 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 ...
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 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  Trade wars and temper tantrums ...
Trump's decision this week to increase tariffs on Chinese goods caught markets by surprise. Close advisors to the President had thought further hikes were off the table pending the next round of trade talks. Irritation with China boiled over as Treasury Secretary Steve Mnuchin and Trade Rep Robert Lighthizer returned empty handed from Shanghai. No new proposals were on offer from the Chinese administration, following the impasse in May. Trump snapped. The cease fire was over. The President promised to "tax the hell out of China". A busy week for the President included planning the annihilation of Afghanistan and a big beef deal with Europe. Trump tweeted the "future between our two countries (China U.S.A.) will be a very bright one!" Markets were not quite so sure. Earlier in the week, the Fed had obliged with a rate cut ... "A mid cycle adjustment" of just 25 basis points. Stock markets bounced, Trump expressed disappointment. What the market wanted to hear from Jerome Powell Chairman of the Fed, was the beginning of a lengthy and aggressive rate cutting cycle which would keep pace with China and the rest of the world. As usual "Powell let us down". The Fed is confused about the direction of travel. Expansive tax cuts and spending plans are set to maintain growth in the U.S.A. The latest data on jobs suggests the economy continues to grow. Payrolls increased by 164,000 in July, the unemployment rate held at 3.7%. Powell speaking at the news conference this week, suggested the outlook for the U.S. economy remains favorable. So why the rate cut now? Powell added "the Fed was acting to insure against the downside risks from weak global growth and trade policy uncertainty." Uncertainty over trade is slowing the global economy and no one knows quite what to do about it. Powell admitted, he and other experts overseeing the economy are confronting “something that we haven’t faced before.” “The thing is,” Powell said, “there isn’t a lot of experience in responding to global trade tensions.” “We’re learning by doing.” Learning by doing and reacting to a rogue President with random ideas on international economics. Trump believes that China is paying for the tariffs. The truth is the American consumer is paying the bill. Tariffs are in effect a tax on consumption. The hikes planned for September will increase the levy to around 0.5% of GDP. The Fed is reacting to Trump policy on trade. The planned increase in September will hit imports from China including children's toys, video games consoles, mobile phones and laptops. Many will feature on gift lists for the end of year. "Trump has declared war on Christmas", according to Jock O'Connell, an international trade adviser to Beacon Economics. A war on Christmas and China is not picking up the tab ... Confusion over Brexit ... The Bank of England held rates this week. Uncertainty and confusion over Brexit produced a wait and see attitude by the MPC. U.K. growth is slowing, investment is falling, for the moment, job growth continues and real wages are rising as inflation levels are subdued. The Bank has reduced growth estimates over the forecast period. Global trade tensions have increased, global activity has remained soft. Manufacturing growth is falling around the world as trade volume growth slows. For the Bank, the likelihood of a no deal Brexit has increased significantly. The Governor warned, the response of monetary policy will not be automatic and it could be in either direction. Sterling closed just above the $1.21 level this week. The Bank has warned this could be a taste of things to come. Boris Johnson made a quick trip around the Union this week. Greeted with boos in Edinburgh and a lost seat in Brecon, it will take more than photo ops with a chicken to convince the EU the new team is strong in purpose. The car industry is facing severe disruption, Japan has made it clear, the UK is the gateway to Europe. Without a trade deal, relocation is inevitable. Internal government analysis warns of consumer panic, food shortages, medical supplies lost and chaos in the farming sector. This week Alun Cairns, Secretary of State for Wales offered some hope to farmers. The market in Japan has just opened to Welsh and British farmers. "Exports are already taking place. This is a market in which we haven't scratched the surface yet. " The UK exports almost £400 million of lamb products to the EU. Exports to Japan are expected to be around £10 million each year for the next five years. Lambs to the slaughter, is the real campaign slogan for the Brexiteers in Westminster ... if only China could shed that addiction to pork ... Markets react to week of turmoil ... Red on the screens of markets around the world by end of week, traders were forced to react to the threat of a further round of tariffs against China. Beijing is making it clear, there will be no conciliatory response to the Trump attack. A long haul is expected before a resolution is secured. Japan on Friday moved to increase controls on the export of a broad assortment of products to South Korea. Tokyo is raising the stakes in a political standoff that has plunged relations between the countries to their lowest point in decades. South Korea’s president, Moon Jae-in, condemned the move, which he said was aimed at sabotaging South Korea’s economy as it struggles with slowing growth. That's the problem with trade wars. They tend to escalate and operate indiscriminately. Central bankers are confused by the self harm inflicted by Trump and tariffs, Boris and Brexit. Central Bank commitment to maintain Q E levels is pushing bond yields lower. Ten year gilt yields closed at 0.56% in the UK. U.S Treasuries closed down 20 basis points to 1.88. In Europe, yields were negative 50 basis points. Why buy a negative yield? Well it could get more negative in the months ahead, the rationale. The Dollar is rising in value at the expense of Sterling, the Euro and the Renminbi. Oil prices are falling as fears for global demand increase. The threat of negative interest rates on bank deposits increases. Proposals are circulating for the abolition of cash ... Yes this week, the trade wars just got a bit more scary ... That's all for this week, have a great weekend. We will be back with more news and updates next week!  Boris Johnson made it into Number 10. Tory votes were cast two to one at the expense of Jeremy Hunt. The promise to "love bomb" opponents and detractors was cast aside. A cabinet purge ensued. Macmillan's night of the long knives was made to look like a rearrangement of the cutlery draw. Seventeen cabinet members were removed from office as the transition team moved into action.
Sajid Javid, became Chancellor of the Exchequer, Priti Patel moved into the home office, Liz Truss, became secretary of international trade, Andrea Leadsom is down for business, Dominic Raab moved into the Foreign Office, where big maps on the wall will explain the importance of Calais and Dover. Jacob Rees-Mogg became head boy and leader of the house. The guardian of Victorian values immediately issued a staff guide for internal missives. Matters of state to one side, there must be a double space after a full stop, no comma after "and", and no full stop after Miss or Ms. Banned words include "unacceptable", "disappointment", "lot" and "got". Banned phrases include "no longer fit for purpose". Why would that be? Imperial measures are to be preferred, monetary measures must include the sixpence and for the avoidance of doubt there are three asterisks in "f*** that". Boris Johnson announced the search for the British Mojo will be assisted by an additional 20,000 police officers on the street. Stop and search will be escalated to provide more knives for cabinet sessions, plus there is always the chance someone somewhere may be hiding that missing mojo in a hoodie. More money for the North, a train set for the Leeds Manchester link. Austerity is over. The quest to stay in office begins. Johnson made progress with Brexit, the Irish backstop must be removed before talks can resume. So yes we are off. It promises to be very exciting. The Queen was mystified. "I can't believe anyone would want the job", Boris revealed in a breach of palace protocol. "I can't believe I got the job", the probable reply. Not to worry, it could all be over by Christmas ... U.S. Economy slows ... Latest data from the Bureau of Economic Analysis, suggests growth in the US economy slowed in the second quarter. Growth was just 2.3% in Q2 compared to 2.7% in the first three months of the year. Problems with trade and investment largely to blame ... the White House dream of 3% growth this year is dashed. Most estimates now assume growth will be around 2.5% for the year as a whole. Given the tax cuts and spending plans in process, the achievement is a grave disappointment. Trump believes the Fed is to blame, with over an aggressive monetary policy the problem. "Q2 GDP Up Not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck. Almost no inflation. USA is set to Zoom!" Trump Tweeted. Consumer spending increased by 2.6% in the quarter compared to 2.5% in the first three months. Fixed investment growth slowed to 3.5%, exports increased by just 0.4%, as import growth continued at 3.2%.The US economy is slowing, Trump trade policy partly to blame. The Fed is set to cut rates by 25 basis points as ten year gilt yields move towards the 2% level. Congress and the White House agreed an extension of the debt ceiling this week. The $22 trillion limit has been extended beyond the 2020 election date. An increase in spending and a limit of proposed cuts will ensue. The US budget deficit is set to exceed 4% of GDP over the next two years, the dollar deficit heading for $1 trillion as the trade deficit continues to grow. U.S. ten year bond yields closed at 2.07% this week. The yield of ten year Greek bonds closed at 2.07% The Trump administration decided this week, not to engage in currency manipulation to undermine the strength of the dollar. White House hard line trade adviser Peter Navarro presented President Donald Trump on Tuesday with ideas on how to devalue the United States dollar to gain an upper hand in the trade fight with China. The president, who has regularly accused other countries of unfairly devaluing their own currencies, quickly shut him down and dismissed the proposals, this time ... Hasbro leaving China ... Hasbro announced this week, the company is relocating manufacturing facilities away from China. Vietnam and India are becoming the preferred destinations. Production on the mainland will account for just 50% of total production by the end of 2020. Trade wars are damaging the prospects for world trade the IMF has warned again this week. Growth in China may slow to just 6% for the year as a whole as exports and investment are hit. Nevertheless, no trade deal is expected until after the U.S elections. Trump may be forced to feel the pain before the voting round. The economic cycle is not moving in favor of the President. China is in no rush to make the deal with the U.S.A. Trade for China will pivot further to the Asean group of countries over the medium term. The Regional Economic Comprehensive partnership will include 26 nations across the region including India, Japan, South Korea, Australia and New Zealand. Trade with the Asean group increased by 4% in the first six months of 2019. The largest trading blocks of the future will be Asean, European and North American, in that order ... Trump's trade policy no longer fit for purpose but then it never was ... That's all for this week, have a great weekend. We will be back with more news and updates next week!  How do you like your PMs cured ...
Not long to wait ... the next Prime Minister of Great Britain will be in office on Wednesday. Boris Johnson is odds on favorite to win the Tory vote. This man will accept the poisoned chalice, to get Britain out of the EU. Such are the twists and fortunes of the Brexit challenge, Boris could be out of office by the end of October, if things go badly. The task is urgent. Another horrific tale of Brussels bureaucracy was revealed this week. Vacuum packed kippers sent through the post, must be accompanied by a plastic ice pillow, Boris revealed. Producers in the Isle of Man, are furious at the extra costs involved, a result of another useless layer of EU red tape. Leaving the EU would allow the UK to end this "damaging regulatory overkill". Putting kippers back onto a fair cost, eco-friendly platform, a key item in the Johnson agenda. "Pointless,expensive, environmentally damaging health and safety. When we come out we will be able to end this damaging regulatory overkill and do things to boost Britain's economy. We will be able to establish an identity as a truly global Britain and get our mojo back." Johnson explained. Are yes our mojo, that "Magic charm, our talisman, the object, an inscribed ring or stone, thought to have magic powers and to bring good luck." Boris as Prime Minister, will be on a quest for the holy grail of challenges, the search for the missing British mojo. A challenge akin to extracting the "Tory sword of Damocles from King Arthur's stone" begins with taking the plastic pillow from beneath the head of a smoked herring. It shouldn't be too difficult. The Isle of Man is not part of the EU and "the case described by Mr Johnson falls outside the scope of EU legislation, it is purely a national competence" explained Anca Paduraru, a European Commission food safety spokesperson. A yes national competence ... never in doubt ... we can send the pillow packing, packing in or out of the EU ... Retail Sales Rally in June ... More good news on the economy this week. Retail sales bounced back in July. Sales volumes increased by 4% in volume and value in the month. The number of people unemployed fell again in the latest data to just under 1.3 million, the unemployment rate held at 3.8%. Earnings are on the rise. Growth in average weekly earnings increased to 3.4% for total pay (including bonuses) and 3.6% for regular pay (excluding bonuses). In real terms (after adjusting for inflation), total pay is estimated to have increased by 1.4% compared with a year earlier. Regular pay is estimated to have increased by 1.7%. The growth in real earnings is expected to be maintained. The latest inflation data CPI based suggested the headline rate of 2% in May was maintained in June. Underlying inflationary pressures are weak. Manufacturing prices (output based) were up by just 1.6% in the month, input costs were negative, assisted by the weakness in oil prices. The blot on the landscape for the UK economy appeared late in the week. The borrowing figures for June revealed an increase in borrowing of £7.2 billion compared to £3.4 billion prior year. For the three months of the new fiscal year, borrowing was up by £4.5 billion to just under £18 billion. An increase in government spending largely to blame, the prospects for the year will not be enhanced by the announcement of public sector pay increases ahead of inflation. The government target of £30 billion borrowing in the current financial year is now at risk. Phillip Hammond has already warned there is little or no money to fund the Johnson tax promises. This week the OBR warned a no deal Brexit would lead to recession and an increase in borrowing of over £30 billion by 20/21. The search for the lost Mojo, may well be hampered by lack of funds. The new administration faces daunting challenges to achieve a Brexit exit by the 31st of October. It is an impossible task. A snap election no way to gamble the Number Ten dream. For the moment the prime task is to become prime minister. Once overnight in Downing Street, time then to reveal the strategy of "one bed, many dreams" ... Market Watch ... Sterling on the rack this week, the Pound closed below $1.25 against the dollar having tested $1.24 in the process. The prospect of a no deal Brexit spooked markets, the threat of a snap election will not help. In the U.S. the Fed is expected to cut rates by 25 basis points next week despite strong jobs growth and consumer spending data. Markets were confused by the speech from New York Fed President John Williams suggesting the Fed raised rates ahead of the curve. Williams suggested "more aggressive and preemptive action is warranted when the economy is weakening". Markets began to price in a higher rate cut. The New York Federal Reserve issued a rare clarification. The speech was not intended as a market signal, more an outline of twenty years academic research. Markets closed lower. "We have not seen anything like this before and we are not sure what they are thinking" said Neil Dutta, head of economics at Renaissance Macro research. It was left to the President to explain the process. "Because of the faulty thought process at the Federal Reserve, we pay much higher rates, our interest costs are much higher than other countries, when they should be lower. We must stop with the crazy quantitative easing. We are winning big, it is no thanks to the Federal Reserve" Jerome Powell, lock him up, or send him back ... drain that swamp, take back control, Taylor rules OK ... That's all for this week, have a great weekend. We will be back with more news and updates next week!  Sleep is the answer ...
The government is set to offer official guidance on how many hours citizens of the U.K. should sleep every night. The suggested guide lines will vary according to age and the degree to which voters have confidence in the incoming Johnson administration. In the event of a no deal Brexit, the guidelines will not apply to Brits living abroad or Remain voters. Matt Hancock, the health secretary is thought to be working with the Alexa app, to ensure the strict guidelines are followed in bedrooms around the country. Macbeth described sleep as the "chief nourisher in life's feast" according to the Times today. Famously, Margaret Thatcher survived on just four hours sleep.Trump digests just three hours sleep and a packet of Provigil allegedly. Steve Brine, a former public health minister, explained, working in government, "we are all familiar with the notion of being tired and grouchy", lack of sleep just one of many reasons. Matt Hancock is the man for the challenge. A man of conviction, Hancock was the first to jump his own ship and join the Boris bandwagon. Hancock's planned introduction of a sugar tax on sodas and milk shakes, hit a sour note this week. Boris Johnson, declared he was opposed to the extension of any action to extend the levy. The contradiction in policy may generate sleepless nights in cabinet for the health secretary. A man of conviction, Boris Johnson reaffirmed his commitment to leave the EU on the 31st October. Prerorgation of Parliament, sequestration of the Queen, a front with Farage, all steps will be taken to ensure Johnson secures election in the current Tory voting round. Jeremy Hunt on the other hand, thinks Brexit will all be over by Christmas. Boris, the historian is well aware, difficulties in Europe tend to take much longer ... Back to work in May ... Good news on the economy this week. The car industry went back to work in May. The Brexit shutdown, over for the moment, business went back into action. Let's not get too excited. Manufacturing output in the month was flat compared to prior year. This marked a recovery from the one percent drop prior month. In the second quarter of the year, we expect a modest fall in manufacturing output compared to prior year. Construction output is likely to expand by 2.3% in the quarter compared to a 3% plus rise in Q1. Service sector growth is expected to rise by just under 2% in the current three months. The data suggests growth could be around 1.4% in the second quarter. A slow down perhaps but still consistent with growth for the year overall of 1.4%. The trade deficit continues to be a problem for the UK economy. The trade deficit in goods was around £12 billion in May. £36 billion is the likely deficit for the quarter. This would be a significant reduction from the £47 billion recorded in the first quarter of the year when stock building ahead of the March 31st deadline, accelerated the shortfall. For the year as a whole we expect a deficit of over £150 billion. Leaving the EU without a deal, will compound the problem. Boris and Brexit is becoming the major concern for voters and business. Survey data suggests investment and hiring decisions are being postponed ahead of the hurdle date in the Autumn. Trump and Tariffs, Boris and Brexit, the challenges loom large for business in the UK and around the world ... Trump will get his rate cut ... Jerome Powell, chair of the Federal reserve gave the clearest indication yet, base rates will be cut later this month. Trump will have his way in the development of monetary policy. In a statement before Congress this week, Powell explained ... “Since June, uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook." James Bullard, president of the St. Louis Fed, a dove, said, “Sitting here today I would argue for a 25 basis point cut at the next meeting,” Bullard wanted to see a cut in June but lost that fight. “I put 50 basis points worth of reductions by the end of the year. So that would mean this cut plus another one at some point later in the year.” Powell made clear the independence of the Fed from political interference is of paramount importance. Despite intense criticism from the President, the chair made it clear he had no intention of resigning. Markets reacted with a strong Wall Street rally. The S&P, Dow and NASDAQ pushed to new highs. The Fed remit to nurture markets continues. Powell explained, “Our baseline outlook is for economic growth to remain solid, labor markets to stay strong and inflation to move back up over time to the 2 per cent objective". The Fed is moving ahead of the curve. The twin deficits will emerge as the major problem for the U.S economy in the medium term. At that stage the need for rate hikes will become more urgent. No need to squander ammunition now. The Fed believes downside risks to the economy have “increased significantly”. Latest forecasts suggest growth in the USA will slow to 2.5% this year, from over 3% in the first quarter of the year. Trump and tariffs the major concern. The White House may blame the Fed for the slow down. The Oval Office alone is witness to the major culprit. 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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