It is said, “A hedgehog knows one thing, a Fox knows many things”. Not sure how we know that. But what can be said of Liam Fox? Here is a man with a job, a title but as yet no start date.
Liam Fox was in Manchester this week, making a speech to a collection of businessmen. He had carefully avoided Friday, with a late start and reinforced seating to ensure, lazy, fat golfers were fully accommodated.
Was it a great speech? Not really. Adam Smith and the Corn Laws featured in an attempt to buff his credentials as both economist and historian. It was unconvincing and cliched. “Free trade is a ladder to the top, not a race to the bottom” “Negotiations will be bilateral, multilateral and plurilateral”. Yep "My job is this big" Our caption competition of the week!
“We are in a post-geography trading world,” Dr Fox said, which reminded Patrick Kidd in The Times of swapping football stickers in the school playground during break.
My personal favourite, “Today, we stand on the verge of an unprecedented ability to liberate global trade for the benefit of our whole planet with technological advances dissolving away the barriers of time and distance.” Excellent. There is a man with a big job on his hands. I hope the Three Brexiteers are up to the task.
Nissan warns on investment ...
Back in the real world, Nissan warned further investment in the North East would be on hold. The government must agree to compensate for any tariffs imposed, as a result of Brexit. Theresa May is scheduled to meet with Carlos Ghosn Chief Executive of Nissan, to persuade him not to scrap his investment plans. It will be an interesting conversation. Similar talks with others set to follow no doubt. The good news, government subsidies, to offset EU tariffs, would no longer be subject to Brussels rules and restrictions on state aid. There’s a Brexit benefit after all!
Motor, aerospace and financial services are set to suffer in a post Brexit world but not for some time yet, or so we thought. Ralph Speth Chief Executive of Jaguar Land Rover warned at the Paris Motor Show this week, “They have the very first customers in their showrooms who clearly highlight they don’t want to buy British products any more”. Alarming? Not really. Why are they in the showroom in the first place?
When the customer says no, the selling process begins Ralph. "It is not", Adam Smith wrote and Liam Fox reminded us, ”from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest". They’re just looking for a great deal!
Balance of Payments ...
Let’s face it, we need some great deals. The ONS released the latest Balance of Payments data this week. The UK’s current account deficit was £28.7 billion in the second quarter, up from a revised deficit £27.0 billion in Q1. The deficit at 5.7% and 5.9% of GDP is a developing problem for the UK economy. The deficit is incompatible with base rates at the zero bound.
This year we expect the deficit trade in goods to be £138 billion up from £126 billion last year. The overall all deficit, trade in goods and services near £50 billion will equate to 2.5% of GDP.
The structural trade problems of the U.K. economy will be exacerbated in a world post Brexit. Depreciation as we have long argued is no solution. Some may claim the effects (of depreciation or devaluation) impact over the longer term. Perhaps, but experience over the last eight years has not been convincing.
Growth - GDP Data …
Better news in the GDP figures updated this week. Growth in the second quarter was 2.1% compared to 1.9% in the first quarter. Household spending increased by 3%. 3% growth in exports was offset by the 4.7% growth in imports. Manufacturing and construction continue to disappoint, growth in services, particularly leisure services are driving the recovery. Distribution, hotels and leisure growth increased by 5%.
Consumer confidence increased to pre Brexit levels in September according to the GfK latest data. Service sector growth continued into July, up by almost 3% year on year. The young pound continued to party. Leisure service growth increased by 4.9%.
Forecasts for the current year will be revised up to 2%. There is no real reason to anticipate a slowdown next year and no real reason to cut rates further. Time to follow the Fed in raising rates. Abandon the corporate bond purchase scheme. The UK economy, not yet overheating, is warming up nicely. The balance of payments is a real problem, inflation is set to rise.
Oil Brent Crude closed at $49 dollars this week. The average price in the final quarter last year was below $44 dollars. The average price in the first quarter of the current year was $34 dollars. In Sterling terms oil prices will be 35% high in the final quarter and up by over 70% early next year. No time to slash rates to 0.1%. CPI inflation will rise in Q1 just in time for the pay round!
So what happened to Markets?
Markets, were on hold - The Dow closed at 18,337 from 18,320. The FTSE closed up at 6,899 from 6,099.
Sterling held against the Dollar to $1.297 from $1.297 and held against the Euro at €1.154 from €1.155. The Euro was unchanged against the Dollar to 1.123.
Oil Price Brent Crude closed at $49.05 from $45.99. The average price in October last year was $48.43.
Gilts - yields moved up. UK Ten year gilt yields closed at 0.75 from 0.73. US Treasury yields moved to 1.590 from 1.620. Gold closed at $1,314 from $1,340.
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.