The long awaited YouGuv MRP data was released this week. A weekend poll suggested the Tories had an eleven point lead over Labour with 42% of the vote.
The MRP model released on Wednesday, predicted 359 seats for Conservatives and just over 211 for the Corbynistas. If the model predictions are correct, Boris Johnson will have a clear working majority of 68. A great opportunity to get "Brexit Done", put the "Bun in the Oven", release the "Tiger From The Cage" and get the Mogg out of solitary confinement.
For Conservatives it was the best of polls, for Labour, it was the worst of polls. Sentiment was mixed in Conservative headquarters. With mood swings from complacency to crisis, Dominic Cummings, the "eminence grise" in the Tory Shadows, lit up a bat signal from his cave. Brexit could yet be in danger. There is still a possibility of a hung parliament. No time for complacency. "Powerful forces are plotting to block the democratic outcome of the 2016 referendum."
For manifestos, it was the age of wisdom, it was the age of foolishness. The socialist doctrine of yore, returned to the Labour ranks. The Tories avoided any major commitments that might offend. The triple lock on increases in tax, national and insurance cheered the rank and file. The commitment to 50,000 new nurses melted under scrutiny, like an ice carving of a party leader subjected to studio lighting.
For the party faithful, it was the epoch of belief, for the Institute for Fiscal Studies, it was the epoch of incredulity. Taxes are set to rise to historically high levels and beyond. Labour spending plans would push levels beyond anything ever sustained in previous history in the U.K. Tax plans are unrealistic for all parties with higher levels expected than revealed in the Tory manifesto.
It was the season of Light, it was the season of Darkness. Opponents sought to shed light on the Prime Minister's statements made about single mothers over twenty five years ago. Jeremy Corbyn tossed the cloak of darkness on anti semitism in the Labour Party.
It was the Spring of Hope, it was the Winter of Despair. Hope the political uncertainty might soon be over, despair as reality dawns, the uncertainty of a deal with Europe may well run on for years to come. Boris Johnson didn't help matters, suggested a "No deal Brexit" was yet a possibility.
We had everything before us, we had nothing before us. How easily we learn, promises written on the side of a bus, are easily thrown under, once the primary objective has been achieved. It remains to be seen, how promises outlined may yet be delivered.
We were all going direct to heaven, we were all going the other way. Donald Trump arrives next week to stress NATO and have dinner with the Queen. The Prime Minister will avoid a photo shoot with the President and an endorsement from the White House. That may be difficult. If Johnson looks like a winner, the President will be keen to take the credit.
If polling narrows, the future period may look much like the present period, heaven forbid that nothing changes but "What the Dickens" not long to wait now ...
World trade growth is slowing ...
World trade is slowing, the latest data suggests growth slowed to just 0.5% in the third quarter. We now expect growth of just 1% for the year as a whole, compared to over 3% last year.
World growth is slowing. We now expect growth of just 2.6% in the current year, compared to 3.2% last year. World expansion is deflating. No risk of recession as yet. The twin concerns of Boris and Brexit, Trump and Tariffs continue. The damage to output in the world is significant. Uncertainty over impeachment will not help.
In October, profits within China's industrial enterprises, fell by 10% as businesses struggle to cope with the challenge of the trade war with the U.S.A. Hopes of a trade deal continue to ebb and flow. The economy grew by 6% in the third quarter according to official data. Growth for the year as a whole will be maintained at a similar level, in contrast with a U.S.economy expanding by just over 2%.
It is clear, the White House struggles to achieve an adequate attention span to secure a deal with Beijing. There was confusion in the Oval Office about the sex of the dog, awarded the canine medal of honor by Trump this week. So much for the role of transgender in the U.S. military.
The President made a surprise visit to the troops in Afghanistan this week. A quick visit between a pardon for a Turkey and the inevitable pardon for Rudy Giuliani in due course. Trump announced talks with the Taliban were "back on". This came as a surprise to many, including the Taliban.
Trump calls for a cease fire in Kabul and in Washington as impeachment rumbles on in Congress. The President appears to be stronger with his base but ever in need of a good headline, London will provide the next opportunity to shock. The Prime Minister will be anxious to ensure he does not become collateral damage in the process ...
Negative Rates ...
Negative rates can do more damage yet ... the message from the North this week. After half a decade of negative rates, one of the biggest Nordic Pension Funds is beginning to wonder if this is just the beginning.
Euro-zone rates first went negative in 2014, two years after Denmark, which has had negative rates longer than any other country in Europe. The ECB continues to think easy money is the correct response to slowing growth in the single currency trading zone.
World stock of negative sovereign debt is now $12 trillion dollars, down from a peak of $17 trillion earlier in the year. The search for yield is taking institutional money out of government and investment grade bonds and into alternative assets, including real estate, infrastructure and private equity.
Equity markets continue to attract funds. The US indices moved to new highs this week with the S&P up 25% in the year. In France and Germany markets moved to new highs. We expect the FTSE to move once the election uncertainty clears.
Modern Monetary Theory is returning to accommodate the push into infrastructure spending. Talk is back of helicopter money. A cash drop to everyone in the Euro-zone would provide a boost to consumption and growth. Talks of a tariff war with the US will not help.
Trump and Tariffs, Boris and Brexit, the major overhangs for the world economy, now compounded by impeachment in the US and an election in the UK ... negative rates can do more damage yet and probably will ... easy money is not the solution as the search for yield intensifies ...
That's all for this week, have a great weekend. We will be back with more news and updates next week ...
This time last week we were in Moscow planning a pleasant lunch on the river cruise boat. It's a great way to see Moscow, with a few shots of vodka to ease the burden. The day before we had visited the Kremlin, Red Square, the Bolshoi Theatre, St. Basil's Cathedral, the Gum Store and so much more. Yep we even traveled on the Moscow metro.
It was an amazing trip and a great opportunity to speak at the Gazprom conference on managing the challenge of digital disruption. Also speaking at the event was Boris Zarkov, founder and CEO of the White Rabbit Family of restaurants. Two of his restaurants are in the top 100 best restaurants in the world. We made it to the eponymous White Rabbit restaurant in Moscow on Thursday night. A starter not to be missed - "Cabbage and Caviar" ... followed by "Flounder" always a favorite.
It was a great week away to avoid the trauma of the election process. Back in the UK the runners are riders are in position. The first debate between Johnson and Corbyn, left voters equally divided or confused. Boris appeared to squeeze the decision with a narrow win. The four way "Question Time" exchange last night left much to be desired from either side. The decision may yet lead to a hung parliament all over again.
The Tory party are keeping their manifesto a close secret, not so the Labour Party. The release last week of the socialist agenda ran to over 100 pages with an average cost of over £4 billion per page. The tax and spending plan has already been denounced by the IFS and big business. The process of state sequestration, a breathtaking look back, to a time we all thought was long passed.
So far the voters are unimpressed by the promises of the socialists. The Tories has a twelve point lead in the polls. Martin Baxter's Electoral Calculus has Boris Johnson returning to Number Ten with a seventy seat majority and a clear mandate for Brexit. The Conservative manifesto will be released next week. Foxhunting has disappeared from the headlines, along with Jacob Rees-Mogg ... focus is on spending, borrowing is set to rise ...
Borrowing hits monthly high ...
Phillip Hammond was affectionately known as "Spreadsheet Phil". His love of detail ensured the numbers added up, both down and across, always a bonus with Treasury. Sajid Javid on the other hand, is becoming known as the Chino Chancellor, Chancellor In Name Only.
Boris Johnson has a knack of stealing the best lines, this week was no different. The Prime Minister announced prematurely the increase in National Insurance hurdle rates to £12,000. The announcement made on the campaign trail in Teeside sent campaign staff into a panic. The giveaway was supposed to be revealed in the manifesto. Johnson had been put on the spot when asked "are the tax cuts planned for [posh] people like you or people [workers] like us".
The National Insurance announcement ensured the Prime Minister avoided a difficult moment. Other giveaways will be revealed in the manifesto. More money for the NHS, more doctors, nurses, police on the beat, forty new hospitals, the manifesto will ensure the calculators are churning in the IFS and the OBR. The impact on growth and borrowing readily and rapidly assessed.
The spending challenge was not made easier by the release of the latest borrowing figures for October. Borrowing in the month was £11.2 billion, the highest October level for five years. The year to date figure was £46.3 billion roughly 10% higher than the prior year. For the year to date we expect spending to rise to £47 billion, well ahead of the 2% target.
There would appear to be little or no scope for a big giveaway spending plan for an incoming Tory majority. The Prime Minister has already revoked the planned cuts in corporation tax, announced in passing at the CBI conference this week.
Once back in office, with a clear majority, the Tories may well find other spending plans could be put to better use ...
Must spend more ...
Must spend more was the message from the incoming President of the European Central Bank. Christine Lagarde, taking over from Mario Draghi, has urged European leaders to increase spending and boost growth.
“Investment is a particularly important part of the response to today’s challenges. It is both today’s demand and tomorrow’s supply,” Ms Lagarde, 63, explained.
Germany and the Netherlands are under particular pressure to do more to boost domestic demand. The central bank, which recently cut rates and restarted quantitative easing, would continue to do its part to support the economy, the incoming President explained.
More QE, the drift to negative rates continues. Modern Monetary Theory, would provide the intellectual justification for an increase in government spending and borrowing hurdles. The Magic Money Tree is now surrounded by a forest of "Group Think". The outcome of the UK election becomes even more pertinent to the debate ...
That's all for this week, have a great weekend. We will be back with more news and updates next week ...
The election race is up and running. Boris Johnson is in the saddle, on the platform, in the hospital, in the school, on the case. Never in the field of human voting, have so many photo opportunities been offered, to so many, by so few.
Jacob Rees-Mogg has been shuttered for the campaign duration. A series of unfortunate remarks on LBC about the Grenfell fire, confined the Victorian exemplar to barracks in Somerset. Andrew Bridgen, MP for North West Leicestershire, was dispatched to defend the Mogg.
"Jacob is a good friend of mine. He is an extremely compassionate, intelligent human being". He just doesn't get to meet many poor people. "I think of either of use were in a fire, we would ignore the advice of the Fire Brigade and leave the burning building".
Nanny would advise to tie silk sheets together with lace handkerchiefs, hang them from a window and ask the gardener to test the escape route before toffs lives were put at risk.
"We want clever people running the country and that is why he is in a position of authority", Bridgen explained. As if that were a reason! By the following morning, Bridgen was forced to recant. "I realize what I said was wrong and caused a great deal of distress and offence". [especially in campaign headquarters]. Jacob is not an extremely compassionate, human being ...
Sajid Javid, had his moment in the limelight. The Chancellor announced an easing of fiscal constraint to accommodate an increased in deficit spending of some £20 billion per annum. The spending would be allowed to rise to around 3% of GDP. A modest expansion compared to Labour largesse running into hundreds of billions.
Moody's fired a warning shot. The UK's credit rating has been cut over concerns about public sector finances and fears Brexit could damage economic growth. "No matter what the outcome is of the general election, the agency sees widespread political pressures for higher expenditures with no clear plan to increase revenues to finance that spending".
The OBR forecasts were withheld during the purdah period. The Treasury were not allowed to comment on Labour spending plans. The Bank of England released the November Monetary Policy Report. The MPC agreed to hold rates. Two of the nine members of the MPC voted for a rate cut.
The Bank expects growth of around 1.3% this year and in 2020 with inflation set to remain below the 2% target. It must have been a difficult forecast to put together.
In the absence of any clear resolution about the structure of parliament, spending plans, borrowing targets and the continued uncertainty about Brexit, Governor Carney may well be pleased this will be his first and last submission of the "Monetary Policy Report".
Keep America Great ...
Let's keep America Great! The U.S. electorate may decide to vote Democrat. The Republicans faced a setback in Kentucky and Virginia this week as the impeachment process rumbles on.
The President may be obsessed about the Whistle blower but the noise is rising to a cacophony as evidence flows in the impeachment inquiry.
This week, Fiona Hill, former special assistant to the President on European and Russian affairs, gave evidence behind closed doors in a ten hour session. Evidence was also provided by Lt Colonel Alexander Vindman. Vindman is the U.S. army lieutenant colonel serving as the Director of European Affairs for the National Security Council.
From both testimonies it is clear, there can be no doubt, Trump sought a quid pro quo with the Ukraine. $400 million of military aid was withheld pending investigations of American politicians. A visit to the White House was also on the table assuming officials in the Ukraine complied.
Gordon Sondland U.S. ambassador to the European Union, has admitted in deposition, military aid was contingent on the investigations Trump desired. Mick Mulvaney, Trump's acting chief of staff was complicit in the arrangements to secure a meeting in the Oval office.
Rudy Giuliana and associates, Igor Fruman and Lev Parnas, were involved in the skulduggery. Igor and Lev were arrested last month attempting to leave the country with a one way ticket. The may face federal charges of funneling foreign money to U.S. politicians, while trying to influence U.S. Ukraine relations.
For John Bolton, national security advisor to Trump until September this year, it was all too much. Bolton had warned Giuliani "is the hand grenade which will blow us all up" Bolton repeatedly told staff and colleagues in the administration that "nobody should be talking with Rudy Giuliani".
Chaos in the White House continues. Later this month will be published "A Warning".
The book’s author says Trump moves from one crisis to the next, “like a twelve-year-old in an air traffic control tower, pushing the buttons of government indiscriminately, indifferent to the planes skidding across the runway and the flights frantically diverting away from the airport”.
Turning to Trump’s early morning Twitter rants, the author writes: “It’s like showing up at the nursing home at daybreak to find your elderly uncle running pantless across the courtyard and cursing loudly about the cafeteria food, as worried attendants tried to catch him.
Just on year to the 2020 election ... a chance to Keep America Great ... which way will the American public vote? Will Trump be on the ticket ...
Moscow 2019 ...
We are off to Moscow next week as a guest of Gazprom. I shall be speaking at the fourth annual leasing conference. This year’s main theme of the Conference is “Leaders’ Strategies, The fight for new markets. I shall be speaking on “How companies adapt their marketing strategies under the influence of digital disruption”.
Want to know more, we shall be updating our work on digital disruption to include the latest “Moscow Chapter” before the end of the month!
That's all for this week, have a great weekend. We will be back with more news and updates on the 23rd November, John
And so it came to pass. The EU granted an extension. Boris Johnson called for an election. The house voted voted 438 to 20 to deliver the third trip to the hustings in less than five years. So much for the fixed term parliament act, members of parliament appear to be as disillusioned with the process, as the general public at large.
Boris Johnson is ready for action. The Tory platform is clear. We will be leaving the EU on the 31st January. No deal Brexit is off the table. The deal is done. "Oven ready, just slam in the microwave", the rather unappealing gastronomic option. The Conservatives are way ahead in the polls. The election will deliver a clear working majority in the house, or so it is thought.
Much can go wrong over the next six weeks. Nigel Farage plans to disrupt the "Bake Off". The President of the U.S.A. intervened. Nothing much to worry about at home, Trump dropped in to the Farage LBC radio show, to offer support. Farage-Johnson would be an unbeatable dream ticket. The deal with the EU may leave the UK free to trade with the rest of the world but a US trade deal would be virtually impossible, he explained.
The UK would have to accept chlorinated chicken, hormone injected beef and must be prepared to deliver the dirt on Joe Biden. Farage took great delight in outlining his demands for a place on the ticket. Johnson had no problem refusing. This is not the time to be associated with a hard Brexit and no time to be associated with a President on the verge of impeachment.
The race is on, the vitriol will pour, promises will be made, excessive spending plans will be revealed, the IFS and the OBR will explain the funding shortfall. The one consolation, it will all be over by Christmas and then we can start all over again ...
House Prices in Stasis ...
Trump and tariffs, Boris and Brexit are the major issues taking their toll on economic activity. Now we add impeachment in the US and an election in the UK to add to the confusion about just what happens next.
Nationwide this week revealed house prices were pretty flat in the month of October. Annual house price increased have been below 1% for eleven months in a row. Robert Gardner, chief economist explained, “Indicators of UK economic activity have been fairly volatile in recent quarters, but the underlying pace of growth appears to have slowed as a result of weaker global growth and an intensifying of Brexit uncertainty."
Should we worry so much about house prices? Not really. A slow down in prices contrasts with a near 4% growth in earnings in the latest date. The Nationwide price to earnings ratio is easing off recent highs. The move down from the recent 6.0 highs compares to a long run average of 4.5. A slow down in prices will improve affordability and housing access for first time buyers. The slow down in price rises may improve volumes into the New Year as the political uncertainty clears
Further news from the motor trade confirms a further drop in production in the month of September. Output fell by 4% in the month, down by 16% in the year to date. 80% of manufacturing is destined for the export market. Over half of which is shipped to the EU.
This week, Fiat, Chrysler, Peugeot, Citroen and Vauxhall announced a merger that could see the enlarged group become the world’s fourth-largest car maker. The news increases the prospects of plant rationalisation in Europe and concerns about Vauxhall commitment to the UK.
Manufacturing took a further hit in the latest PMI data for October. We still expect growth in the UK to be around 1.2% for the year as a whole. Most analysts expect a further slow down in 2020 to just 1%. No recession in sight, the surprise next year may yet be to the upside, if the political uncertainty clears ...
The Genius of Our President ...
Excitement in the U.S.A. is building. The impeachment process is underway. John Kelly, the President's former chief of staff had explained to Donald Trump, the importance of not appointing a yes man to the role. A yes man, prepared to follow the Presidents whims and wishes, would lead to an inevitable impeachment, he warned. And so it came to pass. The Democrats moved to impeach.
The White House was quick to issue the riposte. Stephanie Grisham, Director of Communications, explained "John Kelly, was unequipped to handle the genius of our President".
Kim Jong-un was impressed, firing off a few short range missiles in celebration, a reminder there was still a Nobel Peace Prize on offer on the Korean peninsula. No prize for economics in the U.S.A. Growth slowed to just 2% in the third quarter as business investment slowed. Government borrowing increased to $1 trillion dollars in the financial year, the unemployment rate increased to 3.6% in October.
The Fed cut rates by a further 25 basis points mid week placing the blame on trade uncertainty and the Trump tariff plans. 128,000 jobs were added to the payroll in October, assuaging fears of recession in the current year.
We expect growth of just 2.3% in 2019, analysts expect a further slow down to just 1.8% in 2020. It could have been and should have been so much better. The economy was unequipped to handle the genius of the President. The genius was unequipped to handle the complexity of the economy.
This week the Trumps announced they are changing residence from New York to Florida. The tax breaks may be better, but is also makes for a better retirement home. That may be sooner rather than later if the Democrats have their way ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
The Saturday Economist
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