 Inflation falls ...
Inflation fell in December to 2.1% from 2.3% prior month. Service sector inflation held at 2.4%. The fall in the headline rate was largely attributed to goods inflation, down to 1.8%. A drop in petrol prices assisted the move, reflecting the continued weakness in oil prices. Oil prices Brent Crude averaged $57 dollars compared to $64 dollars last year. Manufacturing output prices slowed to 2.5% from 3.0% in November. Input costs slowed to 3.7% from 5.3% prior month. Softer petroleum prices helped but the weakness of Sterling $1.27 v $1.34 in December 2019, offset some of the gain. For the year as a whole, most analysts now expect inflation to average around 2.3%. Good news for households as earnings are expected to rise by around 3% maintaining a positive outlook for real earnings. Good news also for the Bank of England. There will be little pressure on the MPC to raise rates during the current year if current trends are maintained. Not so good for Sterling as the Fed is expected to raise rates by a further 50 basis points through the year. The interest rate differential will push the dollar higher and Sterling lower despite the rally this week. Retail Sales Slow ... Despite all the fears for retail sales over Christmas, the official figures from the ONS suggest sales values increased by almost 4% as volumes increased by 3.0%. Headlines from the High Street must be kept in perspective. Online sales increased by 14% accounting for 20% of all retail sales. Department stores, clothing and footwear are particularly vulnerable to on line penetration. The pressure on high street infrastructure will continue forcing store rationalization and footprint contraction. The pattern of sales is changing. Imagine a time within the next five years when 25% of transactions will be online. A huge extraction of activity on the high street and in shopping malls. Who can remember the idea of January Sales. New Year Discounts yielded to Boxing Day Breaks. Blue Star and Blue Tick Deals appeared in the run up to Christmas. Then came Black days on line. The significance of December no longer the dominant feature of the final quarter. Profit warnings prevail as a result of Brexit prevarication. Shock news from "Build a Bear" this week. Fluffy toy sales fell and workshop activity waned as "unresolved issues relating to Brexit negatively impacted consumer confidence". Those two year old toddlers so fickle in the face of EU uncertainty. Brexit Confusion Continues... The May deal vote was expected to fall at the first fence. The size of defeat was a shock to all. 432 MPs voted against the proposal. The Government was defeated by an unprecedented 230 votes. The Conservative party was in tatters with both sides of the Brexit debate voting against the deal. Decisive leadership was required to restore party unity. Jeremy Corbyn obliged calling a vote of no confidence in the government. Tory whips just flicked the feather duster to guarantee support, with the backing of the DUP of course. If the Labour leader has a strategy it remains well cloaked. The confidence vote provided a welcome delay for the Prime Minister in an attempt to find a solution to the current impasse. Welcome relief as rebel ranks rallied behind the weary front bench, Sterling rallied closing at $1.2894 by the end of the week. A postponement of the March deadline a possibility. A revised deal to include the Single Market and the Customs Union now a probability. It is clear a Conservative Party so divided, cannot deliver a solution to the quandary. A cross party agreement is the solution. If only Corbyn would abandon the illusion of a possible snap election and a move into Number Ten, then real progress could be made perhaps. Boris Johnson was in Stafford this week, delivering a potential leadership speech at the JCB factory. Digging a hole in front of a digger, the would be leader of the party denied any suggestion he had mentioned Turkey and the potential 77 million immigrants from the East prior to the Brexit vote. According to Henry Zeffman in the Times today, Johnson in 2016 had said, "I cannot imagine a situation in which 77 million of my fellow Turks can come here without any checks at all." Pressed by Channel 4 news, Johnson said "I didn't make any remarks about Turkey, mate". Yep fake news ... mate ... U.S. Shut Down Continues ... In the US, the partial Fed shut down continues. Pelosi denied access to the House for the President's State of the Union address. Trump retaliated by denying the leader of the house access to the official flight for an impending trip to Afghanistan. "If you would like to make your journey by flying commercial that would certainly be your prerogative" he wrote. Here's hoping the Taliban don't have access to the timetables from Washington to Kabul any time soon. Federal flights were later denied to all government staff. The First Lady was able to sneak out on an early flight to Florida. There have to be exceptions to every rule of course. Pelosi decided to cancel the trip to the war zone. The leader of the house is second in line to the presidency after all. Trump made the best of the shut down and the in house catering crisis this week. Paying out of his own pocket for a candlelit supper of junk food, the President entertained the Clemson Tigers, the 2018 college play off champions. Trump ordered 300 hamburgers quickly escalating to a claim of 1000 by the time the press arrived. Salads prepared by the First Lady had been an option. The "Melania Melange" could have become a Washington delicacy. The photo op no way as appealing as the shot of the leader of the free world in front of all that junk food. Plus he gets to eat the left overs. Markets rallied this week as China offered serious concessions to avoid a trade war. More pigs and soy beans will be added to the buy list. China promised to eliminate the trade deficit with Uncle Sam within five years. The US had a trade deficit with China of $323 billion dollars in 2018. That's a lot of soy and hog wash ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John
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 Growth in the final quarter of 2018 is expected to be around 1.4% based on the latest data from the ONS. 1.4% is now our forecast for the year as a whole with a similar level of output expected in 2019.
Service sector remains the driver of growth in the absence of investment and public sector expenditure expansion. And what of manufacturing? For the final quarter of the year we expect manufacturing output to fall by around 1% compared to heady growth of 2.5% in the first quarter of the year. Something is happening in the sector as domestic demand slows, Brexit fears rise and world trade activity slows. "Tariff Man" Trump continues to wreak havoc with threats of more trade tariffs. Grim news from the motor trade this week as Ford and Jaguar Land Rover both announced job cuts. The axe hovers over Bentley as losses continue and parent patience wears thin. UK Car sales fell by 7% in 2018. Declines were equally experienced in private and business registrations. Diesel sales fell by over 30%. The good news, petrol sales increased by 9% and alternative fuel sales were up by 21%. Diesel cars were the main problem for the sector. Customer confusion, government regulation and supply side issues the main challenge in a difficult year. Consumer confidence and Brexit are in the mix for problems in the sector but are not the whole story. JLR was hit by a slump in sales in China and the decline in diesel sales. A resolution of trade with Europe is critical for the car market and many other manufacturing sectors in the UK, as the SMMT has long argued. The Japanese Prime Minister Shinzo Abe was in Downing Street this week ... explaining the significance of European trade to Nissan, Toyota and others from the East ... Brexit Deal Nears ... Perhaps a Brexit deal nears? It could be next week. May's deal will be put to the vote on Tuesday. It is expected to fall at this first fence. The Prime Minister will have a second chance on Friday to put an amended deal to the House. The amended deal could include a commitment to match Labour Regulation and Conditions within the EU, appealing to dissident remainers in the Labour Party. A compromise on the Single Market and the Customs Union would appeal to Remainers in the Tory Party. The DUP and the Northern Ireland issue would no longer require a backstop. Forget the ERG and Tory Europhobes. Those ladies are not for turning. Job done the vote would pass, no need to postpone the Article 50 deadline at the end of March. No need either for a second referendum or a general election. A Bloomberg survey this week of eleven international banks attaches a 35% probability to a deal passing at the second time of asking and just a 15% chance of a no deal as the final outcome. The fortunes of Sterling are included in the poll survey. The upside, Sterling trades at $1.35 with a $1.15 downside as a result of no deal. The Sterling Friday close was $1.2852. $1.30 to $1.20 is the tighter band. $1.32 our call on a Friday deal resolution. The prospects for truly global Britain will be enhanced by remaining within the single market and the customs union. Truly global Britain, the invisible chain around the world, will experience a trade deficit in goods of around £140 billion or 7% of GDP in 2018 and 2019. The deficit will be largely offset by a surplus in invisible goods. The shortage of capacity in the manufacturing sector will be exacerbated unless the trade deal with Europe is achieved. Germany remains the exemplar of what be achieved in export growth within the so called restrictive EU trade tariff regime. Germany exports four times as much as the UK to the BRIC and North American markets. U.S. Shut Down Continues ... In the US, the partial Fed shut down continues as Trump obstinacy is maintained. Money for the wall or no money for 800,000 Fed workers the trade off. Pelosi and Schumer have boxed in the President. Trump owns the shut down. The GOP will feel more uncomfortable as the impasse moves into a fourth week with no signs of a walk back from the White House. Fed Chair Jerome Powell assured markets there will be no recession in the USA this year. Steve Mnuchin US Secretary of the Treasury has already assured investors there is no liquidity crisis in the Banking Sector. Markets have moved from the December lows, no doubt taking the President's advice to "Calm down and enjoy the ride". No recession, no banking crisis. Just an emerging balance of payments and debt crisis to emerge as the economy enjoys continued growth into 2019. Uncle Sam is in danger of losing the AAA rating for borrowing as Fitch explained this month. A continued shut down without an expansion of the debt ceiling will create problems for the US economy later in the year. James McCormack, Fitch's head of Global sovereign Ratings at Fitch, warned debt levels are moving higher and the debt service costs are increasing. The Dollar closed lower against the Euro and the Pound. US Ten Year Bond Yields closed up to 2.70. China is set to become the largest economy in the world within ten years. The Renminbi is set to become a reserve currency within the same time frame. Uncle Sam may need a wall to keep people in as the reality of the Trump economics unwinds in the years ahead ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Happy New Year...
I would like to wish everyone a happy New Year with best wishes for 2019. I hope you all had a great break. We are back in our eighth year of the Saturday Economist with great plans for the year ahead ... Brexit Looms ... Just ten days to go to the critical vote in the Commons, eighty three days to go before the Brexit deadline. Government plans are advancing at pace. Chris Grayling, Transport Secretary is on the case. Grayling has awarded a £14 million pound contract to Seaborne Freight to boost capacity across the Channel. The company has no experience of running ferry transport. It owns no ferries either. Seaborne Freight is a start up with a paste up website. Terms and Conditions were scraped from a takeaway restaurant apparently. Customers were advised to check "before agreeing to pay for any meal". When challenged Grayling said he would make "no apologies for supporting a new British venture"; Well no apologies for anything apparently. The British Army has been put on standby alert. Riots in the street will be ignored as troops deliver essential food and medicines around the country. The troops will solve the riddle of last mile delivery perhaps, shooting down Amazon drones in the process. The Foreign Office has hacked out a new role for truly global Britain. In a key speech at the end of October, Jeremy Hunt, Foreign Secretary explained how we can become "the invisible chain that links the world's democracies". Things must be bad. The thin red line has become an invisible chain, "as strong and resilient as it needs to be, as new nations rise and the world order is challenged anew". Oh yes and Hunt explained we will have a better telephone network. "When I arrived at the Foreign Office, we had secure phone connections to the US, Australia, Canada and New Zealand. I have now added Japan, France and Germany to the list." Excellent. Unsecured lines everywhere else? Some things are better left unsaid. Just weeks to go. The May deal looks set to founder. Tory grass roots don't like the deal. Neither does the Parliamentary Party. The outcome is becoming clear. Something will happen. Nothing will happen. There will be a variant of the two. Who said planning for Brexit was difficult ... Pelosi takes control ... In the USA the Democrats have taken control of Congress. Nancy Pelosi is now the Speaker of the House of Representatives. Together with Chuck Schumer, Democrat leader in the Senate, Pelosi will present considerable obstacles to Donald Trump's White House ambitions. Alexandra Pelosi warns "My mother is a force to be reckoned with in negotiations. She will cut your head off and you won't even know you're bleeding". Trump is already struggling, the predictable, so easily out manoeuvred. The US government is in partial shut down as Trump demands money for his wall. Actually it's not a wall. It is a barrier made from steel slats, beautiful American steel slats with a see through facility which is safer because "we can see who is trying to get in". Forced into a corner, the President can only react in one way. He is threatening to maintain the shut down for months or even years unless he gets the money. Actually it's not a shut down! The President would prefer to think of it as a "strike". Workers (mainly Democrats) refusing to work without pay in the face of intractable opposition to his plans, from elected representatives (mainly Democrats). The adults are leaving the White House. Mattis was due to leave at the end of February. Fox news explained the resignation letter to the President wasn't flattering. Trump decided to fire the General with immediate effect. Rex Tillerson "Dumb as a rock", General McChrystal "Big Dumb Mouth" have already taken flak. More on Mattis (A Democrat) will follow. Trump's decision to quite Syria, a place of only "death and sand" has been rolled back. Troop levels in Afghanistan, a place were the "Taliban fights Isis", will be maintained for the moment. Who needs Generals anyway. "I could have been a great General, who knows?" explained the President. The situation will deteriorate as the Mueller investigation is given an extended life and threats of impeachment gather momentum. As we write the President is threatening to declare a National Emergency to get his way and his wall (not a wall but slats with slits) ... Markets rally as jobs boom ... Markets suffered a turbulent period at end of year. The Dow, NASDAQ and S&P closed lower end of year. Trump blamed the Federal Reserve, refusing to accept tariffs and tantrums had played any part in the turmoil. "The Fed is like a powerful golfer who can't score because he has no touch, he can't putt". An interesting and novel perspective on monetary policy failed to reassure investors. Markets had become very gloomy with fears of a slow down in the USA in 2019. Jack Ablin, Chief Investment Officer at Cresset Wealth Advisors put matters into perspective. "I don't mind being worried but panic seems extreme". So it proved. US non farm payrolls increased by 320,000 in December. The Fed assured, they would be patient with policy hikes in the year ahead. Hopes are rising of a trade deal with China this month. The Dow jumped 750 points. Nasdaq composite was up 275 points a gain of 4.3%. Fears of recession should evaporate as traders move back into market. Following growth of around 3% this year in the USA, we would expect momentum to be maintained into 2019. In the UK our mid case scenario would be growth of around 1.5% with inflation, borrowing, earnings and employment held at around similar levels to 2018. No need for panic, no real cause for concern ... but then there is Brexit ... oh yes Brexit ... That's all for this week, have a great week-end. We will be back with more news and updates all too soon! John  Strong UK Data in the UK ...
It was a week of strong economic data in the UK, which should have cheered markets. Headline inflation fell to 2.3% in November from 2.4% prior month. Producer prices fell as input costs slowed to 5.6% from 10.3%. Oil prices came under further pressure with Brent crude closing at $54 dollar a barrel. WTI was down below the critical $50 level at $45 dollars reducing pressure on prices across the globe. In the UK, inflation is falling (2.3%) as earning are rising (3.3%). The Bank Of England held rates in November. Real Earnings are rising with no threat to jobs or mortgage rates in the short term. Despite warning sounds from retail last week and stories of the "November Apocalyse" which will "Dash Retailers to Pieces", official data revealed retail sales were up by 5% in the month. Sales volumes were up by 3.6%, values were up by 5%. Online sales were up by 13% accounting for almost 22% of total transactions. It is the pattern of spending which is creating problems for retail, not the absolute level of spend. We expect a strong December to finish off the year. Retailers without a strong multi channel strategy may well be finished off. Strong spending is assisting the Chancellor of the Exchequer. Government borrowing fell to £7.2 billion in November, from £8.1 billion prior year. It was the lowest level of November borrowing for 14 years. Year to date borrowing was £32.8 billion down by 30% from prior year. Borrowing will fall to below £30 billion in the financial year, achieving a similar level next year. Official data confirmed growth was up by 1.5% in the third quarter, from 1.3% in the first half of the year. Household spending was up by 1.8%, government spending and investment fell. We expect growth of 1.4% this year and around 1.5% in 2019. "Fed Hikes Rates ..." US markets crashed again last week. The Dow and S&P fell by 7%. NASDAQ fell by over 8%. The 6,000 support level came under threat, the August high of 7,660 long forgotten. NASDAQ delivered a twenty per cent drop in the quarter. Ouch! Markets over reacted to the Fed rate hike. The 25 basis points rise an indicator of strong growth and earnings potential in the U.S.A. The hike should have led to a recovery in prices, contrarians take position as prices tumble. Fed Chair Jerome Powell lowered growth expectations for 2019 to around 2.3%, from 3% this year. Two further interest rate increases are now plotted in for the year ahead. Markets and the President were displeased. Trump has discussed with close allies the possibility of sacking the Chairman of the Fed. Let's hope not. The resignation of Mad Dog Mattis was a sufficient blow to White House credibility this week. "Mad Dog Mattis ... Resigns ..." John Kelly, now Mad Dog Mattis; the President has lost his Chief of Staff and now his Secretary of Defence in just a couple of weeks. The President decided to pull troops out of Syria and Afghanistan following a phone call with President Erdogan of Turkey. For Defence Secretary James Mattis this was all too much. He will resign at the end of February, sending a note to the President in which he made it clear, The President deserved a Secretary "whose views are better aligned with your own." The Mattis announcement came a day after the White revealed the U.S. would be withdrawing troops from Syria and halving the troop commitment in Afghanistan. Both moves have been met with opposition from the Pentagon and with members of the foreign policy establishment. The President is taking a wrecking ball to the pillars of foreign policy honed over the past seventy years. The threat to NATO is unacceptable to many, the apologist approach to the Kremlin, too much and too soon. "We must do everything possible to advance an international order that is most conducive to our security, prosperity and values." Mattis explained, "We are strengthened in this effort by the solidarity of our [traditional] alliances." The President continues to take briefings from Fox News and Foreign Presidents, ignoring the advice of Cabinet and Key institutions in the USA. This week sees a partial shut down of Federal Government faced with Trump obstinacy over funding for the wall. Here's hoping for a partial shut down in the White House and a rounding of opinion in the Oval Office in the year ahead! That's all for this week, have a great week-end. Have a great Christmas and New Year. I wish you and your families all the best for the holiday and the year ahead. We will be taking a short break from economics and markets! A chance to think about our plans for 2019. John  I wandered lonely as a cloud ... just don't call me nebulous ...
Theresa May was back in Brussels this week, a modification to the Northern Ireland back stop sought. A sort of boundary to the back stop within an oval of consensus, outlined by a legal framework to be confirmed within a timescale as yet to be determined. Agreement was close but in the end denied. Jean-Claude Juncker was hand-bagged by the Prime Minister at breakfast. You called me "nebulous and imprecise" an outraged Prime Minister accused. I want to make this clear I am not nebulous (nor imprecise for that matter). A sheepish Juncker denied all. "I did not, I did not", the President of the European Commission cowered. "It was late at night and I had a few scoops", would have been an honest response. "Nébuleuse and Imprécis" the actual wording. Donald Tusk and others had seized the microphone before too much damage could be done. All too late, for want of a few, the deal was lost. The Prime Minister returned to London empty handed, full of hope, in a state of denial. The key vote promised last Tuesday, had been pulled at the last moment. Jacob Rees-Mogg and his turncoats of many colors were frustrated. In a fit of pique without strategy, the misnomered European Research Group submitted the 48 letters required to call the no-confidence vote. The renegades expected a drawn out debacle over days on main media. Instead, it was all over in 24 hours. Two suspended MPs were returned to the whip. Sext messages to barmaids overlooked in a time of crisis. The PM secured 200 votes to beat off the challenge to leadership.117 votes against, a clear democratic signal the Prime Minister should resign claimed the Mogg. A clear message to go on, claimed the Prime Minister, agreeing to step down as party leader before the next election as a sop to dissident remainers, So what happens next? Christmas first, then a possible vote on the May deal in the New Year. Just one vote, that's all it takes as we explained last week. No deal an option, an extension of the March deadline probable. A second referendum now in the running. Multiple choice for the electorate or simple in or out deal the first question. Or a general election ... there's always the chance of a general election. Business is in despair for lack of clarification as to what happens next. Labour remains silent watching with glee as the Tories tear themselves apart over Europe again. So what happens next, I have no idea. I want to make it clear I am not "nebulous" just totally confused about how we got into this mess ... Christmas Fears for Retail ... It is the season of good will and warnings of dire Christmas sales in the days ahead. Mike Ashley issued a warning to retail, Christmas shopping has been so bad it will literally dash them to pieces. November trading was the worst on record. Retailers cannot take that kind of November. Don't panic. John Lewis had warned of sluggish sales, Superdry issued a second profit warning in two months. Primark cautioned of sluggish trading conditions as fewer shoppers visited stores. Mike Ashley was so concerned about Debenhams, he offered a £40 million loan to see them through the winter crisis. Conditions attached to philanthropy, the loan would see the Sports Direct share stake increased to 40% and a potential merger with House of Fraser one step closer. Consumers are worried about Brexit the apparent story but is this really the case? With two week-ends of full trading before the 25th of December, there is still plenty of time to ring the tills ahead of New Year trials. This year Christmas is late! Lot's of time for sales and traffic to perk up before the end of year. Earnings on the rise ... ? The latest jobs data confirms employment remains high, unemployment is low and earnings are rising. Whole economy earnings were up by 3.3% in the three months to October. The 3% hurdle rate long anticipated, jobs compression is finally delivering the rise in pay we all expected. Private sector pay was up 3.4%. Public sector pay increased by 2.7%, (up from 1.7% in the same period last year). Construction pay was up by 3.5%, leisure sector pay was up by 3.6%. Vacancies increased to 850,000 with just 1.4 million unemployed. Recruitment difficulties most apparent in hotels, restauraunts, health and social work, the very sectors under challenge from government immigration policy. Real earnings are increasing as pay accelerates. In the month of October, whole economy earnings were up by 3.9%. Private sector pay was up by 4.2%. Pay should offset any Brexit concerns in the short term. The paradox will be presented to the Bank of England. The economy is expected to grow by just 1.4% this year. Inflation remains subdued. Earnings increasing towards the 3.5% threshold would normally force the MPC to act. Uncertainty over Brexit will forestall any increase in the short term, all eyes on what happens next when parliament returns in the New Year ... "Roll Up ... Pay Up ..." "Don't ring John Kelly" our headline last week. This week, President Trump confirmed Kelly is out. Budget director Mick Mulvaney will become acting White House Chief of Staff. Acting Chief of Staff, the President wants to remain some form of flexibility, according to White House Press Secretary Sarah Saunders. The President's first choice and several others had turned down the role. It all made for a difficult week for the White House. Michael Cohen former counsel to the Donald Trump was jailed for three years. "My weakness was a blind loyalty to Trump and a sense of duty to cover up his dirty deeds." According to Mr Cohen's lawyer, his client had the "misfortune" of being the president's personal lawyer, business partner and all-around fixer for more than a decade. When investigators began digging into his actions, they uncovered a variety of chargeable crimes. The President appears to be complicit in the crimes. Present in the room when payments were agreed to Stormy Daniels and others. Now concerns are expressed about the President's inauguration fund. President Donald Trump's inaugural committee is under criminal investigation by federal prosecutors in Manhattan for misspending some of the $107 million it raised from donations. Much of the funds were paid over to Trump businesses allegedly. The investigation, which is reportedly in its early stages, is also looking into whether some of the committee's top donors gave money to gain access to the incoming Trump administration. This would be a violation of anti-corruption laws. It will also make for a great story into 2019! That's all for this week, have a great week-end. Don't Miss Our Monday Morning Markets ... we expand further on market moves ... and assess the fortunes of our "Empires of the Cloud" tech fund ... John  Just a few days to go before the critical vote in parliament. Theresa May's Brexit deal will be put to the Westminster elite on Tuesday. Junior ministers were sent out on a roadshow this week. The objective? To convince the party faithful of the merits of the deal. Time well spent? Not really.
A survey of 1,262 Tory members taken on Thursday, suggests 72 per cent reject the deal. They would like their MPs to do the same. Just 26% are in favour. It doesn't look good. Worse still, 62% think the Prime Minister should resign if the vote goes ahead and the deal is lost. Time and effort would have been better spent dealing with Tory dissidents and the DUP perhaps. MPs have been surprised by the lack-lustre effort of the whips in the house. Perhaps their hearts are not really in it. Graham Brady, Chair of the Back Bench committee tried to persuade the government to postpone the vote on Tuesday. A crushing defeat is the likely outcome. The government is committed to the timeline, warning of chaos at the ports and rationing of medicines if a hard Brexit ensues. The deficit could be as many as one hundred votes against, as Tory Brexiteers and Remainers unite with the DUP. A heavy defeat could lead to an end to May as Prime Minister, an end to the Tory government, a general election and the option of a Corbyn administration in power. Or we might even see a second referendum as MPs seek guidance and direction for the next big move, MPs are already hatching a plan, to dump May if the vote is lost this week. Labour will join with Tory dissidents and the DUP to bring about a vote of no confidence. Boris Johnson, may yet have another tilt at the Downing Street Windmill. Just one vote, that's all it takes ... rivals will get chance to sip from the poisoned chalice. The challenge ... to unite the Conservative party on Europe ... well good luck with that ... House Prices Falling ... ? House prices increased by 0.3% in the year to November according to the Halifax Building Society. Russell Galley, Managing Director, explained, "Although this is the lowest rate for six years, the outcome is within the expected 0% to 3% band for the year as a whole." Should we worry about the housing market? Not really. As earnings rise and house inflation slows, affordability is increasing. High employment, wage growth and low interest rates continue to underpin the market. In the three months to October, house sales were up by 2.4%. Mortgage approvals increased by the highest level since the start of the year. According to Nationwide, house prices increased by 1.9% up from 1.6% in October. Expectations remain of further growth in activity and prices next year. Concerns over Brexit cast aside for the moment. No need to worry about the 30% drop conditioned into the Bank of England stress test at all. Car Sales Falling ... ? Car sales last month were down by 3% on prior year. For the year as a whole, registrations were down by 7%. We expect total registrations to fall to 2.37 million from 2.54 million last year. Diesel remains the big story. Diesel sales were down by 30% in the first eleven months of the year. Petrol sales were up by 9% and alternative fuel vehicles were up by 22% taking a 6% market share. This year was not really about economics, it was the story of a market in transition. As Mike Hawes Chief Exec of the SMMT explained, "Model and regulatory changes conspired to affect supply and demand in 2018. The good news is that, as supply constraints ease, and new exciting models come on sale in the months ahead, buyers can look forward to a wide choice of cutting-edge petrol, diesel and electrified cars." "It’s now critical that a Brexit deal is secured to boost consumer confidence and provide a stimulus to the new car market as we enter the New Year." A yes Brexit, just one vote, that's all it takes to boost confidence in the car market. And what of growth ... ? We normally follow the market in housing and motors to understand the direction of travel and momentum for the economy as a whole. Despite the fears over Brexit, the UK is expected to grow by 1.4% this year and next. In the EU, the latest data suggests growth of 2% in 2018 and a similar level in the following year. In Poland and parts of Eastern Europe the EU will grow by an average 5% this year and next. In Ireland the economy is expected to grow by almost 10%! That's better than any BRIC and we know how to trade there. Lots of growth in our biggest trading block. Just one vote to remain in the customs union and the Free Trade Area ... you know it makes sense ... "Stop calling John Kelly ..." Market turmoil continued this week. The Dow fell by over 500 points wiping out gains for the year. Apparently, Trump is beginning to think he could be part of the problem! According to a CNBC report this week, Trump is glued to the television and the stock market fluctuations. He is asking advisors if the tariffs he has been imposing on China may have contributed to market unrest over the last two months. Imagine! The self described "Tariff Man" could be having second thoughts about his trade policy, if indeed there is such a thing. Someone should explain, arresting a senior exec from Huawei on the Canadian border, won't ease relations with Shanghai. Rex Tillerson former Secretary of State, explained life in the White House was difficult, “It was challenging for me coming from the disciplined, highly process-oriented Exxon Mobil Corporation to go to work for a man who is pretty undisciplined, doesn’t like to read, doesn’t read briefing reports, doesn’t like to get into the details of a lot of things, but rather just kind of says, ‘Look, this is what I believe,’” Tillerson explained in a discussion with Bob Schieffer of CBS News. "Trump would get frustrated when he could do something which was illegal!" It had never stopped him before, as the Mueller investigation will expose. Trump took it all in his stride "“Mike Pompeo is doing a great job, I am very proud of him,” Mr. Trump wrote on Friday afternoon, referring to the current secretary. “His predecessor, Rex Tillerson, didn’t have the mental capacity needed. He was dumb as a rock and I couldn’t get rid of him fast enough. He was lazy as hell." Dumb as a rock and lazy as hell! It was time for the Exxon exec to exit. Soon too the time for John Kelly to move on. He probably won't make it to carol singing in the Oval Office this year. "Stop Calling John" the President instructed staff this week. An ominous line! He has already lined up his successor. Nick Ayres, the Mike Pence top aide is the likely replacement. The Mueller investigation is closing in. The latest revelations, show that nobody can save Trump. Meanwhile the trade deficit is increasing, inflation is set to rise, the fiscal deficit is rising to $1 trillion dollars. The overall debt is set to increase over 100% of GDP. The White House is not concerned. "It will only become a big problem, long after I have left the White House", the President explains. It could be sooner than you think! That's all for this week, have a great week-end. Don't Miss Our Monday Morning Markets ... we expand further on market moves ... and assess the fortunes of our "Empires of the Cloud" tech fund ... John  Another Day ... Another Minister Quits. Yesterday Sam Gyimah, the Universities Minister resigned. "It has become increasingly clear to me the proposed deal is not in the British national interest". Oh Dear. The new exciting Chapter for the British people may yet be unread.
"To vote for this deal is to set ourselves up for failure, we are surrendering our voice, our vote and our veto" claimed the minister. The deal leaves us "poorer and weaker". Jo Johnson, Transport minister resigned earlier in the month with a call for a second referendum. Sam Gyimah echoed the call. It now seems impossible for the Prime Minister's proposal to be accepted in just a few weeks time. The Prime Minister has succeeded in uniting Remainer and Brexiteer against the deal with the EU. The former, hope for a second referendum to overturn the 2016 decision. The latter quite happy to accept the no deal option, crashing out of the EU, the single market and the customs union in the process. Business is in favour of the deal because it provides continuity on trade within the customs union and the promise of a single market to follow. Given the option of a second referendum, with a remain vote the outcome, the CBI and others would gladly accept a return to the ballot box. Michael Gove warned back benchers this week, voting down the deal could mean Brexit would be "by no means guaranteed". The Times reports today, eight cabinet ministers including Michael Gove and Phillip Hammond have held discussions about joining the European Free Trade Area. The Prime Minister is in Argentina this week-end, reprimanding Mohammed bin Salman on the one hand and drumming up support for the EU deal on the other. Why bother? Back at home, confusion continues. We are heading for a second vote in Parliament and perhaps a second referendum in the country as a whole. The call must be for a FREE Vote in the house, only then may we discover what Labour party policy really is. Obligingly, the EU have offered to delay the Article 50 exit by several months. Why so? to accommodate the timetable for the second referendum of course ... why else? Canada Plus ... The Bank of England released the latest prognostications on life without Europe this week. A no deal scenario, could lead to GDP down by 8%, House Prices down 30%, Commercial Property down 50%. Unemployment up 8%,Inflation up 6.5%, Sterling down by 25%, to 90 cents on the dollar, Government Borrowing soars and interest rates rise to 5.5%. In other news, the Governor is obliged to stay in the job for a further three years, John McDonnell becomes Chancellor of the Exchequer and Theresa May is elevated to House of Lords. The good news, the banks and the banking system will be OK. Important to note, the projections are not forecasts. They are worst case scenario planning as part of the "stress test" for the banking system and the British people. Stress tests opportunely released, just ahead of the critical vote in the House of Commons. *Is the Governor biased ? "People think you just don't want to leave Europe" the Mark Carney challenge this week. "Rubbish" the response "Most days I regret moving over here. If it wasn't for Brexit I would be back home by now. As it is I just have a massive salary and the ability to print money to make up for it. *Extract from My Week Mark Carney in the Times today. This week, the Treasury released the long term economic analysis of the EU exit. It doesn't make for great reading. It's 90 pages long for one thing. A no deal scenario (with tariffs) could lead to an 8% drop in GDP, a Free Trade deal would lead to a GDP drop of 5%, and EEA deal would lead to a drop in GDP of around 2%. NIESR have suggested the proposed deal would lead to a drop in GDP of some 4% by 2030 at a cost per individual of £700 to £1,000 in each year. Either way the forecasts don't make for great reading. We will be substantially worse of leaving the EU in what ever form. There was never an economics case to leave the EU. There was never a business case to leave the EU. The social case was always about immigration. EU citizens are already making the decision to leave. The political case was always about "Who governs Britain" ... always a great question ... Trade hopes rise at G20 meeting ... The G20 leaders are in Buenos Aires this week-end. Trump made a great play of signing the NEW NAFTA agreement. It's a good-bye to the old NAFF NAFTA agreement. The US will be able to sell more chicken, eggs and turkey to Canada. More dairy products will head North. More car components will originate in the region. Higher pay levels in Mexican factories will result. The punitive tariffs on aluminum and steel will remain, imposing a price hike on US manufacturers and consumers in the process. Trump arrived in South America haunted by the Mueller investigation and the latest revelations from Michael Cohen. The former lawyer and advisor to Trump admitting to lying about plans to expand the Trump Tower empire into Russia. Discussions continued into 2016. The offer of a $50 million dollar apartment to President Putin included. Trump decided not to meet with the Russia President during the visit, allegedly because of latest transgressions in the Ukraine. Nothing to do with the latest confessions from Cohen of course. The President is due to meet with President Xi Jinping during the trip. In fact they plan to meet over dinner this evening. World leaders are hoping for a de-escalation of the trade tariff wars between the two nations. World trade is slowing. European exports are suffering. The Trade war is bad for all parties, the USA included. The problem of course, is Trump is so unpredictable and subject to mood swings. The more implacable leader of the People's Republic of China is far more adept about dealing with dissidents, Trump included. Let's hope for progress and trade peace in our time ... That's all for this week, have a great week-end. Don't Miss Our Monday Morning Markets ... we expand further on market moves ... and assess the fortunes of our "Empires of the Cloud" tech fund ... John  The week started so well for the Prime Minister. Tory rebels failed to muster the necessary 48 votes to force the no confidence vote. The withdrawal agreement had proven unacceptable to all parties. The saving grace ... the no-deal option appeared to be even worse. Staying in the EU was becoming a more favoured option.
Theresa May had made it clear she would exhaust all options, herself included. The performance on Radio 5 live evidence of the long haul. Mrs May has the "emotional engagement of an answering machine", claimed Patrick Kidd in the Times today. Press 1, if you want a facilitated customs arrangement; Press 2, if you want to avoid a hard border down the Irish Sea; Press 3 for tariffs; 4 for another vote; Your call is important to us, just keep those questions coming! "Is your deal better than the one we have already, staying within the European Union?" asked Michael from Kent. Was this Heseltine? Who knows ... "Don't be absurd" the PM wanted to reply but held the line. "It will be a different world but a good one, I genuinely believe there is bright future for this country". Taking back control, a truly global Britain, seeking a rightful place in the world, on the edge of Europe, that sort of thing. The EU plans to meet this week-end. Angela Merkel is planning to veto the session unless France and Spain get into line. "Fish and Gibs" on the menu. The French reluctant to let go of the fishing quotas, the Spanish requiring additional assurances on the future of Gibraltar. It all seemed so clear last week-end, an ambitious free trade agreement the outcome at the end of the withdrawal agreement. We get to keep the fish, save some money, expats get to stay in the sunshine. Then came the fudge ... "Britain and the EU "envisage having a trading relationship on goods that is as close as possible with a view to facilitating the ease of legitimate trade." Plus ... The French just won't let go of the fish. the EU boats will continue to seek access to British fisheries. Both parties have agreed to use "best endeavours" to conclude and ratify a fisheries agreement no later than July 2020. It's a fix and a fudge, agreeing not to disagree, the basis of agreement once again. For the DUP, the deal is worse than Jeremy Corbyn in power. For Dominic Raab, the deal is worse than staying in the EU. For all parties, Brexit is like the battery advert, Theresa May the Duracell bunny. Last one standing, in the end we may all say ... "Look whatever you agree in the end is fine with me ... especially if that means "status quo ante referendum". Yep get them to vote on that ... status quo ante referendum ... we have exhausted all other options ... Where next for oil prices ... Oil prices Brent Crude closed below $60 dollars this week-end. WTI closed at $50 dollars. Demand is slowing, stocks are rising, the Saudis continue to pump oil above quota for now. President Trump thanks Saudi Arabia for pushing prices lower in a tweet. "Thank you Saudi Arabia but let's go lower". Energy bills in the Trump Hotel Group the main beneficiary. Not so the shale oil producers of America, with an average cost of production at around $50 dollars. US output will be slashed. The nodding donkeys will be put to sleep and soon. We expect a 20% drop in the oil rig count if prices stay at current levels. The correlation between the count and prices is high, 0.9775 with a 16 week lag. The US and Russia are just as much the price governors as OPEC. Lower prices will mean job losses in oil and coal! The good news ... It seems unrealistic for prices to remain at current levels on fundamentals. With so much troubled oil on the waters at any given time, futures trading may yet push prices lower. We have seen this in the recent past and could do see it again in this short cycle. Back in the UK, there was a slight setback for the Chancellor this week. Borrowing in October came in some £1.6 billion higher than prior year. Receipts were up by just 1.2%, spending in the month was up by almost 8%. Austerity is over, the pay caps have been released. Borrowing for the year to date was £26.7 billion down by £11.2 billion prior year. For the year as a whole we expect borrowing to be around £28 billion. Total government debt was £1.8 trillion around 84% of GDP. Over on the U.S.A. ... Let's be honest ... President Trump was in great form for Thanksgiving this week. Recovery from the mid term election set back was evident. “I made a tremendous difference in this country,” he said. “This country is so much stronger now than it was when I took office and you wouldn’t believe it and when you see it, we’ve gotten so much stronger, people don’t even believe it.” Leaders around the world say to me when we meet, "You have made such a tremendous difference, your country is so much stronger now than it was when you took office apparently. We don't believe it." In many ways they are right to have their doubts. Despite strong GDP growth this year, the stock market gains have been eradicated as markets fret about tariffs and trade wars. Fears for growth in 2019 materialize as Trump policies generate domestic inflation and hit job prospects. The President no longer claims credit for the strength of the stock markets, blaming Fed Chair Jerome Powell for the rapid rise in rates. This week he attacked Steven Mnuchin, the Treasury Secretary who made the Powell appointment in the first place. Mnuchin, Mattis and John Kelly may be on the way out. The President pardoned "Peas" the Thanksgiving Turkey this week. It is a tradition bordering on farce with an element of tragedy. The average life span of a turkey with a Presidential Pardon is less than two years. Over fed and over weight, life on the farm is not rich in longevity. Two years at best. 'That's better than the average life span of a senior official in the White House! That's all for this week, have a great week-end, Don't Miss Our Monday Morning Update, we will expand further on market moves ... and assess the fortunes of our "Empires of the Cloud" tech fund ... John  "We are leaving the EU on the 29th March" claimed the Prime Minister this week.132 days to go, we have a deal. It's a good deal, the best that could be secured. We actually get to keep the fish and to leave the Common Agricultural Policy. It gets even better.
We "take back control, with an end to unfettered immigration". We will stay within the customs union until December 2020. The lure of a generous free trade deal to follow. Citizens rights will be protected in mutual territories. Planes will fly, fish will swim. Champagne and Prosecco will flow for many Christmases to come. It's a great deal ... It's a soft Brexit, hard Brexit avoided. The CBI applauded the deal. Take the offer now! Who would have thought the EU would offer the concession, cherry picking free movement of goods, without free movement of labour. OK, there are a few complications. We will pay €40 billion euros to settle outstanding obligations. The European Court of Justice will monitor MPs expenses. We will be allowed to leave the customs union but only with the agreement of our European partners. Four hundred and eighty five pages of complicated cross reference devoid of executive summary. Something for everyone not to like and so it proved. For Dominic Raab, the Brexit Secretary it was all too much. The shock of discovering Britain was dependent on sea ports for the movement of goods had been a huge setback last week. So much dependent on the Calais - Dover route particularly, who would have thought? Yes Proximity trade models rule. The Brexit Secretary resigned from Cabinet, the shock of it all. For Esther McVey it was also five hundred pages too far. The Works and Pensions Secretary explained in her resignation letter, "The deal you put before the Cabinet yesterday does not honour the result of the referendum. You have said that we must regain control of our money, our borders and our laws and develop our own independent trade policy." That isn't happpening. I am back off to Tatton. Come on Esther, two out of three isn't bad. Business doesn't really want an "independent trade policy" anyway. What a load of nonsense. They are quite happy with the status quo thanks. More resignations, the Cabinet wobbling. What would happen to the Brexiteers in Cabinet, particularly what of Michael Gove? The drama was unfolding but ERG was about to strike … My right honourable friend ... A vote of no confidence in the Prime Minister appeared as an option once the deal was published. Forty eight is the magic number of Tory MPs needed to secure a vote of no confidence. The ERG (European Research Group) was to lead the charge. Jacob Rees-Mogg at the vanguard spoke in the house. "What my right honourable friend says and what my right honourable friend does, no longer match." "Should I not write to my honourable friend the member for Altrincham and Sale West". The latter of course a reference to Sir Graham Brady, Chairman of the Conservative back bench committee. The writing, a letter of no confidence which duly followed. The temperature was rising the number of letters submitted did not. MPs were in constituency on Friday and will be over the week-end. They will test the appetite for a challenge to the Prime Minister and the prospect for a leadership election. Forty eight the number to force a vote, then 158 the number to force the Prime Minister out of office. Then what? The ERG charges forward without any idea of strategy to follow. Boris Johnson, David Davis, Michael Gove, Esther McVey, Amber Rudd ... the list is not inconsiderable for options to rule the party. Really? It is a tragedy of course. The Prime Minister is trying to secure the best deal for the "British People" and for business. There is no self interest, no idealogical prejudice. The negotiator has returned from the ring with a solution to the deal. Three hours explaining the deal in the house, then a battering from colleagues of every hue for the remainder of the day. The reward, an evening of baked beans on toast and a large whisky to end the day. Yes husband Phillip poured the drinks, made the toast and did the washing up. A gent! The Choices Before US ... All eyes were on Michael Gove as Raab and McVey left government on Thursday morning. To lose Gove at that stage would have been a cruel blow to the Prime Minister at a particularly vulnerable moment. The DEFRA Secretary was offered the job of Brexit Secretary. He declined but agreed to stay in cabinet, as one of "Five Brexiteers" pushing for am improvement in the final deal. Andrea Leadsom, Chris Grayling, Penny Mordant and Liam Fox remain in government for now. Cabinet ranks amplified by the return of close ally Amber Rudd and arch remainer Stephen Hammond. Stephen Barclay becomes the new Brexit Secretary. So what happens next? Boris Johnson has been strangely silent to date. Better to wait post week-end to see which way the winds blow for Boris, always the man of pragmatic principal. Monday we will learn if the challenge to the Prime Minister is to be made, let's hope not. The EU are set to approve the agreement on the 25th November, there may be a few tweaks wither side before the deal is done. Either way we are set to leave the EU (after a fashion) at the end of March next year. To leave without an agreement would be a disaster, to remain within the EU is now an impossible dream. The deal on the table is a good deal for the UK and for business. It is not perfect, there is something for everyone to dislike. On the other hand there is something for everyone to welcome, hard Brexit avoided, most of all ... That's all for this week, have a great week-end, Don't Miss Our Monday Morning Update, we will expand further on market moves ... John  Brexit is turning out to be a lot more complicated than anyone thought. Listening to Dominic Raab, the Brexit Secretary, it's easy to understand why.
"I had not quite understood that everything that comes to Britain has to cross the sea" explained the Brexit secretary this week. "It's a function of the way the UK is a peculiar, geographic entity" he explained. Lessons from history: RIchard II, Act 2 scene 1 ... "This royal throne of Kings, this earth of majesty, this other Eden, this demi paradise, this fortress of nature, this blessed plot, this realm, this peculiar geographic entity." Yes the Brexit Secretary has realised Great Britain (not the UK) is an Island ... a sceptred Isle in fact. "“I hadn’t quite understood the full extent of this", he said on Wednesday ... "but we are particularly reliant on the Dover-Calais crossing. You know that bit where England is closest to France." Well now we know. The White cliffs of Dover offer a Brexit reality shock and a lorry park extending to the M25. To be fair, Government can be difficult, often offering a steep learning curve. Karen Bradley Northern Ireland Secretary had explained, “I didn’t know that Nationalists and Unionists wouldn’t vote for each other." Well who would have thought? Someone should have explained the complexity of office before taking the job, you have to think, culture and sport may have offered a better option. David Davies had promised the easiest deal in history. Jo Johnson now suggests "the easiest deal in history is leading to the biggest gaffe since Suez and the greatest crisis since the Second World War." Yes Jo Johnson, transport secretary, resigned from Government this week. Brothers Johnson are united in abandoning Downing Street. It's a bit like that moment in the disaster movie. All the birds fly in one direction, the animals run from the jungle, something horrible and implausible is about to appear from the shrubbery but you are not sure exactly what that is. It turns out to be The Prime Minister's Brexit deal. It is 99% agreed ... with husband Phillip at least. A few details still require ironing out. Taking back control appears to refer to Brussels and not to Westminster. We will stay within the customs union until we don't, then there will be a backstop. Some matters are purely technical, how to you paint a border on the Irish Sea? How do you stop fish swimming across the Channel? A deal is close. It should all be over by Christmas, but which Christmas? The deadline is looming, business cannot afford to wait. This week, CME Group. said it’s moving its $240 billion-a-day short-term financing market to Amsterdam from London. German ball bearings maker Schaeffler announced the closing of two of its three British plants. Surgical appliances manufacturer Steris said it plans to move its corporate base to Ireland from the U.K. Panasonic is moving to Amsterdam ... Brexit is complicated, now they tell us ... UK Growth up by 1.5% in third quarter ... Good news for the Chancellor this week. The economy grew by 1.5% year on year in the third quarter following growth of 1.2% and 1.2% in the first and second quarters. Manufacturing was up by just 1%. Construction output was up by 2%. Service sector expansion was up 1.7% with hot spots in financial services, distribution and leisure. For the year as a whole we expect growth of 1.4%. In 2019, the EU has suggested growth will be just 1.2%. The OBR forecasts average around 1.5%. The Bank of England has forecast growth of 1.8%. The giveaway budget suggests growth could well be 2% or higher assuming a satisfactory basis for Brexit is achieved. Jobs growth continues as earnings increase, the outlook remains positive for the UK despite the short term nerves. House prices increased by just 1.6% in October according to Nationwide and 1.5% according to Halifax. Housing market transactions remain relatively low. There were 1.2 million transactions in the 12 months to September 2018, Car sales fell by 3% in the month and 7% in the year to date according to the SMMT. For the year as a whole, diesel sales were down by 30%, petrol sales were up by 7%. In 2018, registrations are expected to fall by just over 6% to a level of 2.4 million. The short term position remains mixed. The IMF continues to warn of the damage to world trade of tariffs and the threat of a China - US trade war. We expect trade volumes to slow to less than 4% this year following growth of 4.6% in 2017. This week the Fed voted to keep rates on hold. Markets expect a rate rise in December with more to follow in 2019. Rising dollar rates will place pressure on emerging markets, exacerbating the challenge of serving debt and accelerating capital outflows. Grumpy Trump arrives in Europe ... As expected, the GOP lost control of the house, the Republican hold on the Senate was extended. It was a setback for the President but ... Trump announced a great victory, fired Jeff Sessions and excluded Jim D'Acosta from the White House Press Corps. The President talked of working with the Democrats on a bi-partisan basis, assuming there will be no pursuit of impeachment nor difficult "investigations" of course. A Federal judge blocked construction of the Keystone XL oil pipeline. A disgrace said Trump. A recount was called in Florida, another disgrace said the President. A grumpy Trump traveled to Europe opening up a rift with President Macron on arrival with more to follow no doubt. It's going to get tough for the President. A siege mentality will grip the White House. Pressure will increase as the President's tariffs disrupt expansion in the USA and the Democrats flex their muscles. Much to follow ... but ... That's all for this week, have a great week-end, Don't Miss Our Monday Morning Update, we will expand further on market moves ... 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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