Position: Short the UK via the etf EWU
We wrote a note yesterday titled “Exceptional Uncertainty” to discuss recent (lagging) macro data points that further confirm our bearish view on the UK economy. Today, we received the UK’s January Net Borrowing figure, which at 4.3 Billion Pounds is a notable bearish call-out as it is the first time since 1993 that Great Britain has recorded a deficit for the month of January.
David Kern, Chief Economist at the British Chamber of Commerce, said: “The worst than expected January figures further emphasize the dangers facing Britain’s international credit rating. The public finances are always in surplus in January due to large seasonal tax revenue, but the deficit this year reinforces the need for credible and specific deficit-cutting measures in the next month’s budget.”
While we agree with Kern’s latter point that deficit-cutting measures are needed NOW, the heightened political environment between the Conservatives and Labour with an election to be called before June will include more talk than detailed action, which should only prolong the country’s economic underperformance.
We shorted the UK via the etf EWU in our model portfolio yesterday. Below we’ve noted our TREND (3 months or more) level of resistance for EWU.