding of policymaker stimulus means that markets start to go their own way:

  • As I discussed on Monday, US 10-year interest rates have seen a major increase, even though the US Federal Reserve has kept short-term rates at zero
  • Even worse, German interest rates have continued to fall as the European Central Bank keeps buying: the 10-year yield is just 0.48% and the 5-year yield actually negative

The same worrying pattern can be seen within the US S&P 500 itself – the world’s major stock market index:

  • It is only up around 1% on the year, but the FANG tech stocks are living in their own bubble
  • Facebook, Amazon, Netflix and Google are up around 60% as a group

This divergence is very typical at the end of a major market move.  Momentum wanes, and trading becomes concentrated in just a few areas.  Traders rush to be part of the remaining action, creating a bandwagon effect on prices. In the end, of course, the bubble can often then burst with a bang.  Shanghai provided a spectacular example in the summer, when it fell 45% between mid-June and late August.

What happens if a Shanghai collapse happens in the West next year?  As we all know, the Chinese government rushed to protect their market, just as Western governments rushed to protect markets in 2008.  Would they, could they, do this again?  This is the question explored in an excellent Financial Times analysis by John Dizard last week:

We now have a bit over 14 months until a new US president and Congress are sworn in. Until then, the national policymaking process will not be functioning. If a decision on financial laws or regulations has not been made yet, it will be on hold until early 2017….That means that you will have to come up with your own contingency plans for rescue from systemic risk…This is why those better-informed or better-connected large institutions are setting up credit lines and access to collateral in advance. Unless you move relatively soon, rather than wait for actual trouble to develop, that is credit and collateral that you will not get.

“I am quite confident the banks will stay open. What about your portfolios? Will they be open?”

The uncertainty means that even major companies are showing signs of strain.  US banks have had to postpone the planned $5.5bn sale of debt to back Carlyle’s leveraged buyout of Veritas from Symantec. And giant telecoms company Vodafone was forced to withdraw a planned 30-year bond issue.  Nobody is suggesting Vodafone is going bust – but their problem in raising cash from the market is a warning sign of potential problems ahead.

It is not difficult to make the case that a false market has been created in the S&P 500: 

  • 70% of all US trading is now being done by the high frequency traders, and these modern-day highwaymen have no interest in providing liquidity if markets do start to close down
  • Equally worrying is that earnings have been been supported by record levels of share buybacks, usually aimed at boosting the value of CEO’s share options
  • The Wall Street Journal says buybacks are “up more than 80% from a decade ago“, whilst Marketwatch has reported:

“The sums involved are staggering. In 2014, S&P 500 companies bought back $553bn in shares, in addition to paying shareholders $350bn in dividends. Total returns to shareholders equalled $904bn, a bit shy of reported earnings of $909bn.”

The chart of the Boom/Gloom Index above confirms that market confidence has dropped sharply since the beginning of the year – it is currently almost half its January peak.  And there are clearly headwinds for earnings and buybacks:

  • Earnings are already being hit by the strength of the US$
  • Buybacks have often been financed by borrowing, which is more expensive at today’s interest rates

What we know is that the first 3 phases of the Great Unwinding are now underway:  the fall in the oil price, the rise of the US$, and the rise in US 10-year interest rates.  Only the 4th is still to come – the bursting of the S&P 500 stock market bubble.  And as I will discuss on Friday, political risk is rising at the same time.  It could be a difficult 2016.

Q2 results highlight continued uncertainty over outlook

Question markThe chemical industry continues to be the best leading indicator we have for the global economy. Whilst stock markets were continuing to move higher during H1, its depressed level of capacity utilisation was signalling that the economy was far more fragile than generally realised.

Company results for Q2 reflect this concern. Of course some, tied to specific market sectors or geographies, produced relatively good results.  Others, however, were already cutting back in anticipation of harder times ahead.

Yesterday’s relatively weak US Q2 GDP report confirms this mixed picture.   Q1 GDP was revised up to 0.6%, but Q2 disappointed at only 2.3%, meaning that H1 growth averaged just 1.5%.  And GDP growth between 2012 – 2014 was revised down to an average annual rate of just 2%.

In turn, this means the recovery since 2009 has been the weakest since World War 2, with growth averaging 2.2%.

As we move into Budget season, companies may be tempted to assume that “all will eventually come right”.  But this, I fear, would be a triumph of hope over experience.  The fault-lines created by central bank policies are opening wider and wider:

  • Clearly China’s economy is in a lot worse shape than many people had wanted to believe
  • The Eurozone debt crisis over Greece is on hold for the holiday period, but not solved
  • Oil prices look set to continue weakening as demand growth slows and Iran re-enters the market
  • And, of course, the US Federal Reserve probably has to start raising interest rates in September (before the 2016 Presidential primaries begin), risking further volatility in exchange and interest rates

Looking back to my Budget Outlook for the 2015-2017 period, its 3 Scenarios still seem robust – as does its Base Case of a demand-constrained world.  Similarly its forecast of deflation has come true, with prices for oil, commodity and the major petrochemicals all well down on a year ago.

More details of my usual survey of Q2 results are below.

Air Products. “Income rose on lower sales on higher pricing and volumes”
Air Liquide. ” positive currency effect was partly offset by the negative impact of energy prices”
Akzo Nobel. “Global economy remains challenging and shows a very mixed picture with different dynamics per region and customer segments”
Arkema. “Positive currency effects and earnings contributions from newly-acquired subsidiary Bostik”
Ashland. “Unfavourable exchange rates and lower demand from North American energy producers”
BASF. ““For the full year 2015, we now expect somewhat weaker growth for the global economy as well as global industrial and chemical production than was foreseen six months ago”
BP. “Stronger operational performance, improved margins and the benefits of our simplification and efficiency programmes”
Bayer. “Benefited from lower raw material prices due to the oil crude price decrease and improved demand, together with a positive currency exchange”
CP Chem. “Improved olefins and polyolefins cash chain margins as ethylene costs decreased on the crude oil price fall”
Celanese. “Growing uncertainty in the economic outlook of China”
Chemtura. “Reduced customer demand for certain products and a stronger US$ contributed to the fall in net income”
Clariant. “Expects the challenging environment characterized by an increased volatility in commodity prices and currencies, to continue”
Croda. ” Conditions remain uncertain in Europe”
Dow. ““This is not yet a [peak of the] cycle discussion but it’s starting to mimic one with outages. That’s what we saw in 1995… where supply outages created a mini cycle on the up”
Dow Corning. “Significant growth in its most profitable silicones segment product lines”
DuPont. “industry challenges in the agricultural sector and persistent currency headwinds”
Eastman. “Increase in sales, as well as relatively flat cost of sales”
ExxonMobil. “Performance underscored the resilience of the integrated business model”
Honeywell. “Sales were down 1% year over year because of delays in customer projects and lower catalyst shipments”
Huntsman. “Currency headwinds from a stronger dollar and the extended maintenance outage”
INEOS. “Strong, feedstock-advantaged North American markets and a weaker euro; markets in Asia have generally remained subdued”
Lanxess. “Making good progress with our realignment program”
LyondellBasell. “A spate of production outages in the industry added to tailwinds from abundant oil and natural gas supplies”
Methanex. “Drop in its revenue and average realized price”
Mexichem. “Difficult conditions on volumes and pricing in certain markets”
Olin. “Benefited from insurance recoveries for property damage and business interruption”
OxyChem. “Improved margins across most product lines on the back of lower ethylene and natural gas costs”
PKN Orlen. “Better PX/PTA and polyolefin sales volumes after production limitations and improved market demand”
PolyOne. “Euro remains very weak against the dollar and demand appears to be slowing in Asia”
PetroRabigh. “Lower margin on petrochemicals due to price decline”
Praxair. “Slowdowns in China and Brazil and weak metals, energy and manufacturing sectors”
Reliance. “Petrochemicals business recorded a strong quarterly performance supported by high operating rates and margin strength in the ethylene chain”
SABIC. “Lower average sales prices despite the reduction in cost of sales”
Sahara. “Decline in demand and product prices”
Sherwin-Williams. “Improved operating results in the company’s paint stores and consumer groups”
Shell. “Supported by improved intermediates market conditions which more than offset lower base chemicals industry conditions”
Siam Cement. “Improved margins and inventory gains”
Tasnee. “Lower product prices and higher expenses”
Technip. “Launched a major restructuring plan across the Group to address the challenging market outlook we anticipate”
Tosoh. “Increased sales volume and decreased feedstock prices”
TOTAL. “Petrochemical margins were also higher, notably due to limited production capacity as a result of numerous shut downs in the industry”
Unipetrol. “Much lower crude oil prices combined with solid market demand”
Univar. “Significantly lower chemical demand in upstream oil and gas markets in the US and other regions”
Versalis. “Stronger margins, shortages of some products on the back of industry outages, and the restart of its Porto Marghera plant”
Yansab. “Lower production and sales volume from turnaround activities … and lower average sales prices”

Sunday is ‘moment of truth’ for Eurozone and Greece

Mediterranean

“We should not forget the historic nature of what is at stake.

“Its about whether a country can leave the euro zone and what that means for the future of an incomplete and flawed European Monetary Union.

“Its about whether there may soon be a failed state in southeastern Europe with all the geopolitical consequences that could entail in a fragile region.

“Its about whether the EU’s 58-year-old project of “ever closer union” goes into reverse, and whether the objective forces of economic divergence finally overwhelm the political will on which the euro was founded.

“The United States, China and Japan understand what’s at issue and all have expressed concern that Europeans should find a solution to keep Greece in the euro. Yet at this point, that does not appear the most likely outcome…..

“If European leaders effectively abandon a defiant Greece to its fate, neither the euro zone nor the European Union will be the same again. Some, notably among the growing ranks of Eurosceptics around the continent, will think that is for the better.  The glee with which Nigel Farage, Marine Le Pen and Geert Wilders greeted the prospect of the unravelling of European integration may give euro zone leaders pause.”

This summary from Reuters’ vastly-experienced European Affairs editor, Paul Taylor, expertly sums up the real issues at stake in Sunday’s final Eurozone summit on Greece.

These have been largely ignored in the on-going arguments about Greece’s debt.  Debate has instead focused, understandably enough, on the fact that the Greeks have managed to borrow large amounts of money, at least €322bn ($365bn), and cannot possibly ever repay it.  Even worse, the various Greek governments appear to have done nothing to reduce their future spending, or indeed, even to raise a more sensible amount of tax.

It is no wonder that only 10% of Germans want to handover more money to the Greeks, given the history of previous loans.  The word for debt in German, “Schuld“, also means “guilt” – and it is understandable that Germans and others across Europe now see Greece as a morality play, where the guilty need to be punished for their crimes.

Yet, with all apologies to my many German friends, this is not the real issue on Sunday:

  • Last Saturday, 1600 Syrian refugees landed on the Greek island of Lesbos.  Many more thousands are on their way.  If Greece leaves the Eurozone on Monday, who will run the reception camps where these migrants now live?  Nobody, is the likely answer.  The Greek government will be unable to feed and protect their own population, so why should they devote precious resources to these people?  Inevitably, therefore, Greece will become an open door for increasing numbers of Syrian/Libyan and other migrants into the European Union
  • Equally important is the future of the Eurozone itself if Greece is to be abandoned to its fate.  It will then be clear to everyone that it is no longer a currency union, bound together by treaty obligations. Instead, it will have become just another exchange rate mechanism, like its ill-fated predecessor the Exchange Rate Mechanism (ERM).  Its fragility was summed up by  the UK’s finance minister, who boasted that he went home that evening after leaving the ERM and “was singing in his bath”.
  • The third reason why the Eurozone should pause is that Greece in many ways is just the ‘canary in the coalmine’, warning of the flawed construction of the Eurozone itself.  As I have long argued, Eurozone leaders should never have set up economic and monetary union without political union.  They knew this at the time, but they ducked the issue.  Now it has come back to bite them, hard.  And if Greece goes, we can be sure that others will follow them, if this fundamental flaw in the design is not now fixed.

Of course it will be difficult for resolve all the long-standing issues created by the Greek crisis on Sunday.  But as the Chinese proverb says, “a journey starts with a single step”.  And the facts are at least clear:

  • Everyone knows that Greece will never pay its bills
  • Everyone also knows that Greece will immediately default on its debt if it is forced to leave the Eurozone
  • And everyone also knows that taxpayers in the richer Eurozone countries will end up paying the bill as a result – Germany will end up paying at least €86bn, and probably much more

So why take this pain for no gain?  Why not instead deal with the cause of the problem – the lack of political union.  Why not admit, as Paul Taylor argues, that the Eurozone is “incomplete and flawed”?  And having recognised reality, then use the crisis to make a fresh start by agreeing a more sustainable basis for the Eurozone itself?

“Summit fatigue” is a real issue in long-running sagas like Greece.  It can easily lead people to sleepwalk into a situation they had never dreamed could happen.

In this case, the risk is very clear and immediate.  It is that large numbers of migrants start to pour into N Europe via the relatively safe route from Turkey to Greece.  (The United Nations estimates there are now 4 million Syrian refugees, and report that total migrant crossings rose 80% in H1 versus 2015 to 137k).  And in turn, their arrival leads within a short while to the triumph of nationalist parties in France, the Netherlands and elsewhere, all determined to exit not just the Eurozone but the European Union itself.

Sunday will be a critical day for all of us who live in Europe.  And for the underlying stability of the political structures that have underpinned the world since World War 2.

 

Greece introduces capital controls; IMF says it needs to default

Greece Jun15This morning, Greece introduced capital controls.  People can only withdraw €60/day ($65) from their bank accounts.  The government has also called a referendum on Sunday, after Eurozone talks on a new bailout package collapsed.

The key issue is that Greece will never be able to repay its debts.  These are currently estimated at €322bn ($365bn) – far larger than its economy, which is only $238bn after having shrunk by 25% since 2008.  Greece also needs new money to be invested in the country, if it is to make a new start and fund new growth.

If Greece was a company, everyone would know what needed to be done.   The business would have to be put into bankruptcy; debt-holders would have to write off some debt and swap the rest for equity; and a new business plan would have to be developed to be funded with new money from existing and new investors.

But Greece isn’t a company, of course.  And today’s politicians don’t like to take hard decisions or to deliver difficult messages to their electorates.  This is why I feared 2 weeks ago that the “Slow motion Greek train wreck was getting ready to hit another buffer‘.  The heart of the problem is very simple:

  • Political union in the Eurozone was essential if economic and monetary union was to succeeed
  • But although this was rejected by France in the 1990s, the Eurozone project still went ahead in 1999

Politicians instead pretended that political union existed, and banks have since lent vast sums to Greece. And although it has been clear since 2009 that these loans cannot be repaid, they failed to explain this to their electorates. Instead the Greek and Eurozone leaders decided to extend repayment to 2050.This policy of “pretend and extend” means Greece is now bankrupt on an epic scale.

None of us can now know what will happen next.  But we can assume Eurozone politicians will continue to try and avoid telling their electorates what has been done in their name.  The German part of the bill could easily be €86bn, and in a worst case could be the entire €322bn according to the respected IFO Institute.

But the game of “Pretend and Extend” is clearly complicated by the involvement of the IMF.  It is not allowed to lend to countries who cannot repay their loan, and it has powerful members outside the Eurozone in Asia and Latin America, who want it to enforce this rule.  Thus Christine Lagarde, the head of the IMF, told CNBC yesterday:

Our objective is clearly to restore the financial independence, the stability of Greece – to make sure that growth can start again. And that Greece can be sustainable from an economic and financial standpoint. As I’ve said, it is a balancing act. There has to be measures taken by Greece, there has to be support by the Europeans. And they come in sequence. Measures have to be taken, they have to be implemented. And that triggers a different attitude and a willingness to look at both financing and debt sustainability.”

The IMF is thus coming out on the side of those who want realism to be injected into the debate.  The Greeks have to develop a functioning tax system, and realistic social policies.  In turn, the Eurozone governments have to agree to write off debt and finance the new start.  That is the real meaning of Ms Lagarde’s emphasis on the need to look at “both financing and debt sustainability” in sequence.

This is why the concept of political union should have been agreed alongside economic and monetary union.  But today, German taxpayers face a different decision – and one that has not yet been explained to them.  This is simply that if they don’t refinance Greece, they stand to lose all the money that has been lent to Greece in their name.

Greece’s decision to hold a referendum highlights the impasse that has been reached:

  • Greece can only implement one side of the necessary deal – reforming its taxation and spending policies.  It cannot come up with the new money needed to reverse the current decline in its economic performance
  • The Eurozone is in an equally bad position, as it cannot force Greece to undertake this restructuring.  And so it may end up having to write off the Greek debt, and getting nothing in return

This is always the problem with ‘pretend and extend’ policies. In the end, reality has a habit of intruding.

WEEKLY MARKET ROUND-UP
My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments: 
Brent crude oil, down 40%
Naphtha Europe, down 40%. “Values are coming down gradually from recent highs as the product is long and its use in summer gasoline blending is limited”
Benzene Europe, down 39%. “There is still a steady stream of imports moving into the region from the Middle East and India. As a result, some traders believed that this would readjust the current supply/demand dynamic before long”
PTA China, down 29%. “The two major producers Yisheng Petrochemical and Hengli Petrochemical currently have no plans for any run rates reduction in July. This was largely to faciliate cash flow, several market participants added”
HDPE US export, down 19%. “Domestic  export  prices  slipped  during  the week  on oversupply, verified by industry data released on Friday.”
¥:$, down 21%
S&P 500 stock market index, up 8%