 Tories face humiliation in poll ...
Brush up your classics, let the hair fly. Boris Johnson is favorite to be the next prime minister of truly global Britain. "Johnson crushes rivals in member poll" the headline in the Times today. According to a You-Gov poll, 39% of those asked would vote for Johnson. Dominic Raab is the second most popular with just 13% of the votes. Michael Gove fails to hit double figures with just 9%. The new PM could be in office by the end of July. Sir Graham Brady Chairman of the 1922 committee emerged from a meeting with Theresa May this week. He explained a timetable had been set, to establish a timetable, to define the timetable, within which the current Prime Minister would leave Number 10. The timetable is to be managed by Chris Grayling, Secretary of State for Transport. Grayling will also arrange ferry transport across the political Styx for the departing Prime Minister. Phillip Hammond has issued a warning to candidates. Do not promise too much in terms of spending in the election campaign. Someone should advise "Spreadsheet Phil", it's unlikely to be his problem. Hot money must be on a dream ticket with Johnson in Number 10 and Gove next door as Chancellor of the Exchequer. Theresa May will be given one last chance to deliver a Brexit solution. The sadistic streak within the Conservative party runs deep. The Tories face humiliation in the European elections. The Farage Brexit party will be the outright winner, with a clear "Leave" option. The Lib Dems are likely to be in second place offering the only perceptible "Remain" variant. The Tories will surrender third place to Labour as Corbyn's credibility climbs. Following the EU setback, Johnson will have the tough job of uniting the party. It won't be easy. 49% of the party's Leave supporters put Johnson as their first choice but just 10% of Remain voters followed suit. The good news, Mr Johnson is considered by members to be the most likeable across the country. Support however, dwindles across the border. "As far as I can see" said Nicola Sturgeon, "He is a complete and utter charlatan" the prospect of him becoming Prime Minister, is one that will horrify many people across Scotland". The view may not be confined to Scotland. It may be horrifying at times but it promises to be great fun ... Peace in our time ... President Trump dialed back the rhetoric this week. There will be no war with Iran. John Bolton National Security advisor is to be put back in his box. Bolton, known affectionately in Tehran as the "moustache" is a hawk. "Who would have thought" said the President this week. "I would be the restraining influence". "Just give me a call" the President urged Hassan Rouhani the President of Iran, or better still "Just send me a beautiful letter" he could have added. I can add it my collection of beautiful letters from Chairman Kim, President Putin and my great friend President Xi. Yes friends across the world unite for peace in our time. No war with Iran or North Vietnam. I have in my hand a beautiful letter ... The President did something unusual on trade this week. Tariffs on industrial metals from Mexico and Canada were lifted on Friday. Tariffs on steel from Turkey are to be halved. The threat of tariffs on EU cars has been postponed for six months. The North American concession clears a major obstacle in securing passage of the "New NAFTA" deal through Congress. The President needs a win to offset the setback with China. Vice Premier Liu explained to reach agreement, the US must remove all extra tariffs, set targets for Chinese purchase of goods in line with real demand and ensure the text of the deal is "Balanced" to ensure the "dignity" of both nations. The latter difficult to achieve with Twitter as the medium, both sides are digging in. Trump declared another national emergency this week, announcing further restrictions on Huawei. China is ramping up the pressure with further restrictions on agricultural products. The Presidents are set to meet at the G20 next month to discuss the "little squabble" as Trump describes the trade war. The Chinese find dealing with Trump to be frustrating and confusing. No long-term plans, or the ability to think ahead. The President has the long-term decision- making ability of an "empty chair". Not sure if that bit was in the beautiful letter ... Strong jobs data ... Strong jobs data this week. UK unemployment fell below 1.3 million. Vacancies in the economy were 846,000. The unemployment rate was 3.8%. It has not been lower since December 1974. Earnings fell back slightly in the three months to March to 3.2% compared to 3.5% prior month. The slowdown doesn't make much sense. Adjustments may follow in the months ahead. Pay rises remain above CPI inflation. Real income growth continues. The consensus remains for growth this year at around 1.5%. Inflation remains subdued. There seems little or no prospect of a rate rise anytime soon. Sterling fell to $1.278. The cross party talks on Brexit were officially declared dead in the water. Oil rallied, gold fell, Bitcoin crashed. Markets rallied in the US and the West. Markets in the East fell. China badly hit on fears of an acceleration of the trade wars. If only the "Little Squabble" could be resolved ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John
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 Is it really all about stock building ...?
The UK economy grew by 1.8% in the first quarter of the year according to the latest data from the ONS. The growth was largely expected following the comments from the Bank of England Inflation report last week. Service sector growth was up 2% with a strong performance from the leisure and distribution sectors. The Business and Finance sector expanded by just 0.9%. Government and other services were up by 1.2%. Construction output increased by almost 3% year on year. The "Beast from the East" in 2018, provided an easy target to beat in the start to the new calendar year. Manufacturing output increased by 1.2%, compared to manufacturing growth of 0.9% in the whole of 2018. So what of stock building? "Brexit stockpiling boosts economy (for now)" the headline in the Times today. "A deceptively strong start to the year" claims Howard Archer chief economic adviser to the EY Item club. "There was a major boost to first quarter growth as businesses looked to protect supplies in the event of a no-deal Brexit". Consumer stock piles of toilet roll may have helped expand GDP by as much as 0.7% in the quarter, the claim. Ruth Gregory of Capital Economics is more sanguine. Stock building will have exacerbated the trade deficit. Any growth in stocks and output would have been offset be a deteriorating trade balance. The stock contribution to growth may have been as little as 0.1% as imports soared by 10% in the quarter. Export growth stalled up by just 1.5%. The trade deficit accelerated to £17 billion in the first three months of the year. This compared to £24 billion in the whole of 2018. The £10 billion swing in the first three months of the year accounts for 0.5% of annual GDP and a not insignificant 2% of GDP in the quarter. For the year as a whole, most economists are now penciling in a 1.5% expansion. Growth may moderate as fears for Brexit and Trade wars continue. Manufactures are exhausting working capital and storage space in the quest to second guess the next move on Brexit. Any reduction in stocks may hit output but would reverse the damage to the trade deficit in the first quarter. We expect growth to slow in line with the Bank of England forecasts. Yes we join the consensus this week. The forecasts assume no further set backs on the Brexit story and some semblance of order in the White House approach to the trade conflicts with China ... Trade Wars Escalate ... "Your all time favorite President got tired of waiting for China to help out and start buying from our FARMERS!" tweeted Tariff Man Trump yesterday. "Tariffs will make our country much stronger. Just sit back and watch!" The President hiked tariffs to 25% on an additional £200 billion dollars of imports from China this week. The impact will take four weeks to implement with every opportunity to secure a deal in the meantime. It doesn't seem likely given the drift between the two negotiating teams and the hard line approach from Beijing and Washington. Two days of talks ended on Friday with no sign of agreement. The President continues to claim China will pay for the tariffs, much like Mexico will pay for the wall. This is a fabrication of course. The US Chamber of Commerce has made their views well known. Trade works, tariffs don't. American businesses and consumers are bearing the brunt of the global trade war, they say. "It is plain to see the tariffs are inflicting harm on the American economy. They will continue to do so unless the administration changes course. The US needs free and fair trade. Imposing tariffs to get there is the wrong approach." US farmers are also unconvinced. In the Mid West, farm incomes have fallen, farm bankruptcies have increased. News from Washington of the next round of tariffs was another great setback to businesses, Businesses which had spent years developing markets in China are now seeing lucrative markets for soybeans and other crops disappear. Despite the claims of the President, it is clear the American consumer is paying the price. The 20% tax on white goods has led to a 12% increase in retail prices for washing machines according to a study by economists at the Federal Reserve and the University of Chicago. A tariff is a consumption tax. Americans will be paying higher prices on greater range of goods as a result of the President's policy. Farmers may be bankrupt before trade deals are secured. Trump famously declared in March last year, "Trade Wars are good and easy to win". The President has yet to show he can strike a deal with China. Next up is Europe. Phillip Hammond warned this week, a further escalation of the trade wars would have serious consequences for Britain. If the President turns his attention to the trade deficit with Europe, the consequences will be all the greater. Markets Feel the Pinch ... Markets fell around the world as news of the tariffs and trade talks hit sentiment across all sectors. The Dow closed down 3% at 26,506. The FTSE closed down 180 points at just over 7,200. Our Nine index tracker fund was down by 3.4%. US stocks across the DOW, NASDAQ and S&P were down by 2.5% overall. Our European indices were down by 2.5%. Markets in South East Asia fell by 5%. Worse hit was China falling by just over 5.5%. It could have been worse. Markets see sawed as news of the trade talks moved this way and that. Sterling fell against the Euro and the Dollar. Ten year bond yields slipped in the US and in the UK. China is holding firm against pressure from the White House. It is also holding $1.3 trillion dollars of US debts. Should Beijing take a hard line on trade and ditch Uncle Sam's debt, the bond markets will see a big spike in US ten year yields. The all time favorite President may not be such a favorite after all. That's all for this week, have a great weekend. We will be back with more news and updates next week! John  Calls for Unity and New Leader ...
Local elections this week ... the Tories were flagging a loss of 1,000 seats, Labour a modest 400 seat gain. In the end Vince Cable was victorious with with a Lib Dem gain of over 700. Independent ranks doubled in size with a 600 plus gain. For both main parties it was a setback. Corbyn's councillors lost 80 of their number. Conservatives lost over 1,300. Over forty councils were lost by the Tories, Labour shed but six. For the Prime Minister, the end is nigh. "Shattered Tories tell May to set the exit date " the headline in the Times today. Graham Brady, head of the 1922 committee, will meet with the PM on Tuesday, to confirm the departure date. It is clear that voters have lost faith in the Conservative Party. A party divided, with policy confusion apparent. it is the worst set of results for the "Blues" since the time of John Major in 1995. Time to recover? Brexit will continue to tear the Tories apart, no matter who occupies the Number Ten hot seat. Theresa May in a speech to Welsh Conservatives suggested the electorate had sent a "simple message" to "just get on and deliver Brexit". Only the Prime Minister could consider a resounding poll set back, to be a mandate to push "her deal" through Parliament. Lovers of a whodunit hoping for a revelation of "H" , got an early taster this week. Line of Duty? The fifth series of Line of Duty ends tomorrow. Superintendent Ted Hastings is in the frame with odds of 10-3 for the fit up. If so, it is a clear message crime doesn't pay. Hastings lives in a hotel bed sit with dodgy plumbing. Theee poor fella had to flog his lap top to make ends meet. Real life drama was brought into focus this week. Who leaked the information on Huawei from the National Security meeting? Gavin Williamson was sacked by the Prime Minister. The Defence Secretary, a serial leaker, with a penchant for tarantulas was out. The Prime Minister had decided two days before the sacking the ambitious former Whip was responsible. Strong enough to tell the Russians to "go away and shut up" or to push or brand new aircraft carrier through the South China seas, Williamson denies leaking information from the security meeting. Who could have thought Williamson could be the leaker? "Only those who knew him" the more cynical response ... Forecasts Upgraded ... The MPC decided this week to keep rates on hold and maintain the current level of QE. The Inflation report upgraded forecasts for growth in 2019 and in subsequent years of the forecast horizon. Growth is expected to be 1.5% this year, rising to over 2% by 2021. Inflation is set to rise above the 2% target over the period. Unemployment is set to fall to 3.5% as earnings continue to rise. In the first quarter, growth is expected to be 2% at the annualized rate. Stock building ahead of the March deadline contributed to the surge allegedly. Hence the fade in second quarter growth according to the Bank model. The Governor issued a warning to markets. The current assumed path of future interest rate hikes is incompatible with current forecasts for growth and inflation. Markets are assuming base rates will rise by just 25 basis points by 2021. The Bank now expects to rise "slowly and to a limited extent". Ben Broadbent Deputy Governor for monetary policy suggests the economy could absorb a 25 basis points rise in each and every year over the next few years. There is little expectation of a rate hikes before the Governor heads to pastures new at the end of January next year Mark Carney has just to two more inflation reports to deliver. There was an element of end of term to the May Press Conference. The Governor derived great amusement from the projection of oil prices and the element of "backwardation" in oil price futures. Oh how we laughed ... what fun lies ahead in August and November. Only two can "contango" but many will look on and enjoy the dance ... Fed Holds Rates ... In the US, the Fed held rates. The Committee noted "the labor market remains strong and economic activity continues at a solid rate". It is almost an understatement. The economy expanded by 3.2% in the first quarter. US hiring rose at a brisk pace in April, according to data released on Friday. Non-farm payrolls rose 263,000, well above the median forecast of 190,000. Average hourly earnings increased 3.2 per cent year-on-year. The unemployment rate fell to 3.6 per cent. The good news for the Fed ... inflation remains below the target 2% for now. Inflation increased to 1.9% in March from 1.5% a month earlier. A strong dollar and a moderating oil price are assisting the process. The Committee decided to maintain the target for the federal funds rate at 2.25% to 2.5%. Markets rallied and bond yields moved higher. The Ten Year bond yield increased to 2.53% from 2.50%. The Federal reserve decided to ignore advice from the White House to slash rates. Vice President Mike Pence, called on the Fed to lower interest rates saying the "economy's engine could handle more fuel". "The economy is roaring" Pence said on Friday in a CNBC interview. "This is exactly the time not only to not raise rates but we ought to consider cutting them. President Trump had called for a 1% rate cut. Then the economy can "surge like a rocket". "Taking the punch bowl away just as the party gets going" has been the guideline for monetary policy over the ages. The White House wants to "turn up the music and dish out the shots". Fed Chair Jerome Powell has his hands on the liquor cabinet for now. Attempts by the President to stack the Fed with Trump acolytes have been thwarted for the moment. Herman Cain and Stephen Moore stepped back from the nomination process, a result of Senate resistance to the White House moves. The yield curve no longer inverting. No talk of recession persists. The Fed may have to act before the year is out. That's all for this week, have a great Bank Holiday weekend. We will be back with more news and updates next week! John  So what's the problem ...
The US economy grew by 3.2% in the first quarter of 2019. It was the strongest rate of first quarter growth in four years. The US economy has started the year with a "pop" making nonsense of the negative sentiment surrounding forecasts for the year. We expect the US economy to grow by 2.8% this year compared to 2.9% in 2019. China reported growth of 6.4% in the first quarter earlier this month. We expect UK growth to be around 1.9% in Q1 as we explained last week. It is difficult to understand the pervading gloom surrounding central bankers. The Bank of Canada, joined the mood swing, downgrading Canadian growth forecasts for the year to 1.7% softening rates in the process. In the US ten year bond yields slipped to 2.5% despite the strong GDP numbers. The Fed is unlikely to move on rates this year, unless we see a significant rise in underlying inflation. We attach little or no probability to a rate cut. US growth was supported by a 2.7% rise in consumer spending across goods and services. Private investment increased by over 6% with a strong performance in buildings, equipment and IP. Defense spending increased by over 5% offsetting cuts in other state expenditure. There were some strange twists to trade. Exports increased by 2.3%, imports increased by 1.6%. We still expect the current account deficit to exceed $600 billion dollars this year. The prospects for the internal deficit are far worse. The Fed budget balance is set to hit $1 trillion in the current fiscal year and will average over $1.2 trillion over the next five years according to the Congressional Budget Office. Debt could double to over $40 trillion dollars by the end of the decade. There is little or no appetite to deal with the deficit among Republicans and Democrats alike. The President has made it clear the real problem will emerge, long after he has left the White House. If the Democrats have there way it could be as early as next year ... Wake Up Sleepy Joe ... UK Borrowing Falls ... In the UK, government borrowing fell to £24.7 billion in the financial year to March 2019. It was the lowest level of borrowing for 17 years. Borrowing was down by over £17 billion compared to prior year. The out turn was slightly ahead of OBR forecasts in March. Chote and Chums had expected borrowing in the year to be just £22.8 billion. The March figures came in at £1.7 billion, up by £1 billion on prior year. Total debt was £1.8 trillion, a modest 83% of GDP. Revenues in the year were up by 5%. Spending increased by just 2%. Who said debt reduction was difficult? VAT revenues increased by almost 6%. Income tax and Capital Gains Tax receipts were up by 7%. The UK economy grew by just 1.4% in the calendar year for 2018. A remarkable contribution to state coffers suggest growth may have been higher and almost certainly continued into the first quarter of the year. Interest payments fell to £48 billion from £55 billion prior year. The coupon rate fell to 2.7% from 3.0%. The Bank of England givebacks fell to £8 billion from £9.3 billion prior year. The "money for nothing, gilts for free" policy, known as the Asset Purchase Facility, continues to yield great gains to Treasury. Things may become a little more difficult for the Chancellor in the current year. Other spending increased by 3.4%. Public sector pay is on the rise. The pressure to boost spending on front line services are increasing. We expect growth to continue to boost tax revenues. Even so, the deficit is expected to rise to over £30 billion in the current financial year ... Looking for a hero ... Looking for a hero, the story in the FT today. Headhunters have been appointed to recruit the next Governor of the Bank of England. Mark Carney is set to leave office at the end of January next year. If the bookies are to be believed, they won't have to look too far. Andrew Bailey is the front runner. Odds of 2/1 confirm the current CEO of the Financial Conduct Authority is favourite to succeed. A safe pair of hands, with a global reputation in banking supervision and financial stability, he has served as Deputy Governor and Chief Cashier having joined the Bank in 1985. Other insiders featured are Jon Cunliffe, Deputy Governor for Financial Stability and Ben Broadbent, Deputy Governor Monetary Policy. Odds of 6/1 are offered. The outside insider is Andy Haldane Chief Economist at the Bank. The Chief Economist is considered to be "too thoughtful and too academic" to be the institution's leader. Recent speeches on "Artificial Intelligence" and the "Future of Work" are inspirational. "The Dog and the Frisbee" a step by step guide to how a dog catches a flying object, less so. Fancy a foreigner? Raghuram Rajan Odds 5/1 is currently a Professor at the University of Chicago Booth School of Business. As a former chief economist at the IMF and former governor of the Reserve Bank of India, Raghuram Rajan is considered to be well qualified for the role of governor, should he wish to take on the challenge. Haruhiko Kuroda (黒田 東彦 Kuroda Haruhiko, is the current Governor of the Bank of Japan. He was formerly the President of the Asian Development Bank. He is considered to be particularly well qualified having little or no great experience of increasing interest rates. Looking for gender balance, (chosen on merit of course) Minouche Shafik now at the LSE, Shriti Vadera Chair of Santander and Sharon White CEO of Ofcom, feature. Rank outsider, you can get 50/1 on George Osborne if you fancy a flutter. For the moment, the bookies have stopped taking bets on Bailey, he may well have peaked too soon ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John  Retail Sales Boom ...
Retail sales volumes jumped by 6.7% in March, increasing by over 7% in value compared to prior year. Shoppers were shrugging off Brexit fears, splashing the cash and flashing the cards in defiance of forecast gloom. Online sales were up by 12% accounting for almost 20% of all transactions. Clothing and footwear sales were up by over 7%. Comparisons with prior year were distorted by the dismal performance last year. The "Beast From The East" roamed the streets in 2018. Milder weather this year and stock piling of toilet rolls apparently, may have boosted sales. Adjusting for the low figures last year, retail sales in volume and value were up by 5% in the month and over 4% in the quarter. Spending is enhanced by a strong jobs market, low inflation and real income growth. In March CPI inflation remained below target at 1.9%. As always we caveat, goods inflation increased by just 1.3%. Service sector inflation increased by 2.5%. The service sector and producer prices indicate moderate inflation pressures remain to challenge the benign interest rate outlook later this year. Earnings increased by 3.5% in the three months to February. Real income growth is up by 1.6%. The unemployment rate remains steady at 3.9%. The number of vacancies in the economy was over 850,000. The number unemployed was just over 1.3 million. Consensus forecasts suggest growth of 1.3% for the year. As we explained last week and illustrated in our detailed graphic below, don't be too surprised when the mood swings to the upside as group think catches up with reality ... Markets Rally ... Markets rallied in the East this week. Growth in China increased by 6.4% in the first quarter ahead of expectations. In the US, the outlook for first quarter growth has suddenly shifted upwards after a series of better than expected data releases later in the quarter. The first estimate of US GDP growth will be released at the end of the week. Market expectations of 2.3% growth will prove to be too pessimistic. Expect markets to rally and bond yields to bounce as the yield curve will gyrate to a revised forward rate curve. The Federal Reserve came under pressure again this week. Chief Economist Trump took time out from advising the Paris fire fighters to criticise the Fed. Markets would be 5,000 to 10,000 points higher. Growth would be nearer 5% if monetary policy were to follow the President's guidelines. Trump advised the French fire service to "act quickly" with the Notre Dame fire and "water bomb" the medieval structure. "Perhaps flying water tankers could be used to put it out" Trump tweeted. "Must act quickly" the helpful advice. The Paris firefighters were quick to respond. "Hundreds of firemen of the Paris Fire Brigade are doing everything they can to bring the terrible Notre Dame fire under control. All means are being used, except for water-bombing aircraft which, if used, could lead to the collapse of the entire structure of the cathedral." If only Jerome Powell head of the Fed could be so direct. Fed monetary policy was completing the departure from Planet Zirp. The seat belt signs had been turned off, the drinks trolley set to roll. A volte face by the Fed suggested no more rate rises this year. Rate cuts appeared a possibility. A bird strike was forcing the Fed to return to Planet Zirp. The intervention of the White House untimely and unwelcome. As if Trump did not have enough on his plate this week ... Not founded on facts ... The Mueller report was released . Partially redacted, the initial response from the President was jubilant. The Russians had interfered with the US election process. The objective, to influence the vote in favor of Trump but so what! There was no collusion between the campaign team and the Kremlin. No collusion, Trump was in the clear. "I am f****d" Trump had said on the announcement of the Mueller enquiry. "This is the end of my presidency" he had claimed. It may well yet be. Mueller has laid out a series of revelations about clear obstruction of justice or attempts to do by the President. The report identifies a President determined to put an end to the investigation. Trump fired FBI Director Comey. He asked for the investigation into Michael Flynn to be abandoned. He put pressure on Jeff Sessions to act to curb the theme and scope of the investigation. He tried to fire Mueller. Attempts to scupper the investigation failed. They failed in some cases because White House staff would not execute the President's orders for fear of criminal accusation. White House counsel Don McGahn deliberately disobeyed Trump instructions fearing formal "obstruction of justice" charges. McGahn explained the president had asked him to do “crazy shit". Trump accused his counsel of taking too many notes during meetings in the Oval Office. "I have never know a lawyer take so many notes" he said. The most concrete takeaway from the 448-page Mueller report according to Politico is the damning portrait of the Trump White House as a place of chaos, intrigue and deception, where aides routinely disregard the wishes of a president with little regard for the traditional boundaries of office. They also lie with impunity. When Trump fired Comey in May 2017, White House press secretary Sarah Huckabee Sanders explained "Comey was unpopular in the FBI. "Countless members of the FBI had told the White House they'd lost confidence in the former FBI director" she said. Challenged under oath during the Mueller investigation Sanders admitted the remarks were "not founded on anything" and were just a "slip of the tongue". With such unfounded lies are reputations damaged. The Mueller report has laid out a careful trail, exposing evident "obstruction of justice" attempts by the President. It is now for the Democrats to decide if they wish to pursue the case for impeachment. The party is divided.The 2020 election is less than 19 months away. Lots of time for Trump to dig a bigger hole before the electorate gets a chance to take the option or not on "Four More Years" ... That's all for this week, have a great Easter weekend. Enjoy the sunshine. We will be back with more news and updates next week! John  We have a delay ...
Our worst Brexit fears realized. Nigel Farage has a new political platform. The Brexit Party is pledged to fight the European elections and to secure more TV time for the EU MP. No more "Mr Nice Guy" the promise. Like the layers of a French onion, there is a more objectionable depth to Farage than we have seen to date apparently. "We will change politics for good" claims Farage. With a fund of £750,000 raised in just ten days, they will probably have to use Facebook. The Brexit Party is a bit like UKIP without the racism for now. The beer swilling, fag smoking imagery is out. Annunziata Rees-Moog, sister of Jacob, has been recruited to polish up the image and grab the youth vote. "We will rescue democracy" announced Annunziata "We will show the people of this country they have a say in how we are run". Excellent. There is a look and sound of Evita Peron to this Mogg. In other news, the Theresa May has secured an extension to the Article 50 process. A request for delay until the end of June was met with the generosity of the masochist. The Prime Minister's tortures are set to continue until October. The Conservative Party will dress up for the Halloween Party as May returns in six months time for a further "Trick or Treat" request. As Brussels spouts and Beatles sing, "It's a long and winding road, that leads to your door, it will never disappear, I have seen that road before." Ah Theresa, "It seems to me, you live your life, like a dangle in the wind, never knowing who to cling to, when the rain sets in." Anon. Yes Brexit the musical coming soon, unlike a solution to the real problem .... Say Cheese ... US trade wars with the EU are set to escalate. Trump plans a series of tariff hikes on cheese and choppers. Airbus become a target along with swordfish steaks, salmon fillets, trout and crabmeat. Cheese is on the list, especially Roquefort, grated or powdered. For Edam, Gouda and Gruyere, there is no grate escape. Cheddar and Stilton are on the table for tariffs. The inclusion of lemons and olive oil is set to lose the Italian vote. How the Godfathers would shudder to hear the news. The full list of threatened species, runs to fourteen pages. There is no escape for clams and carpets as the vengeance of the White House is directed at friend and foe alike. The tantrums of "Tariff" Man persist. How long must this go on ... Good news for the UK economy this week ... The latest data on growth, and output suggests the economy will expand by 2% in the first quarter of the year. Construction output will be up by over 3.5%. Service sector output will be up by 2%. We expect strong growth in the leisure and distribution sector offsetting weakness in business and professional services. Manufacturing output is set to increase by just 0.6%. There is no significant boost to output from stock building ahead of Brexit. The GDP growth is already reflected in strong job numbers, rising wages, good borrowing figures and a deteriorating balance of payments deficit. Growth for the year as a whole is more likely to be 1.7% plus, rather than the 1.2% now penciled in by the rather gloomy IMF. In the US, growth is likely to be around 3.0% in the first quarter. The Federal Reserve may well review any decision to hold rates through 2019, the pessimistic outlook for Uncle Sam's back yard will have to be updated and soon. World Banker ... In the US, Trump continues to demonstrate his inept people management skills. The head of Homeland Security Kirstjen Nielsen was asked to resign. The head of secret service, Randolph Alles was fired. Trump continues to threaten to close the border, separate families on arrival and move migrants into sanctuary cities. Refugees may be queuing at the border, but few officials are lining up to serve under the President." You know who really runs Homeland Security" said Trump this week, "I do". President Trump has spent the last few weeks trying to bend to his will three of the federal government’s least political institutions – the Department of Homeland Security, The Federal Reserve and The Department of Justice. Trump has tried to build the Department of Homeland security in his own image, purging staffers who disagreed with him, or those thought to be insufficiently loyal. At the Fed Trump would like to stack the bench with political surrogates who will respond to his bidding including Pizza King Herman Cain. There are signs the Republicans are becoming nervous about Trump nominations. Mitch McConnell, Senate Majority Leader said this week, "I’ve not spoken to him about any of them. I have expressed my, shall I say, lack of enthusiasm for one of them. There are a number of members … who have had some reservations about some of the names that have been mentioned.” Doubts about the dynasty would not have been assuaged this week. In an interview with Atlantic Magazine, Trump revealed he considered appointing Ivanka as head of the World Bank. Why not she is "good with numbers" apparently. Trump also disclosed "She would have made a great ambassador to the UN". "I could have made the appointment but people would have accused me of nepotism". Nepotism ... the very idea! That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Parliament is falling apart according to Matt Chorley in the Times today. The Houses of Parliament surrounded, not by demonstrators but by scaffolding. Support structures, in place, not to effect repairs but to catch the bits that are dropping off.
A warning message was sent to MPs this week, debris had fallen into the colonnade connecting Portcullis House with the Palace of Westminster. More effective than a three line whip, the objective was to move members of parliament away from danger. Crisis avoided. They moved as one, just as the nation is demanding on Brexit. Toilets are blocked, not the only impasse in the house. Mice are rampant, like naughty back benchers in debate. Proceedings were suspended. Water was pouring through the roof of the Commons Chamber. Relief abounded with the realisation it was rain, not sewage. falling onto the heads of honourable members. Outside the chants continued, "What do we want?" "Not quite sure" "When do we want it?" "Not just yet." Theresa May has written to the EU to ask for an extension to the Article 50 process. Allegedly the date is set for the 3oth June 20**. We remain confident the deal will be done in this century at least. In another place, the dream team awaits to resolve the crisis. Jeremy Corby and Shadow Brexit Secretary Keir Starmer were invited by the Prime Minister to join cross party talks this week. The invitation followed a mammoth seven hour cabinet meeting on Tuesday. Hopes were raised of a composite customs union deal. Hopes were dashed by the end of the week. Labour claimed Theresa May had failed to offer real change or compromise. Cross party talks had become an exercise in listening to an increasingly isolated leader. The Mogg tweeted "If a long extension leaves us stuck in the EU, we should be as difficult as possible. We could veto an increase in budget, obstruct the EU army and stop eating French cheese". I made the last bit up! Parliament is falling apart, there is no scaffolding to catch the bits that are set to fall off, in the not too distant future. UK Car Sales Fall ... Car Sales fell in March according to the latest data from the SMMT. Registrations were down by over 3% in the month and 2.4% for the year to date. Mike Hawes Chief Executive made a plea to government. "We urgently need an end to political and economic uncertainty by removing the threat of a no deal with Europe." "We need to agree a future relationship that avoids trade friction, increasing costs and prices". Yes Amen to that. March is a critical month for the industry. The plate change drives buyers into showrooms. Car demand is often seen as a bellwether for consumer confidence and the health of the economy. Not so much this time round. The trends in sales are much more structural rather than cyclical. Petrol sales were up by 5%. AFVs were up by over 7%. Diesel sales fell by over 20%. Consumers are confused by the diesel story. The move to hybrids and plug ins, is accelerating. The industry is struggling to cope with the demand for greener driving. Sit back and relax. In a new report, the SMMT reckons the UK consumers could be among the first to benefit from self driving vehicles. Lives will be saved and accidents avoided in an industry switch worth some £62 billion by 2030. The ability to achieve this will be dependent on securing a deal with the EU which benefits the automotive industry. It doesn't seem to be too much to ask but fears abound of a no deal prospect. Strange that some on the right, still think this is a great idea ... US Jobs Rally In March ... In the US, 196,000 jobs were added to the payroll numbers in March. The move was ahead of expectations, reducing fears of a slow down in growth for the year. The unemployment rate held at 3.8%, earnings eased back slightly to 3.2%. In the first three months of the year, job creation averaged 180,000. The February data was an anomaly. "February was a blip, we aren't seeing any decrease in demand for workers" said one of the leading recruitment firms. Recruitment difficulties are increasing. Wages are set to rise further in the US as in the UK. The US economy grew by an estimated 2.9% in 2018. In the second half of the year, the average rate of growth was 3.0%. That may be as good as it gets but we do not expect any radical slowdown in growth for the year. The Fed has reversed stance on more rate hikes for the moment. Ten year US rates moved back towards 2.5%. The yield curve is no longer inverting. The Fed expects growth to slow but we expect an upward revision for growth and monetary policy. On Friday, The President called for the Federal Reserve to cut rates and resume QE. The Chairman of the Fed Jerome Powell received some assurance on job security from the truculent Trump this week. "I guess I am stuck with you," Trump said in a phone call. The administration would like to see a cut in rates of 50 basis points. "The economy would climb like a rocket ship" claimed Trump. Trump is proposing appointments to the Fed including Wall Street journalist Stephen Moore and Pizza executive Herman Cain. Both have expressed agreement with Trump on the need for rate cuts. Both have called for a return to the gold standard. Both are rated with a high level of economic illiteracy. The President threatened to close the border with Mexico this week, then dialed back the threat with a possible 25% tariff on car imports if the hordes on the frontier were not reduced. The independence of the Federal Reserve is under threat. Column inches and pizza toppings do not provide adequate preparation for the custodians of monetary policy in the most powerful economy in the world. An economy climbing like a rocket ship, with a growing trade deficit and soaring government borrowing will require emergency rate hikes ere to long if any semblance of normality is to be restored. That's all for this week, have a great week-end. We will be back with more news and updates next week! John  For Theresa May ... The End is Nigh ...
Parliament had the chance to vote on eight different options to secure agreement on Brexit this week. The bonus ball in this week's lottery was a third attempt to agree to the Prime Minister's deal with the EU. The deadline date to leave was extended to April 12th to accommodate the process. In the end no deal secured enough votes. The House did confirm however, that no deal was not an option. Nowadays that is considered to be progress. Soft EFTA, EEA and Common Market two point zero, fared badly. No deal managed (well) (as if that would happen) along with a revocation of Article 50 disappointed. The option of a second referendum did quite well failing by just 27 votes. Just 90% eligible voted in this round. The Labour leader called for an election to clarify the process. Tax increases and nationalization would be added to a free vote Brexit ticket. No one fell for that. Jeremy Corbyn, is no knight in shining armour, just a bearded lefty riding a Trojan horse. The final round in the week was another shot at the Theresa May deal. Excitement mounted as Mogg and the Troglodytes indicated a change in stance. The DUP on the other hand were unwavering. The Prime Minister offered to resign to get her deal over the line. "Back me and I go" failed to convince the House. The option failed again, this time by 58 votes. Numerical progress considered to be a great success, May is considering a fourth attempt to make it over the line. It is the "Duracell Bunny" strategy. Fatigue and ennui expected to take a toll on resistance. In the TV ad race, the rabbit may win the day but for the Prime Minister the end is nigh. So what happens next? The customs union option secured 264 votes with just 272 against. The option failed by just 8 votes. The Prime Minister will have to go, along with her red lines, especially on the customs union. Inside the single market and the customs union makes sense. Government effort along with the opposition should focus on securing a Customs Union deal and soon to avoid a hard Brexit or a prolonged period of uncertainty and torment. UK Investment Falls ... Is uncertainty hitting investment? In the final quarter of 2018, business investment fell by 2.5% compared to prior year. Machinery and Equipment fell by 5%. Overall investment fell by just 1%. Investment in building and structures actually increased by 2%. We tend to identify "Investment" as an increase in productive capital relating to machinery and equipment in manufacturing specifically. Yet this accounts for less than 20% of total investment. The majority of expenditure is in "buildings, structures and housing". accounting for 60% of total investment. Investment in IP (Intellectual property) is 20% of total investment. The latter unchanged year on year, expenditure on IP is greater than the spend on machinery and equipment. Certain sectors have fared badly. In the motor trade investment has fallen significantly over the past three years. Inward investment into the UK fell to £600 million in 2018, down by almost 50% from prior year. Who would invest in a gateway to Europe as a portcullis and drawbridge are installed? This week the SMMT reported manufacturing output down by 15% in February down for the ninth consecutive month. 1.5 million cars were produced in the UK in 2018. 80% of output is exported, almost half of which is destined for the EU. Exports fell by almost 20% in the first two months of the year as markets slow in Europe and South East Asia. Structural reasons in diesel and ATVs explain the slow down in part. The motor trade will be one of the most vulnerable in a hard Brexit scenario. Trump should come with a warning label... Trump should come with a warning label, the headline in the Washington Post this week. The paper had been reviewing the financial statements used by the President to overstate his net worth when extending borrowing facilities. Extra phantom floors on the Trump Tower, 800 phantom acres on a vineyard. Brand values inflating net worth by some $4 billion. One of Trump’s statements came with a disclaimer saying “users of this financial statement should recognize that they might reach different conclusions about the financial condition of Donald J. Trump if they had access to a revised statement of financial condition prepared in conformity with generally accepted accounting principles.” In a sense the President is quite open and honest in his mendacity. It is as if he doesn't really take it seriously. Like the stories of his golf. "Trump must pay his caddies well because he smacks his ball into the woods and it always reappears on the middle of the fairway". "A ball in the water appears on the side of the lake "It must be the tide" explains Trump All revealed in Rick Reilly's new book, "Commander in Cheat" due out in May. Trump used to carry a spray can in his golf trolley. Hit a ball against the tree? The tree would be marked with an X for elimination before the next round if his handicap is to be maintained. "They cheat, I cheat, we all cheat" the rationale ... Yes a warning label, a great big warning label ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Are we really there yet ... ?
Global stocks and bond yields slumped at the end of the week. Investor fears about the health of the world economy deepened. News of a continued manufacturing slump in Europe added to the gloom as investors tried to make sense of the US yield curve. The Fed made it clear there would be no rate rise in 2019. Ten year bond yields fell to 2.4%. The yield curve is inverting. What is it saying about recession? Not much. More a cry for help than a warning of recession, the chatter is confused by Fed action along the bond timeline. Not waving but drowning, the yield curve is trying to make sense of an possible return to Planet ZIRP. Talk of a US rate cut this year doesn't make much sense. The Fed has cut the forecast for growth this year to 2.1%. from 2.3% in December. This is a virtual mathematical improbability. We expect growth in the first quarter to be in line with the final quarter of 2018. The US economy will continue to benefit from Trump tax cuts and Trump expenditure plans. The government deficit was a record $234 billion in February. Government debt is now $21.4 trillion dollars. The day of reckoning will arrive for the U.S. economy but not just yet. We expect markets to rally, bond yields to rise and the Fed to move before the end of the year. Taking Back Control ... With just one week to go to the departure date, an extension to the deadline has been secured for a troubled Prime Minister. The EU is taking back control of the process. Progress must be made in the House, if the deadline is to be extended beyond a revised April short date. Those concerned about recession in the UK should look no further than data releases this week. Latest jobs data continues to demonstrate the strength of the domestic economy. The number of people out of work was 1.3 million. The unemployment rate fell to 3.9%. The lowest since 1974. The employment rate was over 76%. It has never been so high. The number of vacancies in the economy was over 850,000. Earnings are increasing, rising to 3.7% in January. Pay in the construction and financial services sector increased by 4.5%. Real incomes are rising. The latest inflation data for February marks CPI inflation at 1.9%. Government borrowing is falling. In the financial year to February 2019, borrowing was just £23.1 billion. The lowest level since 2002. Total UK debt peaked at £1.8 trillion in December. Retail sales in February were up by 4% in volume and 4.3% in value. Online sales increased by over 9% accounting for just under 20% of all retail sales. Despite the strength of domestic demand, the Bank of England MPC voted to keep rates on hold this week. The bank is worried about the impact of a shock exit from the EU. This week, the CBI and the TUC sent a joint letter to government urging a positive solution to negotiations warning of a national emergency. "We cannot overstate the gravity of this crisis for firms and working people", they said. Fed Holds Back ... Central banks in the U.S., U.K and Europe are holding back. Growth forecasts are being cut as fears of trade wars and a slowdown in China abound. China is the second largest economy in the world valued at $13.5 trillion dollars in 2018. The U.S economy is worth some $20 trillion in comparison. A growth slowdown in China this year will still add some $800 billion to the world economy. Marginally lower growth from a higher base. That's roughly the same amount as in 2018. Of itself lower growth in China is not a threat to the world economy. Trump's tariffs are a real threat to the world economy and the US economy for that matter. Yesterday the President decided to block planned sanctions on North Korea. The move was announced on Twitter, catching senior officials in his own administration by surprise. White House press secretary Sarah Sanders said "Mr Trump likes Chairman Kim and he doesn't think these sanctions will be necessary". If only he liked Chairman Xi as much, then we could all breathe a sigh of relief. Markets fearing a recession are misguided. The differentiation should be made between cyclical change and structural change. For example, the UK will experience strong retail sales growth in the first quarter.The carnage in the high street continues, Debenhams, the latest casualty. Shareholders face extinction from a debt reconstruction now imminent. The changes in retail are structural not cyclical. The impact of online sales has reached the tipping point challenging the retail bricks and mortar model. We traditionally think of the car market as a short lead indicator of recession. It is structural not cyclical changes impacting on total sales in the U.S. China, Europe and the UK. Diesel sales are falling as the rise in alternative fuel models continues. Capacity constraints in AFV will impact on top line sales numbers. Fears of recession are haunting stocks, pushing bond prices higher. Central banks are falling further behind the rate curve. When markets move, up or down, someone somewhere is making money. Traders love volatility. Recession, are we nearly there yet? Of course not ... That's all for this week, have a great week-end. We will be back with more news and updates next week!  So what happened in the house last week ...
An exciting week in the House of Commons last week. The Prime Minister returned triumphant from Strasbourg secure in the knowledge a deal had been secured to push her deal through parliament. Geoffrey Cox, Attorney General had to deliver the legal opinion to assure the DUP and the ERG of the validity of the back stop to the back stop. Alas it was not to be. When Jon Snow suggested on Twitter, the AG had rejected May's deal, Cox tweeted "Bollocks". He still had over two hundred characters in play, if more explanation was needed. Now we know, the tweet was the legal opinion on the substance of the latest amendment. There is a sense bewilderment among the fifth estate. Jon Snow harassed Matt Hancock (Health and Social Care) suggesting the government was "all at sea" over Brexit. Emily Maitlis rolled her eyes in dismay when confronted with the prevarications of Labour's Barry Gardiner. He was asked to explain Labour's policy on Brexit and the election manifesto. He did not or more probably could not. "People are tearing there hair out" a frustrated Maitlis exclaimed. The "Newsnight" interrogator made furious notes to cancel future broadcasting plans and make a career move to the Antiques Road Show. It is too easy to misunderstand just what happened last week. The house voted to reject May's deal but decided to reject no deal. Any deal would be better that May's deal and or no deal but no other deal has been been offered for the moment. The Prime Minister offered a free vote on the Government motion to stop Britain crashing out of the EU. The motion was amended by MPs to rule out a no deal. The free vote was cancelled. A three line whip followed. Some Tories were already in the pub. Greg Clarke, the business secretary defied the government whip and abstained. In trying to explain his actions, he said he was confused. As if ... Stephen Barclay, the Brexit secretary voted against the motion. A swift change of heart. He had closed the debate arguing for the motion in formal process. Parliament tried to take control of the Brexit process. A motion from Hilary Benn making him Prime Minister was defeated by 314 votes to 312. MPs voted against a second referendum. Jeremy Corbyn in a "Carpe Diem" moment declared he was now in favour of a "People's Vote", safe in the knowledge this was never going to happen. So what happens next? The Prime Minister is set to make a third attempt to win Commons backing for her deal on Tuesday. Her voice may have recovered, the DUP will be offered concessions on Airport Passenger Duty in Northern Ireland. The ERG may realize the risk of staying in the EU is becoming all too probable. Theresa May is set to ask the EU for an extension to the Article 50 process if the deal fails once again to make it through the house next week. The PM will ask for an extension until the end of June. In June of which year has not, as yet been specified ... Tariff Troubles Torment Trade ... With just two weeks to go to the departure date, the Government decided to release details of the new tariff structure on imports into the UK. Business is already dealing with the challenges of the threat to exports. Now HMG has chosen the moment to reveal the imminent threat from imports. 87% of total imports into the UK would be eligible for tariff free access. Some protection will be offered on beef, lamb, pork, chicken and some dairy products including cheddar cheese. Tinned Tuna will be subject to a 25% tariff. Ceramics and fertilizer will also face tariff hikes. Imported cars will be taxed at 10%. Bananas, sugar and certain kinds of fish will maintain current tariff levels, to "ensure that access for developing countries is maintained." Trade Policy Minister George Hollingberry said "If we leave without a deal, we will set the majority of our tariff levels to zero whilst maintaining tariffs for the most sensitive industries". The new structure would be temporary. The government will closely monitor the the effects of tariffs on industry and the economy during an initial twelve month period. Business was unimpressed. The steel industry faces extinction, it does not appear to be a "sensitive industry". TUC General Secretary Frances O'Grady warned of a "hammer blow" to industries and communities. NFU President Minette Batters warned of the risks to domestic farming and a great reliance on overseas production with no control on animal welfare. Carolyn Fairbairn Director General of the CBI described the move as a "sledgehammer" for the UK economy. "What we are hearing is the biggest change in terms of trade for this country since the 19th century imposed on the country with no consultation with business and no time to prepare. " "This is no way to run a country." So who will run the country once Theresa May has gone ... Brexit Bonus in the bag ... Boris Johnson is the people's choice to become the next Prime Minister according to latest polls. Jacob Rees-Mogg is a close second. Nowhere does Phillip Hammond feature. The Chancellor of the Exchequer delivered his Spring statement this week. A sea of calm in an ocean of torment. The race to inanity delayed for a few moments at the despatch box. The Treasury offered a Brexit bonus in the event of a no deal, or in the event of an agreed deal for that matter. The OBR had delivered the March "Economic and Fiscal Outlook". Good news for the Chancellor on borrowing. The deficit will fall to around £22 billion in the current year. Debt as a % of GDP is set to fall in the years ahead. Growth will be around 1.2% this year, rising to an assumed trend rate 1.5% over the forecast horizon. Job prospects remain high, earnings will average 3.5%. Inflation will remain at or around trend rate. Real earnings will rise boosting household incomes. House prices will be flat through the year, pushing back the price earnings ratio to some semblance of normality. The Chancellor was in giving mood. More money for the police service. More money to challenge period poverty in secondary schools. The Chancellor pledged an end to low pay and an increase in the living wage. Visitors from North America, South Korea and Singapore will be able to use e-gates at ports of entry into the UK. Great news, this a process most of us have struggled with since introduction. Chancellor Hammond, spreadsheet Phil, a steady pair of hands above the "Banality of Brexit." Promises on the side of a bus, "Who governs Britain" the question at referendum. That's a great question we continue to ask today ... That's all for this week, have a great week-end. 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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