 Fox secures Fish ...
The prospects for truly global Britain, forging an invisible chain for free trade and democracy, received a real boost this week. Liam Fox, the international trade secretary was able to announce a trade deal with the Faroe Islands. There has to be some payback for the £1 million plus spent by his department on overseas trips and missions to valuable markets abroad. Almost 400 trips have been made in the period since the referendum. Talks with China may not be too relaxed following news the Defence Minister Gavin Williamson is to send his brand new aircraft carrier to patrol the Pacific in 2020. "The UK is a global power with truly global interests," Defense Minister Gavin Williamson said "Since the new global great game will be played on a global playing field, we must be prepared to compete for our interests and our values far, far from home." "China is developing its modern military capability and its commercial power," Williamson said. Tensions in the Pacific are set to rise as China escalates claims in the South China Sea. Trade talks may be put on hold as gunboat diplomacy returns to Britain's foreign policy arsenal. For the moment, the Faroe islands will feature in truly global Britain's future. Total trade with the Faroe Islands was worth about £250 million last year. Fish and crustaceans made up the vast majority of imports, worth over £200 million. Total exports in return were worth about £6 million. Three additional deals have also been secured at the moment, to offset the loss of the EU's forty deals with some 70 countries. Switzerland, Liechtenstein and Chile feature as part of the "New Deal" scenario. Still much work to be done to secure the trading future of the UK ... for the moment the Fox has secured fish, with some crabs and prawns for starters ... Retail Sales Bounce Back ... Retail sales bounced back in January, following tales of a dismal period over Christmas, Sales volumes increased by 4.2% year on year. Sales values increased by 4.5% in the same period. Online sales increased by 10% accounting for 19% of total retail sales. Clothing and footwear sales were up by over 5%. Household goods store experienced little or no growth. It is easy to fall into conventional narrative of a slow down in household spending as consumers fret about Brexit. It didn't really happen in January. According to the latest GfK Consumer Confidence survey for January, consumers may be worried about the economy but they are less concerned about household prospects for the moment. It remains for many a good time to save and spend. A strong job market, rising vacancies, and earnings rising ahead of inflation will maintain activity in the short term. The falling rate of inflation will continue to boost real incomes. Inflation CPI basis fell to 1.8% in January from 2.1% prior month. The headline rate is flattered by a big fall in goods inflation to 1.3%. Service sector inflation was 2.5%. Service sector inflation together with Sterling weakness is one reason why we expect inflation to be above target towards the end of the year. Wage inflation will assist in pushing the headline rate up. Producer price inflation slowed in the month. Output price growth fell to 2.1%, input costs slowed to 2.9%. Subdued oil prices assisted the muted developments in cost prices. Imported food costs were up by almost 7% as Sterling fell, other import costs, materials, metals and chemicals were up by 4% on average. The inflation story is by no means over. There still remains the prospect of a further base rate rise this year assuming a resolution of the article 50 conundrum can be found ... See You In Court ... A cross party resolution was found to the funding crisis in the US. Democrats and Republicans together secured a deal to avoid a further Federal shut down. Trump was a reluctant signatory to the agreement. Just $1.4 billion was offered to build the wall for which Mexico was always supposed to pay. Trump was forced to swallow the biggest surrender on policy for his presidency to date. It was a short roll over. The President reacted by declaring a "National Emergency". Funds will be found from military and national emergency reserves within Presidential special powers. This will fill the gap in funding for physical construction along the Southern border. Trump announced the National Emergency in The Rose Garden. The "chosen backdrop for pitching defeats as victories" according to the New York times. A legal challenge will follow from the Democrats and elsewhere. The decision to declare a national emergency will drag on for weeks and months. It is a familiar act of distraction and digression with a modicum of entertainment. Democrats claim the action is evidence of a rogue President who has finally gone to far. It is a clear challenge to the separation of powers within the constitution of the USA. This week the FBI revealed they had examined the prospects of an execution of the 25th amendment as Trump abused McCabe and Comey in Hoover's treasured heartland. During the 50 minute meandering Rose Garden new conference, Trump offered little evidence to support the idea there was a crisis at the border. White House lawyers had advised against the move fearing the legal risks of proceeding. Trump explained the legal ramifications of his move .. "Look I expect to be sued", Trump said, "they will sue us in the 9th circuit, we will possible get a bad ruling, then we will get another bad ruling and then we will end up in the Supreme Court. There we will hopefully get a fair shake and win". Yes a fair shake and a win ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John
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 Bank Downgrades Forecast For Growth ...
It is the week of the Inflation Report. No surprise, the MPC held rates with little prospect of an rate hike in the months ahead. "There is a story" the Governor began his opening remarks, "There is a story, that almost a century ago, The Times ran the headline 'Fog in the Channel, Continent Cut Off'". The Governor went on to reassure, that cutting off the continent was not the objective of Brexit. The UK is leaving the EU, not leaving Europe. "We will pursue an ambitious and broad economic partnership", he explained. With just fifty days to go, with no deal in sight, the Governor obviously knows something, the rest of us, including Parliament, do not. It was a week in which Chris Grayling had been cut off from Calais. The Chairman of the French port authority had said, "The Transport Secretary has been disrespectful, I never want to see him again". Grayling plans to cut capacity through Dover and Calais. Capacity will be increased in other directions and by other means. More effort will be made to increase trade from Ramsgate to Ostend. A decision to award part of the £100 million contract to Seaborne shipping was reversed this week. A shipping company without ships, without experience and finance was considered to be a Bridge Too Far even for this administration. Fog over Brexit has cast a cloud over the Bank of England. The Bank has cut the forecast for growth to just 1.2% this year. There is a one in four chance of recession if the UK leaves the EU without a deal. Fears over a no deal are haunting the board rooms of Britain. Investment decisions are on hold pending the outcome of negotiations with the EU. The good news? Inflation will remain at or around the target 2% and job growth remains strong as businesses continue to hire ... for the moment ... Automotive trade ... Another week of bad news for the auto industry. Nissan announced the decision to pull the planned manufacture of the X-Trail in Sunderland later this year. The head of Nissan Europe Gianluca de Ficchy said: “While we have taken this decision for business reasons, the continued uncertainty around the UK's future relationship with the EU is not helping companies like ours to plan for the future.” Jaguar Land Rover had previously announced job losses as a result of falling sales in China and elsewhere. This week, Tata Motors, the parent of JLR announced a $3.9 billion write down on the JLR investment pushing the Tata share price down by 30% at one stage. Credit rating agency Fitch placed the company on negative watch. "Trade barriers and logistic issues from a disorderly Brexit could have an impact on JLR's competitive position, leading to lower sales and profitability" Fitch said. Will Corbyn ride to the rescue? This week the Labour party outlined five steps required to secure the agreement of the opposition in the pursuit of a deal with Europe. Inclusion in the single market and a customs union feature. The Irish question would be answered. The hopes of remainers on the opposition benches dashed. Many believe Corbyn would welcome a hard Brexit. An olive branch to settlement, offered by the hand of a Brexiteer may be a twig, first dipped in a poisoned chalice. Either way, this week the Prime Minister was too busy in a whistle stop tour of Belfast, Dublin and Brussels to listen to a possible solution from the opposition. The conundrum continues, the clock is ticking. The lights are going out all over Europe ... we shall not see them lit again in our lifetime ... State of the Union... The President finally made it to Congress this week to deliver the State of the Union address for 2019. It was a tough audience. Nancy Pelosi looked on, as Donald Trump spoke to the Majority Democrat house. Trump issued a call for unity as he warned that the "politics of revenge" and "ridiculous partisan investigations" threatened to derail the "economic miracle" taking place in the United States. The US president, appealed to Democrats to reach a compromise on paying for his proposed wall on the Mexico border. "We must choose between greatness or gridlock, results or resistance, vision or vengeance, incredible progress or pointless destruction. Tonight, I ask you to choose greatness." [to choose me] "Victory is not winning for our party. Victory is winning for our country. Embrace the boundless potential of cooperation, compromise and the common good. An economic miracle is taking place in the United States and the only thing that can stop it are foolish wars, politics, or ridiculous partisan investigations. "If there is going to be peace and legislation, there cannot be war and investigation." Time to stop the Mueller investigation now ... the obvious plea. The biggest cheer of the day was from the newly elected women democrats dressed in white, a tribute to the suffragettes of old. When Trump boasted of his success in increasing the number of women in work in his thriving economy, Nancy Pelosi pointed to the left in Congress. The ladies rose as one, evidence of the President's achievement ... more women in work, in opposition to the Trump administration. USA, USA, they chanted, "You weren't supposed to do that" said the President. Not for the first time he had missed the point ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Production and Investment Falls ...
The car industry issued it's starkest warning yet about the implications of a no deal Brexit. Production in 2018 fell by 9% to 1.5 million units. Investment fell by almost 50% to a level of £588 million. Almost two thirds of the UK's global car trade could be at risk from a "no deal scenario". UK companies are urging all politicians to do "whatever it takes" to maintain a trade deal with Europe. Production for the home market fell by 16%. Export sales were down by 7%. Approximately 80% of output is exported, part of the highly integrated trade with Europe. No deal will lead to a radical realignment of supply chains. No longer will parts pass several times across the Channel. Consolidation within Europe will be the guideline. There will be a significant loss of capacity in car assembly in the UK with implications for the wider domestic supply chain. With just eight weeks to go to the March deadline, the IOD warned this week that one in three members are considering geographical diversification into Europe. Business is preparing for no deal. This week the PMI Markit Manufacturing Survey reported record stock piling as Brexit preparations continue. The manufacturing sector made a lack lustre start to 2019, as trends in output and new orders slowed and employment fell for only the second time in the past two-and-a-half years. Companies reported Brexit preparations led to sharp rises in both purchasing activity and stockpiling of inputs at warehouses. A rise before the fall. We expect manufacturing output to grow by just 0.9% this year. Alternative Arrangements ... Good news for Theresa May this week. The Prime Minister was successful in persuading the Tory party and the DUP to vote once again against the Brexit deal recently presented to Parliament. According to Matt Chorley in the Times Red Box ... "It was a victory for the Prime Minister after persuading the Tory party to vote against the deal she had spent most of the Winter trying to sell to them." A victory indeed. The pitch was simple. The PM's deal, the only deal on the table, the only doable deal, agreed by everyone in Europe and most in the party, expect the ERG. Well don't vote for that deal, vote for something else. Don't vote for no deal. Don't vote for a delayed deal. Vote for a new deal. But what? It was left to Sir Graham Brady to save the day. An amendment demanding the Irish backstop be replaced was presented. The "Brady Word Bunch" provided consensus. "Parliament has made it clear the basis of an agreement" explained the Prime Minister. The Irish backstop is unacceptable. Alternative arrangements must be made. We don't want a backstop, we want something else, the House has voted. Something else ... but what, we are not exactly sure. As the Prime Minister had earlier explained, "On the point which divided us, we have not made up our own minds. We could not pretend to give a decided lead to anyone." The Prime Minister was Arthur Balfour. The year was 1903. The issue was trade policy with Europe. The Tory party was once again divided. The Prime Minister was manoeuvring desperately to keep the party together. Over one hundred years later, here we are again, sometimes we wonder why ... God wanted Trump to be President ... No self doubt in the White House this week. Press secretary Sarah Hallelujah Sanders claimed on Wednesday Trump's presidency is part of a higher calling. "I think God calls all of us to fill different roles at different times. I think he wanted Donald Trump to become President." Sanders claimed during an interview with the Christian Broadcast Network. "That's why he is there. I think he has done a great job in supporting a lot of things that people of faith really care about." Trump is widely expected to make a big anti abortion play in the State of the Union Address next week. The President's ratings are plummeting. "God on our side" "War with Russia" and an appeal to the "Pro Life" group part of the new electoral pitch apparently. This week the administration announced withdrawal from the Nuclear Treaty with Russia according to Mike Pompeo and support from a higher authority according to Sarah Sanders. Press briefings in the White House abandoned for the time being. Why talk to the press when you are in communication with a supreme being in the Oval Office. This week Trump was irritated by US security heads. Director of National Intelligence Dan Coats and CIA Director Gina Haspel both indicated on Tuesday there is significant distance between the president and the intelligence community on major issues. They testified the Islamic State remains a forceful presence in Iraq and Syria, North Korea is unlikely to give up its nuclear weapons and that Iran is not seeking a nuclear weapon. Taking the advice on board, the President attacked once again the U.S. intelligence community. "The intelligence people seem to be extremely passive and naive when it comes to the dangers of Iran" Trump explained on Twitter. "They are wrong and should go back to school". Oh the things they teach in High School these days. No back to school fro the Fed Chair Jerome Powell this week. School is out as the Fed held rates and signaled patience with potential rate hikes later this year. Markets rallied, the Dow jumped over 400 points. Trump was pleased. The Fed is worried about growth in China and the rest of the world. No such fears for the US economy. The US added 304,000 jobs in January versus the 165,000 expected. The Fed may be back in the playground before the end of the year. That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Earnings Rise ...
Profits at Joules, the premium fashion brand increased by almost 15 per cent in the six months to late November. A reminder it's not all gloom and doom on the high street. Don't get too excited, the company warned it expected conditions in the retail sector to remain "tough for the foreseeable future". Tough but a rise in household incomes will help. In the three months to November, earnings increased by 3.4% compared to the same period last year. Inflation is falling, real incomes are rising. The unemployment rate held at 4%. There were 1.37 million unemployed with over 850,000 vacancies on offer. Recruitment difficulties are increasing as growth continues. The IMF expects growth of 1.5% in the UK in the current year compared to 1.3% in Germany and 1.5% in France. The small matter of Brexit is a huge overhang on the performance of the UK economy. Confusion in Westminster doesn't help. Borrowing increases ... Government borrowing in December was £3.0 billion compared to £2.7 billion prior year. Over the first nine months of the year, borrowing was £36 billion compared to £49 billion prior year. In the current year we now expect borrowing to hit £30 billion compared to £42 billion last year. A significant improvement on prior year but well ahead of the latest forecasts from the Office of Budget Responsibility. Total debt at the end of the year was £1.8 trillion. With 27% of gilts held overseas, dependence on the "Kindness of Strangers" continues. "With rotten bonds and inky blots sustained". Government revenues in the month increased by 4.3% as a result of higher VAT and NI contributions. Expenditure increased by 5.3% as the spending cap is eased on public sector pay and welfare payments. Gross interest payments in the month were £4.0 billion bringing the total for the year to date to £40 billion. The interest rate bill for the year as a whole will be £52 billion compared to £37.4 billion we plan to spend on defense. This week, Sony announced a relocation to Holland, Airbus warned the wings will fly in the event of a no deal solution. Dyson announced a relocation to Singapore. The UK is no place to build electric cars apparently. The Prime Minister suggested trade talks had gone well with New Zealand. There may even be hopes of an invisible link in the chain, with the CPTPP. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership the full name. Think of TPP deal without the US. It all sounded great until the Australian trade Minister pointed out the UK is a long way from the Pacific ... and it is ... IMF issues warning ... Christine Lagarde issued a warning to the world this week. Brexit and trade tariffs are a threat to growth. Who would have thought ... The IMF reduced forecasts for world growth this year to 3.5% from 3.7%. In the USA growth is expected to fall to 2.5% from 2.9% in 2018. In China, growth is expected to fall to 6.2% from 6.6% in 2018. . Should we really be so worried about China? For all of 2018, the Chinese economy grew 6.6 per cent, in line with a government target for growth of “about 6.5 per cent”. The growth rate was down from 6.8 per cent in 2017 and was the lowest growth rate since 1990. The Chinese economy slowed further in the fourth quarter, matching the lowest recorded reading, last seeen during the global financial crisis in 2009. The fourth quarter growth rate of 6.4 per cent, year on year, matched that of the first quarter of 2009, according to data released Monday by the National Bureau of Statistics. Retail sales grew 8.2 per cent December compared to a year earlier, up from 8.1 per cent in November. . China retail sales exceeded the total value of US sales for the first time ever. Industrial output increased by 6% as investment increased by a similar level. China is the second largest economy in the world and will surpass the US with the next five to ten years. The economy is morphing, manufacturing is on the move. Rumors this week, the high end iPhone will move out of China, to India. Just one of the many reasons why, the IMF expects the Indian economy to expand by 7.5% this year. The iPhone may be on the move but China hegemony remains the call ... The Writing's on the wall ... In the US, the shut down is over. Trump backed down in the face of Democrat solidarity and a crumbling Republican redoubt. The President agreed to end the shut down without any commitment to money for his great wall. Nancy Pelosi held her nerve as support for the President fell. Chuck Schumer had ensured Trump would take ownership of the shut down. The public held the President to account. The writing is on the wall for the President. In a sense it had been since the results of the mid terms. It was the second set back of the week for Trump. The Leader of Congress had suggested the President should not deliver the "State of The Union" address until the shut down was over, concerns over security paramount. When the President announced he would probably pop in any how, Pelosi formally withdrew the invitation. The President was stymied. The leader of the free world, was forced to accept he could only deliver his SOTU, once the shut down was over. By the end of the week, it was. Trump delivered a rambling, incoherent, "ode to the wall" packed with inaccuracies and falsehoods. For a President consumed with winning, this was a "stinging defeat" according to the New York Times. The White House team now have three weeks to manufacture a face saving deal with the Democrats. It will not be easy. Best to avoid the Press Room for now. Trump has instructed Sarah Huckabee Sanders "not to bother" with the press briefings ... there seems little point! In other news this week, the Mueller investigation continues. Roger Stone a long time Trump friend and adviser, has been indicted. Accused of lying, obstruction and witness tampering in the investigations of Russian involvement in the election of 2016. "I am innocent and will never rat on the President" claimed Stone. "This has nothing to do with the President" explained Sarah Sanders! Yep somehow we have heard this all before! That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Inflation falls ...
Inflation fell in December to 2.1% from 2.3% prior month. Service sector inflation held at 2.4%. The fall in the headline rate was largely attributed to goods inflation, down to 1.8%. A drop in petrol prices assisted the move, reflecting the continued weakness in oil prices. Oil prices Brent Crude averaged $57 dollars compared to $64 dollars last year. Manufacturing output prices slowed to 2.5% from 3.0% in November. Input costs slowed to 3.7% from 5.3% prior month. Softer petroleum prices helped but the weakness of Sterling $1.27 v $1.34 in December 2019, offset some of the gain. For the year as a whole, most analysts now expect inflation to average around 2.3%. Good news for households as earnings are expected to rise by around 3% maintaining a positive outlook for real earnings. Good news also for the Bank of England. There will be little pressure on the MPC to raise rates during the current year if current trends are maintained. Not so good for Sterling as the Fed is expected to raise rates by a further 50 basis points through the year. The interest rate differential will push the dollar higher and Sterling lower despite the rally this week. Retail Sales Slow ... Despite all the fears for retail sales over Christmas, the official figures from the ONS suggest sales values increased by almost 4% as volumes increased by 3.0%. Headlines from the High Street must be kept in perspective. Online sales increased by 14% accounting for 20% of all retail sales. Department stores, clothing and footwear are particularly vulnerable to on line penetration. The pressure on high street infrastructure will continue forcing store rationalization and footprint contraction. The pattern of sales is changing. Imagine a time within the next five years when 25% of transactions will be online. A huge extraction of activity on the high street and in shopping malls. Who can remember the idea of January Sales. New Year Discounts yielded to Boxing Day Breaks. Blue Star and Blue Tick Deals appeared in the run up to Christmas. Then came Black days on line. The significance of December no longer the dominant feature of the final quarter. Profit warnings prevail as a result of Brexit prevarication. Shock news from "Build a Bear" this week. Fluffy toy sales fell and workshop activity waned as "unresolved issues relating to Brexit negatively impacted consumer confidence". Those two year old toddlers so fickle in the face of EU uncertainty. Brexit Confusion Continues... The May deal vote was expected to fall at the first fence. The size of defeat was a shock to all. 432 MPs voted against the proposal. The Government was defeated by an unprecedented 230 votes. The Conservative party was in tatters with both sides of the Brexit debate voting against the deal. Decisive leadership was required to restore party unity. Jeremy Corbyn obliged calling a vote of no confidence in the government. Tory whips just flicked the feather duster to guarantee support, with the backing of the DUP of course. If the Labour leader has a strategy it remains well cloaked. The confidence vote provided a welcome delay for the Prime Minister in an attempt to find a solution to the current impasse. Welcome relief as rebel ranks rallied behind the weary front bench, Sterling rallied closing at $1.2894 by the end of the week. A postponement of the March deadline a possibility. A revised deal to include the Single Market and the Customs Union now a probability. It is clear a Conservative Party so divided, cannot deliver a solution to the quandary. A cross party agreement is the solution. If only Corbyn would abandon the illusion of a possible snap election and a move into Number Ten, then real progress could be made perhaps. Boris Johnson was in Stafford this week, delivering a potential leadership speech at the JCB factory. Digging a hole in front of a digger, the would be leader of the party denied any suggestion he had mentioned Turkey and the potential 77 million immigrants from the East prior to the Brexit vote. According to Henry Zeffman in the Times today, Johnson in 2016 had said, "I cannot imagine a situation in which 77 million of my fellow Turks can come here without any checks at all." Pressed by Channel 4 news, Johnson said "I didn't make any remarks about Turkey, mate". Yep fake news ... mate ... U.S. Shut Down Continues ... In the US, the partial Fed shut down continues. Pelosi denied access to the House for the President's State of the Union address. Trump retaliated by denying the leader of the house access to the official flight for an impending trip to Afghanistan. "If you would like to make your journey by flying commercial that would certainly be your prerogative" he wrote. Here's hoping the Taliban don't have access to the timetables from Washington to Kabul any time soon. Federal flights were later denied to all government staff. The First Lady was able to sneak out on an early flight to Florida. There have to be exceptions to every rule of course. Pelosi decided to cancel the trip to the war zone. The leader of the house is second in line to the presidency after all. Trump made the best of the shut down and the in house catering crisis this week. Paying out of his own pocket for a candlelit supper of junk food, the President entertained the Clemson Tigers, the 2018 college play off champions. Trump ordered 300 hamburgers quickly escalating to a claim of 1000 by the time the press arrived. Salads prepared by the First Lady had been an option. The "Melania Melange" could have become a Washington delicacy. The photo op no way as appealing as the shot of the leader of the free world in front of all that junk food. Plus he gets to eat the left overs. Markets rallied this week as China offered serious concessions to avoid a trade war. More pigs and soy beans will be added to the buy list. China promised to eliminate the trade deficit with Uncle Sam within five years. The US had a trade deficit with China of $323 billion dollars in 2018. That's a lot of soy and hog wash ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Growth in the final quarter of 2018 is expected to be around 1.4% based on the latest data from the ONS. 1.4% is now our forecast for the year as a whole with a similar level of output expected in 2019.
Service sector remains the driver of growth in the absence of investment and public sector expenditure expansion. And what of manufacturing? For the final quarter of the year we expect manufacturing output to fall by around 1% compared to heady growth of 2.5% in the first quarter of the year. Something is happening in the sector as domestic demand slows, Brexit fears rise and world trade activity slows. "Tariff Man" Trump continues to wreak havoc with threats of more trade tariffs. Grim news from the motor trade this week as Ford and Jaguar Land Rover both announced job cuts. The axe hovers over Bentley as losses continue and parent patience wears thin. UK Car sales fell by 7% in 2018. Declines were equally experienced in private and business registrations. Diesel sales fell by over 30%. The good news, petrol sales increased by 9% and alternative fuel sales were up by 21%. Diesel cars were the main problem for the sector. Customer confusion, government regulation and supply side issues the main challenge in a difficult year. Consumer confidence and Brexit are in the mix for problems in the sector but are not the whole story. JLR was hit by a slump in sales in China and the decline in diesel sales. A resolution of trade with Europe is critical for the car market and many other manufacturing sectors in the UK, as the SMMT has long argued. The Japanese Prime Minister Shinzo Abe was in Downing Street this week ... explaining the significance of European trade to Nissan, Toyota and others from the East ... Brexit Deal Nears ... Perhaps a Brexit deal nears? It could be next week. May's deal will be put to the vote on Tuesday. It is expected to fall at this first fence. The Prime Minister will have a second chance on Friday to put an amended deal to the House. The amended deal could include a commitment to match Labour Regulation and Conditions within the EU, appealing to dissident remainers in the Labour Party. A compromise on the Single Market and the Customs Union would appeal to Remainers in the Tory Party. The DUP and the Northern Ireland issue would no longer require a backstop. Forget the ERG and Tory Europhobes. Those ladies are not for turning. Job done the vote would pass, no need to postpone the Article 50 deadline at the end of March. No need either for a second referendum or a general election. A Bloomberg survey this week of eleven international banks attaches a 35% probability to a deal passing at the second time of asking and just a 15% chance of a no deal as the final outcome. The fortunes of Sterling are included in the poll survey. The upside, Sterling trades at $1.35 with a $1.15 downside as a result of no deal. The Sterling Friday close was $1.2852. $1.30 to $1.20 is the tighter band. $1.32 our call on a Friday deal resolution. The prospects for truly global Britain will be enhanced by remaining within the single market and the customs union. Truly global Britain, the invisible chain around the world, will experience a trade deficit in goods of around £140 billion or 7% of GDP in 2018 and 2019. The deficit will be largely offset by a surplus in invisible goods. The shortage of capacity in the manufacturing sector will be exacerbated unless the trade deal with Europe is achieved. Germany remains the exemplar of what be achieved in export growth within the so called restrictive EU trade tariff regime. Germany exports four times as much as the UK to the BRIC and North American markets. U.S. Shut Down Continues ... In the US, the partial Fed shut down continues as Trump obstinacy is maintained. Money for the wall or no money for 800,000 Fed workers the trade off. Pelosi and Schumer have boxed in the President. Trump owns the shut down. The GOP will feel more uncomfortable as the impasse moves into a fourth week with no signs of a walk back from the White House. Fed Chair Jerome Powell assured markets there will be no recession in the USA this year. Steve Mnuchin US Secretary of the Treasury has already assured investors there is no liquidity crisis in the Banking Sector. Markets have moved from the December lows, no doubt taking the President's advice to "Calm down and enjoy the ride". No recession, no banking crisis. Just an emerging balance of payments and debt crisis to emerge as the economy enjoys continued growth into 2019. Uncle Sam is in danger of losing the AAA rating for borrowing as Fitch explained this month. A continued shut down without an expansion of the debt ceiling will create problems for the US economy later in the year. James McCormack, Fitch's head of Global sovereign Ratings at Fitch, warned debt levels are moving higher and the debt service costs are increasing. The Dollar closed lower against the Euro and the Pound. US Ten Year Bond Yields closed up to 2.70. China is set to become the largest economy in the world within ten years. The Renminbi is set to become a reserve currency within the same time frame. Uncle Sam may need a wall to keep people in as the reality of the Trump economics unwinds in the years ahead ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Happy New Year...
I would like to wish everyone a happy New Year with best wishes for 2019. I hope you all had a great break. We are back in our eighth year of the Saturday Economist with great plans for the year ahead ... Brexit Looms ... Just ten days to go to the critical vote in the Commons, eighty three days to go before the Brexit deadline. Government plans are advancing at pace. Chris Grayling, Transport Secretary is on the case. Grayling has awarded a £14 million pound contract to Seaborne Freight to boost capacity across the Channel. The company has no experience of running ferry transport. It owns no ferries either. Seaborne Freight is a start up with a paste up website. Terms and Conditions were scraped from a takeaway restaurant apparently. Customers were advised to check "before agreeing to pay for any meal". When challenged Grayling said he would make "no apologies for supporting a new British venture"; Well no apologies for anything apparently. The British Army has been put on standby alert. Riots in the street will be ignored as troops deliver essential food and medicines around the country. The troops will solve the riddle of last mile delivery perhaps, shooting down Amazon drones in the process. The Foreign Office has hacked out a new role for truly global Britain. In a key speech at the end of October, Jeremy Hunt, Foreign Secretary explained how we can become "the invisible chain that links the world's democracies". Things must be bad. The thin red line has become an invisible chain, "as strong and resilient as it needs to be, as new nations rise and the world order is challenged anew". Oh yes and Hunt explained we will have a better telephone network. "When I arrived at the Foreign Office, we had secure phone connections to the US, Australia, Canada and New Zealand. I have now added Japan, France and Germany to the list." Excellent. Unsecured lines everywhere else? Some things are better left unsaid. Just weeks to go. The May deal looks set to founder. Tory grass roots don't like the deal. Neither does the Parliamentary Party. The outcome is becoming clear. Something will happen. Nothing will happen. There will be a variant of the two. Who said planning for Brexit was difficult ... Pelosi takes control ... In the USA the Democrats have taken control of Congress. Nancy Pelosi is now the Speaker of the House of Representatives. Together with Chuck Schumer, Democrat leader in the Senate, Pelosi will present considerable obstacles to Donald Trump's White House ambitions. Alexandra Pelosi warns "My mother is a force to be reckoned with in negotiations. She will cut your head off and you won't even know you're bleeding". Trump is already struggling, the predictable, so easily out manoeuvred. The US government is in partial shut down as Trump demands money for his wall. Actually it's not a wall. It is a barrier made from steel slats, beautiful American steel slats with a see through facility which is safer because "we can see who is trying to get in". Forced into a corner, the President can only react in one way. He is threatening to maintain the shut down for months or even years unless he gets the money. Actually it's not a shut down! The President would prefer to think of it as a "strike". Workers (mainly Democrats) refusing to work without pay in the face of intractable opposition to his plans, from elected representatives (mainly Democrats). The adults are leaving the White House. Mattis was due to leave at the end of February. Fox news explained the resignation letter to the President wasn't flattering. Trump decided to fire the General with immediate effect. Rex Tillerson "Dumb as a rock", General McChrystal "Big Dumb Mouth" have already taken flak. More on Mattis (A Democrat) will follow. Trump's decision to quite Syria, a place of only "death and sand" has been rolled back. Troop levels in Afghanistan, a place were the "Taliban fights Isis", will be maintained for the moment. Who needs Generals anyway. "I could have been a great General, who knows?" explained the President. The situation will deteriorate as the Mueller investigation is given an extended life and threats of impeachment gather momentum. As we write the President is threatening to declare a National Emergency to get his way and his wall (not a wall but slats with slits) ... Markets rally as jobs boom ... Markets suffered a turbulent period at end of year. The Dow, NASDAQ and S&P closed lower end of year. Trump blamed the Federal Reserve, refusing to accept tariffs and tantrums had played any part in the turmoil. "The Fed is like a powerful golfer who can't score because he has no touch, he can't putt". An interesting and novel perspective on monetary policy failed to reassure investors. Markets had become very gloomy with fears of a slow down in the USA in 2019. Jack Ablin, Chief Investment Officer at Cresset Wealth Advisors put matters into perspective. "I don't mind being worried but panic seems extreme". So it proved. US non farm payrolls increased by 320,000 in December. The Fed assured, they would be patient with policy hikes in the year ahead. Hopes are rising of a trade deal with China this month. The Dow jumped 750 points. Nasdaq composite was up 275 points a gain of 4.3%. Fears of recession should evaporate as traders move back into market. Following growth of around 3% this year in the USA, we would expect momentum to be maintained into 2019. In the UK our mid case scenario would be growth of around 1.5% with inflation, borrowing, earnings and employment held at around similar levels to 2018. No need for panic, no real cause for concern ... but then there is Brexit ... oh yes Brexit ... That's all for this week, have a great week-end. We will be back with more news and updates all too soon! John  Strong UK Data in the UK ...
It was a week of strong economic data in the UK, which should have cheered markets. Headline inflation fell to 2.3% in November from 2.4% prior month. Producer prices fell as input costs slowed to 5.6% from 10.3%. Oil prices came under further pressure with Brent crude closing at $54 dollar a barrel. WTI was down below the critical $50 level at $45 dollars reducing pressure on prices across the globe. In the UK, inflation is falling (2.3%) as earning are rising (3.3%). The Bank Of England held rates in November. Real Earnings are rising with no threat to jobs or mortgage rates in the short term. Despite warning sounds from retail last week and stories of the "November Apocalyse" which will "Dash Retailers to Pieces", official data revealed retail sales were up by 5% in the month. Sales volumes were up by 3.6%, values were up by 5%. Online sales were up by 13% accounting for almost 22% of total transactions. It is the pattern of spending which is creating problems for retail, not the absolute level of spend. We expect a strong December to finish off the year. Retailers without a strong multi channel strategy may well be finished off. Strong spending is assisting the Chancellor of the Exchequer. Government borrowing fell to £7.2 billion in November, from £8.1 billion prior year. It was the lowest level of November borrowing for 14 years. Year to date borrowing was £32.8 billion down by 30% from prior year. Borrowing will fall to below £30 billion in the financial year, achieving a similar level next year. Official data confirmed growth was up by 1.5% in the third quarter, from 1.3% in the first half of the year. Household spending was up by 1.8%, government spending and investment fell. We expect growth of 1.4% this year and around 1.5% in 2019. "Fed Hikes Rates ..." US markets crashed again last week. The Dow and S&P fell by 7%. NASDAQ fell by over 8%. The 6,000 support level came under threat, the August high of 7,660 long forgotten. NASDAQ delivered a twenty per cent drop in the quarter. Ouch! Markets over reacted to the Fed rate hike. The 25 basis points rise an indicator of strong growth and earnings potential in the U.S.A. The hike should have led to a recovery in prices, contrarians take position as prices tumble. Fed Chair Jerome Powell lowered growth expectations for 2019 to around 2.3%, from 3% this year. Two further interest rate increases are now plotted in for the year ahead. Markets and the President were displeased. Trump has discussed with close allies the possibility of sacking the Chairman of the Fed. Let's hope not. The resignation of Mad Dog Mattis was a sufficient blow to White House credibility this week. "Mad Dog Mattis ... Resigns ..." John Kelly, now Mad Dog Mattis; the President has lost his Chief of Staff and now his Secretary of Defence in just a couple of weeks. The President decided to pull troops out of Syria and Afghanistan following a phone call with President Erdogan of Turkey. For Defence Secretary James Mattis this was all too much. He will resign at the end of February, sending a note to the President in which he made it clear, The President deserved a Secretary "whose views are better aligned with your own." The Mattis announcement came a day after the White revealed the U.S. would be withdrawing troops from Syria and halving the troop commitment in Afghanistan. Both moves have been met with opposition from the Pentagon and with members of the foreign policy establishment. The President is taking a wrecking ball to the pillars of foreign policy honed over the past seventy years. The threat to NATO is unacceptable to many, the apologist approach to the Kremlin, too much and too soon. "We must do everything possible to advance an international order that is most conducive to our security, prosperity and values." Mattis explained, "We are strengthened in this effort by the solidarity of our [traditional] alliances." The President continues to take briefings from Fox News and Foreign Presidents, ignoring the advice of Cabinet and Key institutions in the USA. This week sees a partial shut down of Federal Government faced with Trump obstinacy over funding for the wall. Here's hoping for a partial shut down in the White House and a rounding of opinion in the Oval Office in the year ahead! That's all for this week, have a great week-end. Have a great Christmas and New Year. I wish you and your families all the best for the holiday and the year ahead. We will be taking a short break from economics and markets! A chance to think about our plans for 2019. John  I wandered lonely as a cloud ... just don't call me nebulous ...
Theresa May was back in Brussels this week, a modification to the Northern Ireland back stop sought. A sort of boundary to the back stop within an oval of consensus, outlined by a legal framework to be confirmed within a timescale as yet to be determined. Agreement was close but in the end denied. Jean-Claude Juncker was hand-bagged by the Prime Minister at breakfast. You called me "nebulous and imprecise" an outraged Prime Minister accused. I want to make this clear I am not nebulous (nor imprecise for that matter). A sheepish Juncker denied all. "I did not, I did not", the President of the European Commission cowered. "It was late at night and I had a few scoops", would have been an honest response. "Nébuleuse and Imprécis" the actual wording. Donald Tusk and others had seized the microphone before too much damage could be done. All too late, for want of a few, the deal was lost. The Prime Minister returned to London empty handed, full of hope, in a state of denial. The key vote promised last Tuesday, had been pulled at the last moment. Jacob Rees-Mogg and his turncoats of many colors were frustrated. In a fit of pique without strategy, the misnomered European Research Group submitted the 48 letters required to call the no-confidence vote. The renegades expected a drawn out debacle over days on main media. Instead, it was all over in 24 hours. Two suspended MPs were returned to the whip. Sext messages to barmaids overlooked in a time of crisis. The PM secured 200 votes to beat off the challenge to leadership.117 votes against, a clear democratic signal the Prime Minister should resign claimed the Mogg. A clear message to go on, claimed the Prime Minister, agreeing to step down as party leader before the next election as a sop to dissident remainers, So what happens next? Christmas first, then a possible vote on the May deal in the New Year. Just one vote, that's all it takes as we explained last week. No deal an option, an extension of the March deadline probable. A second referendum now in the running. Multiple choice for the electorate or simple in or out deal the first question. Or a general election ... there's always the chance of a general election. Business is in despair for lack of clarification as to what happens next. Labour remains silent watching with glee as the Tories tear themselves apart over Europe again. So what happens next, I have no idea. I want to make it clear I am not "nebulous" just totally confused about how we got into this mess ... Christmas Fears for Retail ... It is the season of good will and warnings of dire Christmas sales in the days ahead. Mike Ashley issued a warning to retail, Christmas shopping has been so bad it will literally dash them to pieces. November trading was the worst on record. Retailers cannot take that kind of November. Don't panic. John Lewis had warned of sluggish sales, Superdry issued a second profit warning in two months. Primark cautioned of sluggish trading conditions as fewer shoppers visited stores. Mike Ashley was so concerned about Debenhams, he offered a £40 million loan to see them through the winter crisis. Conditions attached to philanthropy, the loan would see the Sports Direct share stake increased to 40% and a potential merger with House of Fraser one step closer. Consumers are worried about Brexit the apparent story but is this really the case? With two week-ends of full trading before the 25th of December, there is still plenty of time to ring the tills ahead of New Year trials. This year Christmas is late! Lot's of time for sales and traffic to perk up before the end of year. Earnings on the rise ... ? The latest jobs data confirms employment remains high, unemployment is low and earnings are rising. Whole economy earnings were up by 3.3% in the three months to October. The 3% hurdle rate long anticipated, jobs compression is finally delivering the rise in pay we all expected. Private sector pay was up 3.4%. Public sector pay increased by 2.7%, (up from 1.7% in the same period last year). Construction pay was up by 3.5%, leisure sector pay was up by 3.6%. Vacancies increased to 850,000 with just 1.4 million unemployed. Recruitment difficulties most apparent in hotels, restauraunts, health and social work, the very sectors under challenge from government immigration policy. Real earnings are increasing as pay accelerates. In the month of October, whole economy earnings were up by 3.9%. Private sector pay was up by 4.2%. Pay should offset any Brexit concerns in the short term. The paradox will be presented to the Bank of England. The economy is expected to grow by just 1.4% this year. Inflation remains subdued. Earnings increasing towards the 3.5% threshold would normally force the MPC to act. Uncertainty over Brexit will forestall any increase in the short term, all eyes on what happens next when parliament returns in the New Year ... "Roll Up ... Pay Up ..." "Don't ring John Kelly" our headline last week. This week, President Trump confirmed Kelly is out. Budget director Mick Mulvaney will become acting White House Chief of Staff. Acting Chief of Staff, the President wants to remain some form of flexibility, according to White House Press Secretary Sarah Saunders. The President's first choice and several others had turned down the role. It all made for a difficult week for the White House. Michael Cohen former counsel to the Donald Trump was jailed for three years. "My weakness was a blind loyalty to Trump and a sense of duty to cover up his dirty deeds." According to Mr Cohen's lawyer, his client had the "misfortune" of being the president's personal lawyer, business partner and all-around fixer for more than a decade. When investigators began digging into his actions, they uncovered a variety of chargeable crimes. The President appears to be complicit in the crimes. Present in the room when payments were agreed to Stormy Daniels and others. Now concerns are expressed about the President's inauguration fund. President Donald Trump's inaugural committee is under criminal investigation by federal prosecutors in Manhattan for misspending some of the $107 million it raised from donations. Much of the funds were paid over to Trump businesses allegedly. The investigation, which is reportedly in its early stages, is also looking into whether some of the committee's top donors gave money to gain access to the incoming Trump administration. This would be a violation of anti-corruption laws. It will also make for a great story into 2019! That's all for this week, have a great week-end. Don't Miss Our Monday Morning Markets ... we expand further on market moves ... and assess the fortunes of our "Empires of the Cloud" tech fund ... John  Just a few days to go before the critical vote in parliament. Theresa May's Brexit deal will be put to the Westminster elite on Tuesday. Junior ministers were sent out on a roadshow this week. The objective? To convince the party faithful of the merits of the deal. Time well spent? Not really.
A survey of 1,262 Tory members taken on Thursday, suggests 72 per cent reject the deal. They would like their MPs to do the same. Just 26% are in favour. It doesn't look good. Worse still, 62% think the Prime Minister should resign if the vote goes ahead and the deal is lost. Time and effort would have been better spent dealing with Tory dissidents and the DUP perhaps. MPs have been surprised by the lack-lustre effort of the whips in the house. Perhaps their hearts are not really in it. Graham Brady, Chair of the Back Bench committee tried to persuade the government to postpone the vote on Tuesday. A crushing defeat is the likely outcome. The government is committed to the timeline, warning of chaos at the ports and rationing of medicines if a hard Brexit ensues. The deficit could be as many as one hundred votes against, as Tory Brexiteers and Remainers unite with the DUP. A heavy defeat could lead to an end to May as Prime Minister, an end to the Tory government, a general election and the option of a Corbyn administration in power. Or we might even see a second referendum as MPs seek guidance and direction for the next big move, MPs are already hatching a plan, to dump May if the vote is lost this week. Labour will join with Tory dissidents and the DUP to bring about a vote of no confidence. Boris Johnson, may yet have another tilt at the Downing Street Windmill. Just one vote, that's all it takes ... rivals will get chance to sip from the poisoned chalice. The challenge ... to unite the Conservative party on Europe ... well good luck with that ... House Prices Falling ... ? House prices increased by 0.3% in the year to November according to the Halifax Building Society. Russell Galley, Managing Director, explained, "Although this is the lowest rate for six years, the outcome is within the expected 0% to 3% band for the year as a whole." Should we worry about the housing market? Not really. As earnings rise and house inflation slows, affordability is increasing. High employment, wage growth and low interest rates continue to underpin the market. In the three months to October, house sales were up by 2.4%. Mortgage approvals increased by the highest level since the start of the year. According to Nationwide, house prices increased by 1.9% up from 1.6% in October. Expectations remain of further growth in activity and prices next year. Concerns over Brexit cast aside for the moment. No need to worry about the 30% drop conditioned into the Bank of England stress test at all. Car Sales Falling ... ? Car sales last month were down by 3% on prior year. For the year as a whole, registrations were down by 7%. We expect total registrations to fall to 2.37 million from 2.54 million last year. Diesel remains the big story. Diesel sales were down by 30% in the first eleven months of the year. Petrol sales were up by 9% and alternative fuel vehicles were up by 22% taking a 6% market share. This year was not really about economics, it was the story of a market in transition. As Mike Hawes Chief Exec of the SMMT explained, "Model and regulatory changes conspired to affect supply and demand in 2018. The good news is that, as supply constraints ease, and new exciting models come on sale in the months ahead, buyers can look forward to a wide choice of cutting-edge petrol, diesel and electrified cars." "It’s now critical that a Brexit deal is secured to boost consumer confidence and provide a stimulus to the new car market as we enter the New Year." A yes Brexit, just one vote, that's all it takes to boost confidence in the car market. And what of growth ... ? We normally follow the market in housing and motors to understand the direction of travel and momentum for the economy as a whole. Despite the fears over Brexit, the UK is expected to grow by 1.4% this year and next. In the EU, the latest data suggests growth of 2% in 2018 and a similar level in the following year. In Poland and parts of Eastern Europe the EU will grow by an average 5% this year and next. In Ireland the economy is expected to grow by almost 10%! That's better than any BRIC and we know how to trade there. Lots of growth in our biggest trading block. Just one vote to remain in the customs union and the Free Trade Area ... you know it makes sense ... "Stop calling John Kelly ..." Market turmoil continued this week. The Dow fell by over 500 points wiping out gains for the year. Apparently, Trump is beginning to think he could be part of the problem! According to a CNBC report this week, Trump is glued to the television and the stock market fluctuations. He is asking advisors if the tariffs he has been imposing on China may have contributed to market unrest over the last two months. Imagine! The self described "Tariff Man" could be having second thoughts about his trade policy, if indeed there is such a thing. Someone should explain, arresting a senior exec from Huawei on the Canadian border, won't ease relations with Shanghai. Rex Tillerson former Secretary of State, explained life in the White House was difficult, “It was challenging for me coming from the disciplined, highly process-oriented Exxon Mobil Corporation to go to work for a man who is pretty undisciplined, doesn’t like to read, doesn’t read briefing reports, doesn’t like to get into the details of a lot of things, but rather just kind of says, ‘Look, this is what I believe,’” Tillerson explained in a discussion with Bob Schieffer of CBS News. "Trump would get frustrated when he could do something which was illegal!" It had never stopped him before, as the Mueller investigation will expose. Trump took it all in his stride "“Mike Pompeo is doing a great job, I am very proud of him,” Mr. Trump wrote on Friday afternoon, referring to the current secretary. “His predecessor, Rex Tillerson, didn’t have the mental capacity needed. He was dumb as a rock and I couldn’t get rid of him fast enough. He was lazy as hell." Dumb as a rock and lazy as hell! It was time for the Exxon exec to exit. Soon too the time for John Kelly to move on. He probably won't make it to carol singing in the Oval Office this year. "Stop Calling John" the President instructed staff this week. An ominous line! He has already lined up his successor. Nick Ayres, the Mike Pence top aide is the likely replacement. The Mueller investigation is closing in. The latest revelations, show that nobody can save Trump. Meanwhile the trade deficit is increasing, inflation is set to rise, the fiscal deficit is rising to $1 trillion dollars. The overall debt is set to increase over 100% of GDP. The White House is not concerned. "It will only become a big problem, long after I have left the White House", the President explains. It could be sooner than you think! That's all for this week, have a great week-end. Don't Miss Our Monday Morning Markets ... we expand further on market moves ... and assess the fortunes of our "Empires of the Cloud" tech fund ... John |
The Saturday EconomistAuthorJohn Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy. Archives
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.
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