 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
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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  China Trade Data Adds to Fears ...
The world economy had a rough week, according to Bloomberg headlines today. "China and US deal blow to world markets" according to the Times. Is there any hope for the future? US markets fell by 2% in the week as the Dow, S&P and Nasdaq shared the impact of disappointing jobs data. South East Asian markets fell. China trade data in February suggested a radical slowdown in trade with the USA. Lower imports contributed to fears of a slow down on the Chinese mainland. Chinese stocks were down 5% in the week. You have to be quick in the markets. Last week China was the darling of growth. Up weighting within the MSCI index did produce a short surge in prices as tracker funds bought into China's superstars. Profit taking and fears for the short term provided a basis for a reassessment. As always the short term bears had some fun. Fundamental traders will stick with value in the East. It was left to Mario Draghi to be the cheerleader for the West; Think José Mourinho running the United Supporters Club. The ECB downgraded forecasts for growth in the EU area. Rate rises are off the table for the central bank until 2020 at best. Further QE is not expected. The bank announced a further round of short term funding for the banking system. TLTRO 3 is coming. It sounds like a LEGO Movie series. It actually represents "Targeted Longer Term Refinancing Operations" a means of providing discounted funds into the banking system. The ECB is worried about growth prospects in the world economy generally and in the EU area specifically. World trade appears to be slowing, growth is allegedly slowing in the US and China. Trump's trade war with China is creating problems within the US and China. Brexit uncertainty is damaging investment and trade prospects for the UK and Europe. Central banks are accommodating slowdown. Further rate hikes are off the table in Europe, the UK and U.S.A. China is cutting domestic rates to stimulate demand. Monetary policy and fiscal policy do not suggest any real slow down in the economy any time soon. Political folly is to blame for the uncertainty. Brexit is a shambles as is The President's trade policy. The wounds are self inflicted but for how long can the self abuse continue ... US Jobs Data Disappoints ... Another Tough week for the President of the United States. Last week, Janet Yellen former chair of the Fed explained that Trump has little grasp of economic policy. This week Paul Krugman, American Economist and columnist at the New York Times explained the President has little grasp of international trade. No real surprise there! The President had promised to reduce the trade deficit. In 2018, the trade deficit ballooned to $891 billion. The highest level in US history. Despite the introduction of tariffs, to reduce the level of imports, the trade deficit with China and the rest of the world increased. Dollar strength and relative rates of growth in the US versus the rest of the world explain the deficit expansion. Trump's $1.5 trillion tax cut fueled domestic demand and the propensity to import. Markets were relatively unmoved on the news. The twin deficit dilemma will return to haunt markets in the medium term. Growth in the US was 2.9% last year. This year, growth is expected to slow to 2.5%, it could well be higher as we have explained. (Growth in Q4 was 3.1% year on year). The real shock came with the jobs data for February. The number of jobs created in the economy slumped to just 20,000 compared to the 200,000 expected. 30,000 jobs were lost in the construction sector. The good news, earnings increased by 3.4% as participation rates continue to increase. The unemployment rate fell to 3.8% in the month. So what can we make of the February jobs data. Not much is the real answer. Payroll growth was over 300,000 in January and 227,000 in December. Over the three months job gains were 186,000. Construction jobs were up by over 50,000 in January. Can we really believe there were 30,000 layoffs in the following month? Monthly data in isolation is often too noisy. A break in trend should be treated with suspicion. The world economy may appear to have had a rough week. The fundamentals remain in place. The world economy will grow by 3.5% this year, underpinning the continued expansion in world trade. Trump's economic credentials are discredited. A reduction in tariffs is called for in a resolution of the trade war with the East. Lambs to the Slaughter ... Good news, Greggs announced it has stockpiled ingredients for the vegan sausage roll ahead of a no deal Brexit. The share price was still down in the week. Fickle markets have no heroes. Not so good, no deal Brexit threatens a cull of ten million lambs, the revelation in the Times this week. Tariffs would rise on trade with the EU, closing the vital export market for UK farmers. The proposal to eliminate tariffs on food imports would compound the problem for domestic agriculture. UK officials have told farmers almost half of the lambs reared each year may have to be slaughtered, burnt and buried on farms in the event of a no deal. British lamb may fall foul of EU hygiene rules. They may face a 45% surcharge if the full tariff is implemented. It is an horrendous scenario with now less than three weeks to deadline. BMW added to the traumas in the car industry this week. The future of the Mini will not in Cowley lie, in the event of no deal. Honda, Nissan and now Toyota have made the position clear. What use is a gateway to the Europe when the ports are closed to trade. It may have come a surprise to Dominic Raab, Brexit Secretary, the importance of trade between Dover and Calais. Just as it was a shock to Northern Ireland minister that Nationalists don't vote for Unionists in the province. How great the shock will be if Liam Fox determines to slash tariffs on food and manufactured goods in the event of a no deal Brexit. The impact on many industries would be devastating. No time to adjust to the flood of product into the UK. Brexit "Après ça le deluge", will be the reality for farmers and manufacturers alike. It is time to call for an international trade crimes commission. Who would you most like to see doing the perp walk? We already have a great list for that early morning wake up call ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  A Racist, A Conman and a Cheat ...
Tough week for the President of the United States! The leader of the free world was accused of being a racist, a conman and a cheat by his own personal advisor. Michael Cohen was before the Congress oversight committee. He had worked for Donald Trump for a period of twelve years, serving as a vice president on the Trump organisation. Working as Trump's personal counsel or "consigliare" he was widely regarded as fixer or enforcer for the now President. It was Cohen who had arranged payments to adult film star Stormy Daniels and Playboy model Karen McDougal to prevent them from discussing allegations of affairs with Trump. It was Cohen who was charged with the responsibility to threaten schools and colleges not to reveal SAT scores or any record of Trump's academic performance. What could the oft proclaimed smartest guy in the ring have to fear? Cohen revealed how Trump had inflated statements of net worth to secure banking loans, deflating asset values, when it suited to mitigate tax payments. Cohen revealed Trump had decided to run for President with little expectation of winning. It was to be the biggest brand exercise in history. The biggest "infomercial" in the campaign of campaigns. A campaign of self interest, ask not what your country can do for you ... Trump was well aware what the run for President could do for the Trump organization. Not least, a boost to brand value, estimated (by Trump) at $4 billion in 2013 and Trump hotels in Moscow and Pyongyang perhaps. Cohen had once said he was ready to take a bullet for the President. The spectacle of Trump's one time enforcer now denouncing him in televised proceedings detailing a "catalogue of cruelty and crimes" was truly shocking. Republican diehards denounced Cohen. "Liar, Liar Pants on Fire" the not so sophisticated poster taunts from within Congress. He is a rat "lying to reduce his jail time" Trump proffered from Hanoi. No denials or response to the accusations made. Attacks on Cohen, his wife and family the flavour of the day. Some of the language was reminiscent of "The Godfather" and not "The West Wing". "I am a liar but not lying" claimed Cohen. Trump diehard supporters have already made up their minds, the Grey Suits in the GOP may not be so sure. The Art of the Deal ... Tough week for the President of the United States. The master of the art of the deal came a cropper in Hanoi this week. The President had been spurred on by hopes of the Nobel Peace Prize allegedly sponsored by Japan's Prime Minister Shinzo Abe. It was "heel spurs" that enabled Trump to avoid the draft in a previous attempt by Uncle Sam to get Trump to Vietnam. It was "ego spurs" that led to the trip this time round. "Trump in Vietnam, getting killed at home by Cohen" the irony was not lost on Seth Myers the master of US political satire. Trump made the flight on Air-Force-One, Kim Jung-un made the 66 hour trip by train, a distance of over 2,000 miles. Despite an amicable series of meetings, the summit ended in confusion. The Americans had wanted an end to nuclear weapons in North Korea, the North Koreans had wanted an end to sanctions against the regime. The propositions were unacceptable to either side. Aides had warned of intransigence with little hope of a deal on the day. It was an act of theatre to distract from the issues at home for Trump. Kim Jung-un expressed confusion about aims and objectives of the negotiation. Not for the first time confusion about Trump's "Art of the Deal" followed inconclusive talks. "Sometimes you have to walk" explained Trump. "At least I get to fly back on Air Force One" he should have added. Trump's art of the deal came under further question this week. Tariff Man Trump is having second thoughts about the trade war with China. The deadline for the introduction of further tariffs was extended. By the end of the week, Trump asked China to remove tariffs on US agricultural goods. China's retaliation against U.S tariffs has hit American farmers badly. Exports to the mainland are expected to fall by over 50% from the $20 billion recorded in 2017. "This is very important for our farmers and me ..." explained Trump. Janet Yellen former chair of the Fed explained that Trump has little grasp of economic policy and the role of the Fed. For many over there, including the farmers, it is becoming an expensive lesson in learning ... Good news on growth ... Some good news for the President this week. US economic growth in 2018 was confirmed at 2.9% up from 2.2% prior year. Growth accelerated through the year. On our preferred year on year measure, growth in the final quarter was 3.1% compared to 2.6% at start of year. Investment surged by 6%, Consumer spending was up by 2.7% Exports increased by 4%, imports increased by 4.6%. The trade deficit is increasing as domestic growth sucks in a higher volumes of goods. Most analysts expect growth to slow in the current year to around 2.5%. If the trade issues with China are resolved, growth may then be higher. The trade deficit will continue to deteriorate. The internal deficit, will continue to expand. Trump has brushed off deficit concerns, whilst pushing through extravagant tax and spending plans. Now with the Democrats in charge of the house, Trump is expected to become the champion of fiscal responsibility as a series of clashes are likely in the months ahead. Trump may not know much about economics but he does have an eye for appeal at the polls ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John  Borrowing falls ...
January surplus was highest on record, according to the latest data from the Office for National Statistics. January is the month of biggest surplus for the Treasury. Receipts are boosted by payments of self assessed income tax, capital gains tax and corporation tax. This financial year 2018/19, the January surplus was a record £14.9 billion, an increase of almost £6 billion compared to prior year. For the year as a whole, borrowing was £21.2 billion. That's down by almost half compared to the same period last year. In the last financial year, total borrowing was £42 billion. In November the OBR projected a deficit of £25 billion for the current year. With just two months to go, the Chancellor is on track to reduce borrowing to around £22 billion. That's a modest 1% of GDP, compared to almost 10% of GDP at peak of cycle. Last week we talked of the strong growth in retail sales. VAT revenues are higher in the year to date, up by 5% on prior year. Later we report on the strength of the jobs market and the boost to earnings. In January, income tax and capital gains taxes were £31.4 up by 11% on prior year. Total revenues to the exchequer are up by 4% so far this year. Total spending was up by just 2%. Strong receipts reflect strong growth in the economy. Spending controls, with some counter cyclical kickers, explain the small increase in spending. The strong results for the Chancellor, do not suggest an economy which is about to keel over any time soon. The big overhang of course is Brexit. Self inflicted wounds are the most harmful. Time to make the deal and let the good times roll ... Earnings rise ... Good news from the job market this week. The unemployment rate in December was just 4%. The number out of work was 1.36 million down by 100,000 compared to prior year. The number in work was 32.6 million, up by 440,000 compared to December 2017. There were an estimated 844,000 on zero hours contracts in their main job, down by almost 60,000 over the same period. More people in work, earning more money. Whole economy earnings were up by 3.4% in the three months to December. Private sector pay was up by 3.5%. Public sector pay was 2.8%. Construction pay was up by 4.3%, a measure of jobs compression in the sector. The good news for Brexiteers, workers from the EU are returning home. The number of EU workers fell by 60,000 to 2.3 million by end of year. Not so good news for those taking back control of our borders, numbers from Africa and Asia increased to plug the gap. As with all things, be careful what you wish for. Wages are rising ahead of inflation Real income growth in the first quarter will b e1.5%. Recruitment difficulties are increasing. The number of vacancies in the economy increased to 870,000. That is a remarkable number when we consider the peak at previous cycle was just 700,000. Recruitment difficulties are particularly high among leisure, health and social workers. They also appear to be acute in the financial and insurance sectors. A sector deemed to be vulnerable to Artificial Intelligence. A jobs market which is overheating with wage growth ahead of inflation. This is not a sign of an economy which is about to keel over any time soon. Brexit remains a real threat to the UK and European economy. Self inflicted wounds are the most harmful. Brexit together with Trump trade wars and the Tariff Man's penchant for punitive action, the clear and present danger to healthy world growth. It is time to make the deals and let the good times roll ... Make the deal ... Signs the White House is ready to make the deal with China this week. The President needs the deal. Faced with a legal challenge over the national emergency and the Mueller challenge over a more local matter, Trump needs a deal with China on trade and with North Korea on peace, to maintain momentum into the second half of his "first term". The trade policy is not working, the US trade deficit is increasing. Tariffs are creating difficulties for US farmers and manufacturers alike. Trump may claim, that China is paying "billions" in tariffs to the U.S. Treasury. The reality is the tariffs are paid by importers into the US not by the government of China. Importers pass on the increase in prices, to trade customers and ultimately consumers. It is the American consumer, footing the bill for Tariff Man's tantrums as domestic prices rise. There is little or no substitution effect from the trade tariffs. The billions raised have been offset by billions spent. China has stopped buying American soybeans, pigs, cotton and other produce from Uncle Sam. Revenues from the tariffs have been offset by payments the government has had to make to farmers to compensate. In Europe, car manufactures are threatened by a 25% tariff on imports to the USA. The EU will respond with restrictions on Caterpillar construction equipment and Levi jeans. The President cannot afford a trade war with Europe. It cannot afford a trade war with China for much longer ... It really is time, to make the deal and let the good times roll ... before irreparable damage is done ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John In just a few weeks time, I shall be speaking on life after Brexit at the Northern Business Expo. Just click on the link ... the code word is Brexit to secure your FREE tickets ...  Fox secures Fish ...
The prospects for truly global Britain, forging an invisible chain for free trade and democracy, received a real boost this week. Liam Fox, the international trade secretary was able to announce a trade deal with the Faroe Islands. There has to be some payback for the £1 million plus spent by his department on overseas trips and missions to valuable markets abroad. Almost 400 trips have been made in the period since the referendum. Talks with China may not be too relaxed following news the Defence Minister Gavin Williamson is to send his brand new aircraft carrier to patrol the Pacific in 2020. "The UK is a global power with truly global interests," Defense Minister Gavin Williamson said "Since the new global great game will be played on a global playing field, we must be prepared to compete for our interests and our values far, far from home." "China is developing its modern military capability and its commercial power," Williamson said. Tensions in the Pacific are set to rise as China escalates claims in the South China Sea. Trade talks may be put on hold as gunboat diplomacy returns to Britain's foreign policy arsenal. For the moment, the Faroe islands will feature in truly global Britain's future. Total trade with the Faroe Islands was worth about £250 million last year. Fish and crustaceans made up the vast majority of imports, worth over £200 million. Total exports in return were worth about £6 million. Three additional deals have also been secured at the moment, to offset the loss of the EU's forty deals with some 70 countries. Switzerland, Liechtenstein and Chile feature as part of the "New Deal" scenario. Still much work to be done to secure the trading future of the UK ... for the moment the Fox has secured fish, with some crabs and prawns for starters ... Retail Sales Bounce Back ... Retail sales bounced back in January, following tales of a dismal period over Christmas, Sales volumes increased by 4.2% year on year. Sales values increased by 4.5% in the same period. Online sales increased by 10% accounting for 19% of total retail sales. Clothing and footwear sales were up by over 5%. Household goods store experienced little or no growth. It is easy to fall into conventional narrative of a slow down in household spending as consumers fret about Brexit. It didn't really happen in January. According to the latest GfK Consumer Confidence survey for January, consumers may be worried about the economy but they are less concerned about household prospects for the moment. It remains for many a good time to save and spend. A strong job market, rising vacancies, and earnings rising ahead of inflation will maintain activity in the short term. The falling rate of inflation will continue to boost real incomes. Inflation CPI basis fell to 1.8% in January from 2.1% prior month. The headline rate is flattered by a big fall in goods inflation to 1.3%. Service sector inflation was 2.5%. Service sector inflation together with Sterling weakness is one reason why we expect inflation to be above target towards the end of the year. Wage inflation will assist in pushing the headline rate up. Producer price inflation slowed in the month. Output price growth fell to 2.1%, input costs slowed to 2.9%. Subdued oil prices assisted the muted developments in cost prices. Imported food costs were up by almost 7% as Sterling fell, other import costs, materials, metals and chemicals were up by 4% on average. The inflation story is by no means over. There still remains the prospect of a further base rate rise this year assuming a resolution of the article 50 conundrum can be found ... See You In Court ... A cross party resolution was found to the funding crisis in the US. Democrats and Republicans together secured a deal to avoid a further Federal shut down. Trump was a reluctant signatory to the agreement. Just $1.4 billion was offered to build the wall for which Mexico was always supposed to pay. Trump was forced to swallow the biggest surrender on policy for his presidency to date. It was a short roll over. The President reacted by declaring a "National Emergency". Funds will be found from military and national emergency reserves within Presidential special powers. This will fill the gap in funding for physical construction along the Southern border. Trump announced the National Emergency in The Rose Garden. The "chosen backdrop for pitching defeats as victories" according to the New York times. A legal challenge will follow from the Democrats and elsewhere. The decision to declare a national emergency will drag on for weeks and months. It is a familiar act of distraction and digression with a modicum of entertainment. Democrats claim the action is evidence of a rogue President who has finally gone to far. It is a clear challenge to the separation of powers within the constitution of the USA. This week the FBI revealed they had examined the prospects of an execution of the 25th amendment as Trump abused McCabe and Comey in Hoover's treasured heartland. During the 50 minute meandering Rose Garden new conference, Trump offered little evidence to support the idea there was a crisis at the border. White House lawyers had advised against the move fearing the legal risks of proceeding. Trump explained the legal ramifications of his move .. "Look I expect to be sued", Trump said, "they will sue us in the 9th circuit, we will possible get a bad ruling, then we will get another bad ruling and then we will end up in the Supreme Court. There we will hopefully get a fair shake and win". Yes a fair shake and a win ... That's all for this week, have a great week-end. We will be back with more news and updates next week! John |
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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