 Hopes for Brexit Deal Rise ...
Markets rallied, the Pound soared, as hopes for a Brexit deal seemed possible at close of the week. A wave of optimism pushed the FTSE 250 up 500 points, Sterling closed above the $1.26 level from $1.23 last week. Britain and the EU have agreed to intensify discussions and to enter the "tunnel of talks" that may lead to a solution. The alleged progress followed a meeting with Boris Johnson and Leo Varadkar, the Irish Prime Minister on Thursday. The meeting was held at Thornton Manor in Cheshire, described as a "luxury wedding venue". Love was in the air and fudge was on the menu. Boris Johnson has resurrected plans drawn up by Theresa May for a customs partnership between the UK and the EU. "Northern Ireland, effectively stays in the EU's customs union but for the purposes of trade it's the UK's customs union". Under the plan Britain would collect tariffs on behalf of the EU for goods ending up in Northern Ireland but companies could claim rebates on goods sold on into the EU area including Ireland. Furthermore, Northern Ireland will be able to take "full advantage" of new trade deals Britain signs after it leaves the EU trade bloc." Don't throw the confetti just yet. No thought of the rules of origin, or the contradiction of an inside/out agreement. Not much can have been achieved in the two hour meeting. The EU and the UK have agreed to intensify discussions over the coming days ... and months and years ... As for the Sterling rally, the move through heavy overhead resistance at $1.25 was a bear squeeze leaving the shorts struggling for cover. By start of week, the honeymoon will be over for travelers in the tunnel of love. Travelers to the EU and beyond should expect to pay more ... Hopes For Trade Deal Rise ... In the USA hopes for a trade deal were on the rise as President Trump met with top trade official Vice Premier Liu He. The US and China struck a tentative "Phase One" deal. China will commit to buy up to $50 billion more of Agricultural products, the planned increase in tariffs on Chinese imports next week, have been put on hold. Additional agreements were reached on intellectual property protection and financial services. Trump was optimistic. Advising U.S. farmers to buy bigger tractors. "There is nothing bigger than what we are doing with China" "There has been friction between the two sides but now it's a love fest, we will have a great deal that is beyond tariffs." China Daily welcomed the move, creating as it does a "badly needed breathing space for both sides to reflect on the bigger picture". Some were more cautious. Trump can be fickle. The Chinese had done nothing to assist the Normandy landings. A cruel test of loyalty in White House world of foreign relations, to which the Kurds can attest. The mini deal brings relief to farmers but offers no long term solutions. American businesses and consumers continue to pay billions of dollars more for imported goods. The uncertainty persists as agents lobby for product exclusions from the random product list. Trump talked of a comprehensive deal but achieved a tiny truce and declared victory. Markets rallied but surrendered gains, the Dow closed 320 points higher from an initial 500 point romp. Trump's trade tactics are threatening the jobs of those who voted for him. World leaders are warning of a slow down which could spread from trade and manufacturing into financial and service sectors. The Federal Reserve moved into action, with a commitment to buy $60 billion of Treasury Bills over the next thirty days. The purchases will continue into the second quarter of 2020. "This is not QE " explained the Fed, "It is a move designed to improve short term liquidity conditions". The Fed is worried about White House policies. In the USA there is no recession coming, the Federal Reserve will make sure of that ... Hopes For Impeachment Rise ... How likely is it Trump will be on the ballot in 2020? Jennifer Rubin writing in the Washington Post this week asks the question. It has been a tough week for the President. The impeachment enquiry is accelerating. More whistles are heard in Washington. The revelation of deep state concerns on Trump's calls with foreign leaders increase. The courts have ordered the release of Trump's tax returns. The latest Fox news poll has approval ratings deep in the red. 55% disapprove, 47% disapprove strongly. Among female voters 56% disapprove strongly. This week we learned Trump ordered the withholding of aid to the Ukraine in exchange for help to dig the dirt on Joe BIden and Son. In this Trump could see nothing wrong, he had asked many other countries for similar help including Australia, the UK and China. In the House Trump would fall to the impeachment debate. The Democrat majority will suffice. In the Senate, a two thirds majority is required. The Republicans, it is thought, will stand behind their man. Really? This week GOP support was tested as the President made a brief call with President Erdogan and agreed to pull U.S. troops out of Syria. Overnight the tanks rolled into Kurdistan. The U.S. abandoned a close ally. Trump explained the Kurds had done little to assist the US in the second world war. They had not been present at the Normandy landings. No landing craft in land locked Kurdistan was no excuse. Senators on both sides of the Senate were outraged by a clear betrayal. Trump was unbowed. He had made a commitment to bring the troops home. 50 special forces troops left the Syrian battle zone. "Moving into the Middle East was the worst decision we ever made", Trump tweeted on Thursday. By the end of the week, 2000 were on their way to Saudi Arabia ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John
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 The WTO slashed the growth forecasts for world trade this year to just 1.2%. In April, growth of just under 3% had been expected. Trade tariffs and business uncertainty led to a significant reduction in estimates in the latest update.
A "high degree of uncertainty" surrounding trade policy had led to a significant slow down in the first half of the year. The lack of progress in trade talks with China, is now yielding to the challenge of increasing tensions between Europe and the USA. The ruling by the WTO, to award punitive tariffs of some $7.5 billion dollars to the US, as a result of the subsidies paid to the Airbus launch, won't help. Boeing had paid the price of EU support, now whisky, wine and olive oil could bear the burden of a price hike by way of redress. American consumers will once again pay the price of myopic moves by the Trump administration. The EU is advocating moderation for the moment. The WTO will rule on a counterclaim against Boeing in the months ahead. In the UK, the latest survey from the British Chamber of Commerce confirms exports are sliding as Brexit uncertainty increases. Factory exports fell in the last quarter to the lowest for a "decade". Manufacturing has been affected by the continuing uncertainty of just what will happen next. The latest proposals from the Johnson administration will not help. According to the latest deal, Northern Ireland is to remain inside the free trade area but outside of the customs union. A hard board is avoided, the Irish Sea will carry the tide for goods. On the Island of Ireland an invisible border will be created using new technology in which Artificial Intelligence will play a role no doubt. No thought of rules of origin. The "deal" is a lexicon of keywords, assembled without thought or order. The EU may smile politely, the Stormont veto, enough to kill off the deal. We are leaving in less than four weeks according to the Prime Minister. Not according to the courts if the "Surrender Bill" is to be honored. The uncertainty grows and recession fears increase ... UK Recession fears grow ... This is the week in which markets brace for the latest release from the IHS Markit CIPS surveys. Manufacturing output fell for the fifth month in a row according to the latest data. The last time U.K. factories recorded five months of decline was in 2009 at the height of the financial crisis. A global slowdown, trade tensions and uncertainty over Brexit were widely blamed for the set back. In similar data for the EU area, manufacturing output contracted at the steepest rate for seven years. Output in Germany was badly affected by the slow down. Then came the construction data. UK construction is stuck in a "devastating downturn" according to the headlines. Output fell in September. The sector experienced one of the fastest declines in activity in more than a decade. A relentless six month decline in order books has resulted from Brexit uncertainty and political indecision, the explanation. So what of the service sector? Services accounting for 80% of UK output, also fell in September. The index fell to 49.5, down from 50.6 in August. Markets had expected a slow down in the month but had expected output to remain above the critical 50 point level. The latest index data signalled a cut in activity and the biggest reduction in employment in over nine years. The "All Sector Index" fell to 48.8 in the month from 49.7 in August. Fears are growing, the UK could be headed for recession in the face of continued Brexit uncertainty. The Bank indicated this week it would be prepared to act to cut rates if need be, too maintain confidence in the economy. The Bank should be slow to act. More data is required before the MPC should make a move. The latest ONS data confirms the economy grew by 1.6% in the first half of the year. We still expect growth of around 1.2% for the year as a whole. The economy would experience a significant rebound if the Brexit uncertainty was lifted. Of this there would appear to be little prospect in the weeks ahead ... but for the moment, do not be too alarmed by the survey data. U.S. Recession fears ease ... In the U.S. markets were hit on news of a manufacturing set back around the world. The US data was mixed. The U.S. manufacturing PMI increased in September to a five month high. The improvement was a modest, "slight " improvement. Expansion in production and new orders was of limited dimension. Business confidence remained gloomy due to muted demand conditions. The index posted 51.1 in September, up from 50.3 in August. So why so gloomy? Any reading over 50 indicates continued positive growth. Markets fell on the news. The Dow lost 1,000 points in the mood swing, closing at 26,000 mid week. The S&P and Nasdaq closed 3% lower as the bears squeezed. Then came the jobs data on Friday. 136,000 jobs were added to the payroll in September. The unemployment rate fell to 3.5%. Unemployment in the US has fallen to the lowest levels in 50 years. The economy is not broken. There is no recession in sight. The Fed is not expected to make a move this year. Markets rallied from mid week lows. The continued expansion in the economy continues to make the drag on trade. The trade deficit in goods increased to $74 billion in August. The deficit will hit $1 trillion dollars this year despite the Trump tariff policy. The White House now faces a full impeachment process. The President considers this to be a coup ... "As I learn more and more each day, I am coming to the conclusion that what is taking place is not an impeachment, it is a COUP, intended to take away the Power of the People, their VOTE, their Freedoms, their Second Amendment, Religion, Military, Border Wall, and their God-given rights as a Citizen of The United States of America!" Well at least he is learning on the job ... That's all for this week, have a great weekend. We will be back with more news and updates next week!  World Growth is Deflating ...
Should you be planning for the next recession? This was the theme of our Quarterly Economics Presentation in association with Brabners this week. This is the event hosted in Manchester and Liverpool in which 200 slides flash by in just 40 minutes. No wonder heads spin, as we cover the world economy and the UK in some detail. The audience warmed to the cheery theme. The world is not heading for recession as we might traditionally think of such. Central banks will not be prone to act to curb excess in the economy. We normally think of excess demand leading to rampant inflation and a soaring trade deficit, or we may think of financial shocks related to irrational exuberance in equity or debt markets. Not this time, or not yet at least. There are major problems ahead for the US economy and the twin deficit dilemma in the medium term. There will be problems generated by the price bubbles created in the sovereign debt market, which will affect the Dollar and the financial markets around the world at some stage. For the moment the world economy is not facing a sudden shock to the economy. The world economy is facing an insidious slow down in growth and trade, as a result of the uncertainty generated by Trump and Tariffs, Boris and Brexit. Central banks pushing rates to the zero bound and beyond will be powerless to act. Central governments will be limited in their capacity to introduce fiscal expansion. In the US. an economy which should be growing at 3% this year, is now penciled in for growth of around 2.3%. Forecasts for growth in China, Japan, and the EU are lowered, as world trade growth slows and manufacturing output growth is damaged. India, Australia, Singapore, Taiwan all face a reduction in growth forecasts for this year and next. This week, the U.N warned of a serious of global recession. When China addressed the UN global assembly the message was stark ... "The lessons of the Great Depression should not be forgotten. Tariffs and provocations of trade disputes, which upset global industrial and supply chains, serve to undermine the multilateral trading regime and global economic and trade order. They may even plunge the world into recession." So should we be planning for the next recession? Not just yet. Future fortunes will be determined by what happens next in the White House ... Impeachment looms ... Impeachment is coming for the President. The trigger will be the telephone conversation with President Zelensky of the Ukraine. No sooner had Trump put down the receiver in the White House residence, alarm bells were ringing among the dozen or so officials monitoring the call. Officials listened in with growing dread. The President was rambling and off script. Trump asked Zelensky for a favor. A simple request to dig up some dirt on Joe Biden and family in exchange for military aid. For Trump this was neither unusual or abnormal. For others, including Nancy Pelosi, this was a clear abuse of privilege. Officials in the White House tried to "bury" the transcripts. Trump had them released and admitted he had sought some information on Biden and had suspended military aid, to pressure the President of the Ukraine into action. So what's wrong with that? The matter had come to light via a whistle blower within the camp. A CIA plant, an expert on Ukraine had revealed the content of conversations. Nancy Pelosi, the Democratic Speaker of the House was forced to act. The calls for impeachment in Congress could no longer be ignored.The impeachment process has begun. For Trump, "I had a simple and very nice call with the new President of the Ukraine, it could not have been better or more honorable. It was very legal and very good. It was a perfect conversation with Ukraine President". Of course it was. Now comes the process of diversion and confusion. The Republican surrogates have been unleashed. The Trump Twitter storm continues. Trump is cornered. Anthony "The Mooch" Scaramucci has warned in the end Trump will turn on everyone, even the American people to secure his position. At close of week, came the hints, the administration is considering a ban on dollar investments in China and a ban on US listings of Chinese companies, including Alibaba, Baidu and JD. com. Compulsory de-listing could affect over 150 companies with a combined market cap of $1.2 trillion dollars. Markets trembled on the news as the focus moves away from an innocent phone call with a President of a place far away from Washington ... UK Borrowing Plans Up in the air ... Good news for the Chancellor this week. Borrowing fell in the month August by £0.5 billion compared to prior year. Not so good really, revisions to the data added nearly £20 billion to the borrowing requirement as a result of changes to the treatment of student loans and public sector pensions. Borrowing for the year as a whole is now likely to be over £50 billion. Borrowing plans are in the air as debt is set to exceed the 2% GDP target. The spending plans for the new administration will push debt levels to over £70 billion in the short term. That's assuming Boris Johnson remains in office. The Prime Minister lost a further vote in the House this week. There will be no parliamentary recess to accommodate the Conservative party conference. Members of Parliament are miffed about prorogation and Johnson's parlance. Talk of the "Surrender Bill" and "Betrayal of the People" is not helping the Prime Minister's popularity campaign. It is unlikely a deal will be secured with the EU, the government will be obliged to ask for an extension into the New Year. A party of national unity may emerge to effect the transition. Jeremy Corbyn has indicated he would be prepared to step aside. Ken Clarke is the bookies favorite to assume the role of leader. Boris Johnson has become embroiled in a scandal of his own this week. Impeachment may well follow. There is nothing in an unwritten constitution to prevent that ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John  The Prime Minister was in Luxembourg this week. Promising to free Britain from the shackles of Europe, Johnson invoked the persona of Bruce Banner. "The Madder Hulk Gets, the Stronger Hulk Gets" explained the PM.
The prospect of a mad man in negotiations with Europe presented nothing new for EU leaders. For Boris Johnson, it's about as green as the new administration will get in pursuit of an eco friendly agenda. Sadly, the "Incredible Hulk" turned into the "Invisible Man". Johnson walked away from a planned press conference with the Grand Duchy Premier Xavier Bettel. A small but vociferous group of anti Brexit protestors was enough to put off the Hulk. "I wanted to move inside but the others would not agree", explained the PM. On such small things will the bigger issues founder. Time is ticking with no real solutions in sight. In economic news this week, inflation slowed in August to 1.7% from 2.1% prior month. Goods inflation fell to just 1.3% assisted by falls in clothing and footwear prices. Producer prices were equally muted, output prices fell to 1.6%. The Bank of England decided to hold rates this week at 0.75%. Concerns about the trade war with China and uncertainties about Brexit continue. In the event of an EU deal, the next move for U.K. rates will be up "at a gradual pace and to a limited extent". No Guts, No Vision ... In the U.S. the fed cut rates by 25 basis points this week. Despite headlines, that U.S.Indicators are trouncing forecasts. The Bloomberg Economic Surprise Index reached an 11 month high this month after four indicators released on Thursday including home sales and jobless claims surpassed expectations. The U.S. fundamentals remain strong. Uncertainty as a result of the Trump tariffs and trade wars is a cause for concern among FOMC members. Trump attacked the decision "No Guts, No Vision" the criticism. Jay Powell and the Boneheads resisted the opportunity to slash rates to zero, enabling the economy to soar like a rocket, until November 2020 at least. The President has one eye on the economic barometer and another on the poll results which are not moving higher in his favor. Seven of the ten officials voted for the cut, two opposed the move. One voted for a larger move of around 50 basis points. Either way the Fed made it clear no further reductions were expected this year. The next move for rates will be to the upside, assuming the trade war with China does not impact further on growth this year. The OECD warned this week of the impact of trade wars and tariffs on production and growth around the world. U.S. growth forecasts have been cut to 2.3% this year and 1.8% in 2020. The economy should have been expanding at 3% plus this year and next but for the havoc the Trump trade myopia presents. Headline articles in the Guardian this week included "Trump is seriously, frighteningly, dangerously unstable and the world is in danger ..." We include this in our series on The Economic Consequences of Mr Trump Chapter 1 Inside the mind of the President, it is becoming a chilling read ... Trade war enters new phase ... The trade wars entered a new phase this week. The President was under fire from whistle blower leaks. Trump had offered favors to Ukraine in exchange for dishing the dirt on Joe Biden's son. The Ukrainians were awaiting a decision on a multi million dollar aid package. Trump explained to President Volodymyr Zelensky the country could "improve it's image", if it concluded the investigation of certain corruption cases. Notably the investigation of a certain Ukraine energy tycoon. Joe Biden's son was on the board of one of his companies. Giuliani, Trump's personal lawyer, met with an aide to the Ukrainian President to thrash out the details. Asked if he had discussed Biden on his call with Zelensky in July, Trump told reporters, "It doesn't matter what I discussed, someone ought to look into Joe Biden". National security experts confirmed Trump's pressure on Ukraine was highly inappropriate. The Washington Post suggested Trump has done much to warrant impeachment but the Ukraine conversations are over the top, even for the President. Trump needed a distraction and ramped up the rhetoric with China. "Obviously, China is a threat to the world, because they are building a military faster than anybody. I view China in may different ways, but right now I am thinking about trade. And you know trade equals military." Last week trade tensions were easing, stock markets rallied. This week trade tensions increased and markets fell. Trump claimed to be in no rush to complete a deal before the election in 2020. The Chinese made note and packed up early leaving for home. A scheduled visit to the farmlands of Montana and Nebraska was abruptly cancelled. "We didn't even get to know what they wanted to discuss" said Scott Kulbeck, director of the Montana Farm Bureau. Should we be worried? Trump insisted he continues to have fond feelings for China’s leader, Xi Jinping. “My relationship with President Xi is a very amazing one, a very good one,” he said. “But we have right now a little spat.” Yep a little spat which if left unchecked could push the world into recession. When Peter Navarro, Trump's adviser on trade and manufacturing, penned "Death by China" he failed to include the Chapter on mutually assured destruction, as a result of his policy response. That's all for this week, have a great weekend. We will be back with more news and updates next week! John If you haven't done so already sign up or our Guild Messaging Group, It's FREE ... Only there can you get the latest on "The Economic Consequences of M Trump" - Chapter 1 Inside the Mind of the President, Episode 4 "The President is seriously nuts" ... Out Now ...  Sterling hit a two month high this week. The Pound closed at $1.2464 against the dollar and €1.1255 against the Euro. Much work will be required if strong overhead resistance at $1.25 is to be overcome in the near term.
Markets were encouraged by the prospects of a Brexit deal secured by a Prime Minister on serious charm offensive in the North of England during the week. Johnson has picked up the Northern Powerhouse mantle, promising a train set fit for purpose and the prospects of a bridge to Northern Ireland. Once again a "Bridge Too Far", albeit secured at a fraction of the cost of HS2. The latest news on the U.K. economy presented a mixed bag. Manufacturing fell in the latest figures to July. Construction growth disappointed, as service sector growth slowed. We expect the economy to grow by 1.2% year on year in the third quarter, following growth of 1.5% in the first half of the year. The good news, unemployment continued to fall as modest growth continued. Fears of recession were pushed aside, despite the drop in the number of vacancies in the economy. The bright spot in the data was undoubtedly earnings. The genie is out of the bottle. Earnings increased by 4.2% in the month of July. Service sector earnings increased by 4.4%. Financial sector earnings were up by over 5% and construction pay rates increased by 7%. The rate of growth in earnings will limit the capacity of the Bank of England to cut rates for the rest of the year. The Prime Minister is determined to detach the UK from the EU by the end of October. The pressure is on to secure a deal which is palatable within parliament and acceptable to the Tory election base with just thirty days available to secure sign off ... A Trade War Fears Ease ... Trump shocked close advisors this week. The President announced that Martians had landed at Camp David on Monday in a search for higher intelligence. A Presidential mind probe proved disappointing. The visitors left the following day, taking National Security Adviser John Bolton with them as a peace gesture to the rest of the world. The President explained, "John had told me in the evening that he wanted to resign, I asked him to wait until morning and he was whisked away at dawn." "I know him very well. The problem with Bolton he just wanted to nuke people. I just want to write beautiful letters and invite the Taleban to barbecues at the ranch". Peace is in the air. The President is anxious to get the troops out of Afghanistan and relocate them to his luxury resort at Turnberry at the earliest opportunity. Several exploratory visits have already been made with refueling contracts secured at Prestwick. The President talks of a third term for the dynasty but really dreads a one term tag. Talks with the Taleban, sanctions eased with Tehran, a blind eye to missile launches in North Korea anything to secure the elusive Nobel peace prize. The economy is slowing at home as government borrowing soared to over $1 trillion dollars in the first eleven months of the financial year. Fears of recession are growing as prices rise and manufacturing output and investment falls. This week, the iconic U.S. tennis ball manufacturer Head Penn Sports Group complained about the indiscriminate nature of tariffs. U.S. owned Penn was established in 1910. Five years ago production was relocated to China. The company now faces a 15% tariff on imports. Penn's principal competitor is Wilson. The company is owned by a Chinese consortium which manufactures in Thailand. The Chinese owned Wilson escapes the punitive Trump tariff and secures a significant competitive advantage in the process. Neat. Trump needs a deal with China to avoid a crushing defeat in the election next year. A delay to the next round of tariff hikes was announced this week as a gesture of "good will". Beijing responded by agreeing to suspend tariff actions on certain agricultural products including soybeans. Markets responded pushing the S&P index above 3000. Ten year gilt yields rallied to 1.83%. Recession fears are overblown. John Bolton has left the Trump orbit. The hawks are losing traction. Peter Navarro, the great architect of Sinophobia, may be the next to leave the camp. Trump needs a deal with China, the trade policy is no longer a vote winner as reality dawns on farmers and blue collar workers alike ... ECB Cuts Rates ... Extends Bond Buying ... In Europe, Mario Draghi announced a rate cut of 10 basis points. The deposit rate was cut by 0.1% to a level of -0.5%. The ECB will begin a €20 million per month bond buying programme in November. Draghi warned the risks to growth are tilted to the downside. The ECB cut forecasts for EU growth this year from 1.2% to 1.1%. Growth forecasts for 2020 have been reduced to 1.2% from 1.4%. It is not clear how pushing on a string in the face of adverse trade winds will help the process. Euro markets closed higher. Ten year bond rates rallied to -0.45%. Almost $17 trillion dollars of bond stock, predominantly sovereign bonds in Japan and Europe, offer negative yield. Draghi has one more meeting before stepping down as President. Christine Lagarde has promised a review of policy on QE and negative rates upon taking office. Not all are convinced about negative rate policy. Mass-selling German newspaper Das Bild on Friday accused European Central Bank President Mario Draghi of "sucking dry" the bank accounts of Germany's savers. Trump was quick to criticize the move and the lack of response from the Fed .... “European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting US exports ,” he tweeted “The Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!” "It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’" Boneheads at the Fed , Trump has discovered "accents" on his keyboard. In this way progress is made ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John If you haven't done so already sign up or our Guild Messaging Group, It's FREE ... Only there can you get the latest on "The Economic Consequences of M Trump" - Chapter 1 Inside the Mind of the President, Episode 3 "Why Does Trump Admire Brutal Dictators" ... Out Now ...  A week in Westminster ...
Proceedings in the House achieved a new low this week. Boris Johnson accused Corbyn of being a "Big Girl's Blouse" and a "Chlorinated Chicken". David Cameron was described by the Prime Minister as a "Girly Swot". The "Mogg" was reprimanded for sprawling over the front benches in a contemptuous display of arrogance and self importance. It had been a tough week for Johnson. Oscar Wilde would be lost for words. To lose one vote is unfortunate. To lose three in two days is much more than carelessness. The Prime Minister lost his majority of one, when Tory MP, Phillip Lee crossed the house to join the Lib Dems. Neutered in Parliament, the administration decided on the full chop, sacking Tory Rebels including Phillip Hammond, Ken Clarke and Nicholas Soames. The majority of one was reduced to a deficit of forty three with a careless coup. So much for love-bombing opponents. Two chancellors, the father of the house and the grandson of Churchill were thrown out of the Conservative Party. The lights are going out all over Downing Street. Johnson is achieving the chaos in government in just three weeks, to which Theresa May could only aspire in three years. If Dominic Cummings has a playbook, it must be written in strange tongue. Forced to accept the decision of parliament to postpone the Halloween exit from the EU without a deal, the master stroke was to call for an election. Boris explained ... "I don't want an election, you don't want an election, he or she doesn't want an election" "We don't want an election. you (plural) don't want an election, they don't want an election". Amo, Amas, Amat , Amamus, Amati, Amant ... Johnson declined the verb, Corbyn declined the invitation. It was an invitation to jump into an elephant trap, covered by scant coverings of brushwood and a red flag. Somewhere in the Cummings playbook, there must be an outline of which way the votes would go in a rush to to the polls. Not everyone will play with the rules. The Prime Minister has explained he would rather be dead in a ditch, rather than ask for an extension from the EU. Resignation is not ruled out in the play book, thrown in jail for failing to follow the ruling of parliament must be in appendix two. The no deal option is now written into law. Johnson has a deadline to secure a deal by the middle of October. If no deal is secured, the exit is extended to January. The election no one wants may well take place before the end of the year. Sound and fury of the hustings, a result signifying nothing may ensue, a hung parliament beckons and off we will go again as the EU looks on ... A Decade of Renewal ... The Chancellor of the Exchequer announced his spending review this week. A decade of renewal is in the offing. More money for education, the police, defence and the health service, more money for local government including almost £2 billion for social care and welfare services. An extra £14 billion is on the table as the economy slows. Cynics may suggest this looks like a pre-election giveaway. To some it looks like a preparation for social unrest. More police on the streets, more money for water cannons, more money for riot shields and batons ... Sajid Javid has confirmed the results will follow the fiscal guidelines. Borrowing never to exceed more than 2% of GDP, total borrowing to continue to fall as a percentage of GDP. It may well be a challenging arithmetic. The economy is slowing. The latest surveys on manufacturing and construction are particularly pessimistic. Business confidence is flagging, stalling commitments to investment and job creation. The latest data on borrowing confirms borrowing in the first four months of the year was up by 60% compared to prior year. Government borrowing could be over £35 billion this year. Add in the budget for decades of renewal and the 2% target will be tested. The age of austerity is over as the decade of renewal begins. Decades of debt will follow. Expect to hear more of Modern Monetary Theory as the old fiscal guidelines are hung out to dry on the Magic Money Tree. MMT rules OK ... the beauty is there aren't any. Trump's trade war hits manufacturing ... Tough week for the President. Hurricanes hit the Bahamas, and Florida. The President played golf, then spent an inordinate amount of time explaining why he had been right all along to warn of the impending storm about to hit Alabama. The week had begun with the announcement of a further round of tariffs on goods from China. Products faced with a 10% tariff were to face a further hike of 5%. The President was furious and angry about Chinese retaliation. Trump had wanted to double the tariffs. Aides and advisors advised against the move. Further damage to stock market sentiment and the economy would ensue. It is now becoming pretty clear, the economy is slowing and Trump trade policy is to blame. The President has promised to revive the fortunes of the U.S manufacturing sector, bringing jobs back to his blue collar base. Latest data suggest manufacturing output is falling for the first time in three years. Job growth slowed to 130,000 in August. The unemployment held at 3.7%. The job data may well be revised up. No time to call recession yet despite the yelps from the yield curve. To the world it is becoming clear Trump tariff policy is damaging world trade and growth. The implications are widespread, not just confined to the U.S. and China. Growth in Australia and Singapore featured this week. Growth forecasts in Singapore are written to zero as trade with mainland China slows. In Germany the manufacturing sector is damaged by the double whammy of tariffs and Brexit. For Trump, it is clear the Federal Reserve is to blame. "Where did I find this guy, Jerome?" the President asked of Jerome Powell Chairman of the Federal Reserve, "Oh well, you can't win them all" the tweet. "You can't with them all but you can always blame others" the mantra of the 45th President of the United States. That's all for this week, have a great weekend. We will be back with more news and updates next week! John If you haven't done so already sign up or our Guild Messaging Group, It's FREE ... Only there can you get the latest on "The Economic Consequences of M Trump" - Chapter 1 Inside the Mind of the President, Episode 3 out next week. Don't miss that!  Best Buddies ... beset ... already
"It's a constitutional outrage" claimed Speaker Bercow, "An assault on democracy" claimed many. "Unfair that a 94 year old woman should have her Scottish holiday interrupted" stated Kay Burley in a series of tough questions to government ministers. Paul Mason was almost incandescent with rage on Newsnight, urging people too take to the streets in protest. It was left to Jacob Rees-Mogg to assuage concerns generated by the "candy floss of outrage" almost entirely "confected" by the last stand of remainers determined to thwart Brexit. It was the "Mogg" and other members of the Privy Council who had made the flight to Balmoral. The Queen had to approve the prorogation of Parliament, on the recommendation of her ministers. It must have been a long flight for a short meeting. The "Mogg" must have read up on his Bagehot the night before, along with a copy of "Jeeves and the King of Clubs", apparently. This is the one which involves Wodehouse’s fictional fascist group, the Black Shorts, seeking to promote “The British way of life, the British sense of fair play and the British love of Britishness”. What else. "Monty hailed from one of the finest families; he had an accent fruity enough to spread on a muffin, and his fondness for double-breasted suiting meant he was rarely dressed in anything less than a full acre of tweed." What can be the attraction of stories about lifestyles long since abandoned by normality. In his absence on the border, normality returned to the hatchet rooms of Downing Street. Sajid Javid was "absolutely furious" that Dominic Cummings sacked one of his most senior SPADs for not being one of us. Sonia Khan was escorted out of Downing Street by police this week. Cummings was unrepentant telling a meeting of government advisers, "If you don't like how I run things, there's the door. F*** Off!" Cummings is doing his best to out-Tucker Malcolm Tucker, head SPAD from "In the Thick of It". "Don't call me a bully" Tucker would say, "I am much worse than that". A fictional bully who could choose to ignore non-fictional employment legislation. So what of prorogation? It has been tried before. For Charles 1st and John Major it did not end well. Senior Tories are to warn Johnson this week, he has lost their trust. Others will then explain, he never really had it in the first place. The sight of Jacob Rees-Mogg waving a Union Jack, wearing a frock coat on the steps of Number Ten, will not deter the people in pursuit of just cause. Trump could be a one term wonder ... Trump could be a one term wonder . His chances of re-election will suffer if the economy turns against him. The economic cycle is at odds with the electoral cycle. Economic growth is slowing with just over a year to re-election. Trump is botching his chances by pursuing the tariff war with China. An economy which should be growing at 3% this year has seen growth average just 2.5% in the first six months of the year. Analysts are now penciling in just over 2% for the year as a whole. Trump blames the Fed of course, for an overlay aggressive monetary stance and the hike in base rates. The reality for most voters in inescapable, the tariff war with China, is damaging business and consumer confidence. Investment is falling as the trade deficit continues to rise. Trump's farming stronghold is wavering. The losses on soybean sales to China, are barely offset by state subsidies from an erratic White House agenda. China is learning to ride out Trump turbulence. It's like planning for a natural disaster. You never know when or where the worst may happen, you just know one day it will, so plan for the worst accordingly. The planning has been taking place since Trump and the Sinophobes came into office. China goes Crypto ... In a brilliant move against the Dollar, The Central bank of China plans to launch a state-backed cryptocurrency before the end of the year. The currency will be distributed by Alibaba and Tencent along with the Bank of China, the Industrial and Commercial Bank of China and three other of China's largest financial institutions. The currency has been in development for over a year and may be released in November this year in time for "Singles Day" the busiest shopping day in the Chinese retail year. China will be the first central bank to issue a crypto. Initially offered to the 1.4 billion Chinese on the mainland, the currency would later be made available to all dealing in the Renminbi. It is in this way, the Chinese would offer a reserve currency to the world, undermining dollar hegemony, and avoiding the pitfalls that beset conventional reserve currency status. Want to know more, then sign up to our Messaging App for more information and updates. Just click on this link to sign up. It's FREE with no obligations just great updates through the week. That's all for this week, have a great weekend. We will be back with more news and updates next week! John  G7 meeting will be a 'humdinger" ...
Leaders assemble this week-end for the G7 meeting in Biarritz. It promises to be a humdinger. Hopes are not high of securing much consensus. Macron has already given up all hopes of a joint communiqué at the end of what promises to be a tough week-end of talks. President Trump arrives with a list of grievances. The self appointed "Special One" is facing economic humiliation at home. Trump economics is visibly failing, threatening the "second coming". Internationally, the Prime Minister of Denmark refused to sell Greenland, suggesting the proposal was "absurd". The President considered the response to be brusque and nasty, cancelling the planned trip to Copenhagen in a typical Trump temper tantrum. Making limited progress in the trade war with China, Trump warns "Europe is next on the list", just threaten to "tax the cars and they will give you anything" the claim. Yes, trade wars are easy and the U.S will win. The G7 are at odds on so many issues. The readmission of Russia to the extended group, the nuclear treaty with and treatment of Iran, climate change, German spending plans, France's digital tax on Uncle Sam's finest and of course China. Trump has asked for a special session on Sunday to discuss the world economy. It promises to be a master class on global macro economic management. "Want to run the most successful economy in the world like me ... slash taxes, boost spending, bring back coal and build a wall." This week, Trump declared himself to be the "special one" chosen at the highest level to take on the Chinese threat to U.S. hegemony. The trade wars developed a further twist. Trump was unable to decide who was the greater enemy ... China or Jerome Powell chair of the Federal Reserve ... Trump raises tariffs again ... China has made it clear it will fight "to the end " as the trade war escalates. Announcing tariffs on a further $75 billion of U.S. imports, clearly directed at the U.S. farmland, Trump responded with a further hike to 30% on imports from the East. The tit-for-tat escalation is putting pressure on the U.S. economy. The Fed has issued a clear warning, the trade war is a threat to growth. White House advisors are seriously concerned about the disruption of the economic cycle and the dislocation of the run in to the election just over a year away. Trump talked of a further round of tax cuts. Later recanting, making it clear, tax cuts are off the table. To proffer greater stimulus would be to admit a slow-down was in place. An admission too far, for the President at this stage in the cycle. Trump continues to demand more rate cuts from the Federal Reserve, 100 basis points would be best. The Fed failed to oblige. "As usual the Fed did NOTHING" tweeted the President, "My only question is, who is our biggest enemy, Jay Powell or Chairman Xi". The trade wars are escalating and threatening to extend to a decoupling of the U.S. and China. "Our country has lost trillions of dollars with China over many years. They have stolen our Intellectual Property at a rate of hundreds of Billions of Dollars a year. They want to continue but I (the special one) won't let that happen." "We don't need China, and frankly would be far better off without them" said Trump. "Our great companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the U.S.A." "Build that wall, bring them home, send them back. I hereby order the world to fall into line and will outline the route map at the G7 meeting in Biarritz". Yes it promises to be a humdinger. Trump is floundering. His inability to make deals is apparent. Jobs are not returning to the U.S.A. They may be leaving China but are en route to Vietnam, Bangladesh and other beneficiaries of Trump economics. The U.S. is losing the trade war, American voters will pay the price. This week, the Congressional Budget Office warned of the $1 trillion dollar deficits and huge debt burden to be placed on generations ahead. The trade deficit will continue to increase. The US Chamber of Commerce has made it clear, Tariffs have been bad for the economy. Negative consequences include higher prices for consumers and businesses at home with retaliation by foreign governments damaging the prospects for exports. Voters are turning against tariffs. A recent poll, by NBC News and the Wall Street Journal found that "two thirds of Americans support the idea of free trade". Democrat and Republican majorities now express favorable views toward free trade. Trade wars are not so easy to win after all, the clear warning to the White House but will Trump heed the warning ... Borrowing increases ... Shock for the new Chancellor of the Exchequer, borrowing is up by 60% in the first four months of the financial year. In the current financial year to date, total borrowing was £16 billion compared to £10 billion last year. Spending increased by 6.5 per cent as tax receipts fell on the back of weaker corporation tax revenues. If current trends are maintained total borrowing will increase to almost £38 billion compared to the OBR target of £29.3 billion. The numbers suggest there will be little in the coffers to support a Brexit setback. A VAT cut to 15% could be on the agenda, together with a cut in Stamp Duty and a boost to the car market. Spending on infrastructure could be on the list, as Johnson plans to build HS2 from the North to South in a top to bottom review. The Prime Minister was in Europe this week. Meetings will Merkel and Macron went well apparently. Something may well have been lost in translation. President Truman had a sign on his desk "The Buck Stops Here". Macron had a similar sign on his desk apparently, "The Back Stops Here" and it's here to stay ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John  Harriet and Ken will form dream team ...
Ken Clarke returned from holiday this week to discover he is on the short list to become the next Prime Minister! Corbyn's bid to be the "Brexit Broker" banished, the former Chancellor of the Exchequer is ready to step up if need be. Clarke and Harriet Harman could be the dream ticket to form a cross party alliance to prevent the UK leaving the EU without a deal. Ken is ready to lead a government of national unity. "If this was the only way, in which the House of Commons could find a way forward, then I wouldn't object." said Clarke in a BBC interview. Many others including Dominic Cummings might ... Boris Johnson sidelined, the hard line "Brussels Bashers" are losing traction in the elected house. This all goes to show the dangers of going away on holiday even for a few days. The world is spinning out of control. A world in which the President of the United States is considering a contested bid for Greenland. In economic news this week, the latest jobs figures suggested the economy is stalling. Unemployment ticked up slightly as vacancies fell. The unemployment rate increased slightly to 3.9%. Yet the number of people in employment increased to the highest levels since records began, such is the perversity of data in an economy at turning point. Earnings excluding bonus payments increased to 3.9%, good news for households, the latest headline inflation was just 2.1% in July. Real earnings are rising. No wonder retail sales remain on track. Consumers enjoyed a shopping spree on line last month. Online sales increased by 13%, year on year, accounting for 20% of all retail transactions. With food penetration as low as 5%, the impact on all other categories is to take almost one in three transactions away from the high street, a trend set to continue as age demographics accelerate the move on line ... Yield Curve Inverting ... Markets were in a flap this week. The yield curve is inverting. Ten year U.S. bond yields fell to 1.5% at one stage, below the two year short yield. The FRED chart [above] had markets moving lower. On average the inverted yield curve has been a reliable indicator of recession to follow with a lead time of around 22 months. Should we worry about the inversion this time round? For many the evidence is convincing but this time may well be different. Janet Yellen former chair of the Federal Reserve, suggests "Historically it has been a pretty good signal of recession but I really would urge that on this occasion, it may be a less good signal. There are other factors pushing down long term yields". Here is the main difference this time round. Recessions are flagged when central bankers begin to increase rates to "take away the punch bowl as the party gets going". Interests rates are hiked to subdue inflation or to modify a looming trade deficit. Short rates rise, as long rates hold to the "Fisher Rule". The yield curve inverts reflecting central bank policy, central bank policy designed to engineer a slow down in economic activity. This time around the yield curve has been dislocated by life on Planet ZIRP and the introduction of QE. We model the relationship between the level of bond yields and the holdings of central banks. The higher the holdings of central banks, as a proportion of total bond debt, the lower the yields along the curve. A combination of central banks committed to buy, financial institutions obligated to buy and speculators motivated to buy, pushes prices up and yields lower. Andy Haldane, Chief Economist at the Bank of England has suggested we have created the biggest bond bubble in history. That was six years ago! A combination of cheap money and the search for "alpha" pushes prices to yet new highs. Already $15 trillion of sovereign debt, that's almost 25% of total world stock, is offering negative yield. Worryingly this week, Alan Greenspan suggested there is no barrier to negative yields in the US. "Zero has no meaning, it's just a certain level". Bond prices will move higher in search of the "Minsky Moment" when the madness finally stops ... For Trump the message is clear "Crazy, inverted yield curve ... thank you clueless Jerome Powell and the Federal Reserve ... the Fed is holding us back but we will win!" Trump's rally fading risks re-election hopes ... The White House is beginning to worry the economic cycle is in danger of moving at odds with the election cycle. The dream of a second term in office will be at risk if the economy tanks and stock markets fall. Farmers are worried about the impact of the trade war with China. Truckers are concerned about the loss of traffic as import activity slows. Retailers are nervous about rising prices. Confusion abounds over the second round of tariffs on $350 billion dollars of imports. The direction of White House travel is confusing. Tax cuts and spending plans suggest the economy should be booming. The imposition of tariffs, valued at 0.5% of GDP will effectively create a consumption tax impacting on household spending and consumption. Trump offers "a personal meeting" with President Xi, to resolve trade issues, then offers advice on how too deal with the problems in Hong Kong to assist with the process. The President demands China reinstate Soy bean purchases, then announces the sale of F35s to Taiwan. The President announced the 10% tariff hike, against the advice of his closest advisors. The decision to denounce China as a "currency manipulator" was made against the counsel of Steven MnuchIn. The President has no understanding of trade policy, trade deficits and the impact of tariffs on U.S. and world trade. Confusion abounds about the lack of consistency of message. On the reading list this week ... "The Dangerous Case of Donald Trump", 37 psychiatrists and mental health experts assess the President. This is the second edition of the original best seller. Ten more commentators have been added to support the proposition that anyone as mentally unstable as Trump should not be entrusted with the life and death powers of the White House. It doesn't make for reassuring reading but on the other hand, does explain a lot . That's all for this week, have a great weekend. We will be back with more news and updates next week!  "Bags of Time" says Boris ...
The Office for National Statistics joined the ranks of "Project Fear" doom mongers this week. The latest data on GDP growth suggested the economy moved into negative territory in June with ominous implications for the rest of the year. “GDP contracted in the second quarter for the first time since 2012. Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU. “The construction sector weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all." It all sounded pretty gloomy with fears of recession returning as the Brexit deadline nears." In reality growth in the second quarter was 1.3% compared to 1.8% in the first quarter of the year. Service sector growth was up by 1.6%, the construction sector expanded by 1.4%. Manufacturing output fell by almost 1%. Stock building in the first quarter was reversed in the three months to June. The trade deficit on goods and surplus was extinguished as imports fell. Boris Johnson has offered reassurance there is still "Bags of Time" to secure an agreement with the EU. That will come as a surprise to many in his own cabinet. The pound closed below $1.21 against the dollar. Ten year gilts closed below 0.5%. Markets are adjusting to the idea of Dollar parity in the event of a no deal. For government, the clock is ticking. Michael Gove has a count down clock on the wall of his office to focus the mind. It is next to his ideas box ... worried about a banking crisis ... a Bank Holiday the solution ... worried about panic buying, rationing the obvious recourse. Johnson has created a survival cabinet. Gove is the fall guy, Dominic Raab is in the Foreign Office to ensure Johnson's FO tenure looks great. Jacob Rees-Mogg has been distanced from the ERG, content with the new role as stand up comedian in the People's parliament. Dominic Cummings has is the "attack dog" people love to hate. Taking the flack for the Prime Minister offering comfort, reassurance and confusion in equal order. Why worry about a vote of no confidence when people have little confidence in the administration anyway, the message. Let's call a snap election in a "People versus Politicians" vote. No one will know what that means. Special briefings to be offered to Brexiteers and Remainers to dress as round-heads and cavaliers at the hustings. The government is preparing for an election, in the event of a "no deal no deal." Johnson really wants a deal, but the way to get a deal is to convince the EU, we don't want a deal. It's a sort of Brer Rabbit strategy. Convince the wily fox, we really want to leave the EU because we really would like to stay ... not sure the analogy works or the strategy for that matter ... we could end up tossed into the Channel, reliant on French fishermen for rescue ... Job Done ... Trump's on Holiday .. Trump is off on holiday for ten days. Camp David is off limits. The President needs to spend more time with his golf clubs. Job done. The Nobel peace prize virtually assured, the President offered to mediate in Kashmir, annihilate Afghanistan, go to war with Iran and cancel the nuclear weapons deal with Russia. Military maneuvers in South Korea, for which the Koreans are paying of course, led to rocket launches in the North. Not to worry, the President received another beautiful letter from Kim Jong-un. It was three pages long, one page for every rocket fired. The President received confirmation planning permission had been secured for the Trump Condos on the South East coast of North Korea. The beach area has previously been used for weaponry drills and ballistic weapons launches. Yes in this way, peace is brought to the world. Chats with China are not going quite so well. Trump's principal adviser is Peter Navarro, author of "Death by China" and "The Coming Wars [with China]". That can hardly help. The coming wars with China is subtitled, "Where They Will Be Fought and How They Can Ce Won". Americans are hoping no one in Beijing has read it. This week, Trump denounced the "Renminbi Runners" as currency manipulators. The Chinese administration pegged the Yuan lower against the dollar in response. Exports to the USA are falling. Tariffs for which American consumers are paying, the cause. U.S. farm exports to China are stalled. China exports to the rest of the world are increasing. The Asean market offers growth beyond measure in the decades ahead. This week Huawei announced proprietary software for mobile phones which will eliminate dependence on Google Android. Someone at Huawei is an avid Navarro reader. Beijing is prepared for the break with Washington. Chinese requirements for farm and oil imports will find willing vendors around the world. The strength of the Dollar is an opportunity to off load the trillion plus holding of dollar bonds held. The monopoly of rare earth metal supplies will provide an opportunity to squeeze prices and destabilize the competitiveness of US high tech competition. Trump has dropped the broadest possible hint that he is ready to dig in for the long term in the Washington’s trade war with China. He may have little option. Trade talks are set to resume in September 2019. The stand off is expected to continue beyond the presidential election in November 2020. Meanwhile the overall trade deficit for Uncle Sam is increasing. Growth without imports, you just can't have it both ways ... That's all for this week, have a great weekend. We will be back with more news and updates next week! 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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