 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
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 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 |
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