 Best Buddies ... beset ... already
"It's a constitutional outrage" claimed Speaker Bercow, "An assault on democracy" claimed many. "Unfair that a 94 year old woman should have her Scottish holiday interrupted" stated Kay Burley in a series of tough questions to government ministers. Paul Mason was almost incandescent with rage on Newsnight, urging people too take to the streets in protest. It was left to Jacob Rees-Mogg to assuage concerns generated by the "candy floss of outrage" almost entirely "confected" by the last stand of remainers determined to thwart Brexit. It was the "Mogg" and other members of the Privy Council who had made the flight to Balmoral. The Queen had to approve the prorogation of Parliament, on the recommendation of her ministers. It must have been a long flight for a short meeting. The "Mogg" must have read up on his Bagehot the night before, along with a copy of "Jeeves and the King of Clubs", apparently. This is the one which involves Wodehouse’s fictional fascist group, the Black Shorts, seeking to promote “The British way of life, the British sense of fair play and the British love of Britishness”. What else. "Monty hailed from one of the finest families; he had an accent fruity enough to spread on a muffin, and his fondness for double-breasted suiting meant he was rarely dressed in anything less than a full acre of tweed." What can be the attraction of stories about lifestyles long since abandoned by normality. In his absence on the border, normality returned to the hatchet rooms of Downing Street. Sajid Javid was "absolutely furious" that Dominic Cummings sacked one of his most senior SPADs for not being one of us. Sonia Khan was escorted out of Downing Street by police this week. Cummings was unrepentant telling a meeting of government advisers, "If you don't like how I run things, there's the door. F*** Off!" Cummings is doing his best to out-Tucker Malcolm Tucker, head SPAD from "In the Thick of It". "Don't call me a bully" Tucker would say, "I am much worse than that". A fictional bully who could choose to ignore non-fictional employment legislation. So what of prorogation? It has been tried before. For Charles 1st and John Major it did not end well. Senior Tories are to warn Johnson this week, he has lost their trust. Others will then explain, he never really had it in the first place. The sight of Jacob Rees-Mogg waving a Union Jack, wearing a frock coat on the steps of Number Ten, will not deter the people in pursuit of just cause. Trump could be a one term wonder ... Trump could be a one term wonder . His chances of re-election will suffer if the economy turns against him. The economic cycle is at odds with the electoral cycle. Economic growth is slowing with just over a year to re-election. Trump is botching his chances by pursuing the tariff war with China. An economy which should be growing at 3% this year has seen growth average just 2.5% in the first six months of the year. Analysts are now penciling in just over 2% for the year as a whole. Trump blames the Fed of course, for an overlay aggressive monetary stance and the hike in base rates. The reality for most voters in inescapable, the tariff war with China, is damaging business and consumer confidence. Investment is falling as the trade deficit continues to rise. Trump's farming stronghold is wavering. The losses on soybean sales to China, are barely offset by state subsidies from an erratic White House agenda. China is learning to ride out Trump turbulence. It's like planning for a natural disaster. You never know when or where the worst may happen, you just know one day it will, so plan for the worst accordingly. The planning has been taking place since Trump and the Sinophobes came into office. China goes Crypto ... In a brilliant move against the Dollar, The Central bank of China plans to launch a state-backed cryptocurrency before the end of the year. The currency will be distributed by Alibaba and Tencent along with the Bank of China, the Industrial and Commercial Bank of China and three other of China's largest financial institutions. The currency has been in development for over a year and may be released in November this year in time for "Singles Day" the busiest shopping day in the Chinese retail year. China will be the first central bank to issue a crypto. Initially offered to the 1.4 billion Chinese on the mainland, the currency would later be made available to all dealing in the Renminbi. It is in this way, the Chinese would offer a reserve currency to the world, undermining dollar hegemony, and avoiding the pitfalls that beset conventional reserve currency status. Want to know more, then sign up to our Messaging App for more information and updates. Just click on this link to sign up. It's FREE with no obligations just great updates through the week. That's all for this week, have a great weekend. We will be back with more news and updates next week! John
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 G7 meeting will be a 'humdinger" ...
Leaders assemble this week-end for the G7 meeting in Biarritz. It promises to be a humdinger. Hopes are not high of securing much consensus. Macron has already given up all hopes of a joint communiqué at the end of what promises to be a tough week-end of talks. President Trump arrives with a list of grievances. The self appointed "Special One" is facing economic humiliation at home. Trump economics is visibly failing, threatening the "second coming". Internationally, the Prime Minister of Denmark refused to sell Greenland, suggesting the proposal was "absurd". The President considered the response to be brusque and nasty, cancelling the planned trip to Copenhagen in a typical Trump temper tantrum. Making limited progress in the trade war with China, Trump warns "Europe is next on the list", just threaten to "tax the cars and they will give you anything" the claim. Yes, trade wars are easy and the U.S will win. The G7 are at odds on so many issues. The readmission of Russia to the extended group, the nuclear treaty with and treatment of Iran, climate change, German spending plans, France's digital tax on Uncle Sam's finest and of course China. Trump has asked for a special session on Sunday to discuss the world economy. It promises to be a master class on global macro economic management. "Want to run the most successful economy in the world like me ... slash taxes, boost spending, bring back coal and build a wall." This week, Trump declared himself to be the "special one" chosen at the highest level to take on the Chinese threat to U.S. hegemony. The trade wars developed a further twist. Trump was unable to decide who was the greater enemy ... China or Jerome Powell chair of the Federal Reserve ... Trump raises tariffs again ... China has made it clear it will fight "to the end " as the trade war escalates. Announcing tariffs on a further $75 billion of U.S. imports, clearly directed at the U.S. farmland, Trump responded with a further hike to 30% on imports from the East. The tit-for-tat escalation is putting pressure on the U.S. economy. The Fed has issued a clear warning, the trade war is a threat to growth. White House advisors are seriously concerned about the disruption of the economic cycle and the dislocation of the run in to the election just over a year away. Trump talked of a further round of tax cuts. Later recanting, making it clear, tax cuts are off the table. To proffer greater stimulus would be to admit a slow-down was in place. An admission too far, for the President at this stage in the cycle. Trump continues to demand more rate cuts from the Federal Reserve, 100 basis points would be best. The Fed failed to oblige. "As usual the Fed did NOTHING" tweeted the President, "My only question is, who is our biggest enemy, Jay Powell or Chairman Xi". The trade wars are escalating and threatening to extend to a decoupling of the U.S. and China. "Our country has lost trillions of dollars with China over many years. They have stolen our Intellectual Property at a rate of hundreds of Billions of Dollars a year. They want to continue but I (the special one) won't let that happen." "We don't need China, and frankly would be far better off without them" said Trump. "Our great companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the U.S.A." "Build that wall, bring them home, send them back. I hereby order the world to fall into line and will outline the route map at the G7 meeting in Biarritz". Yes it promises to be a humdinger. Trump is floundering. His inability to make deals is apparent. Jobs are not returning to the U.S.A. They may be leaving China but are en route to Vietnam, Bangladesh and other beneficiaries of Trump economics. The U.S. is losing the trade war, American voters will pay the price. This week, the Congressional Budget Office warned of the $1 trillion dollar deficits and huge debt burden to be placed on generations ahead. The trade deficit will continue to increase. The US Chamber of Commerce has made it clear, Tariffs have been bad for the economy. Negative consequences include higher prices for consumers and businesses at home with retaliation by foreign governments damaging the prospects for exports. Voters are turning against tariffs. A recent poll, by NBC News and the Wall Street Journal found that "two thirds of Americans support the idea of free trade". Democrat and Republican majorities now express favorable views toward free trade. Trade wars are not so easy to win after all, the clear warning to the White House but will Trump heed the warning ... Borrowing increases ... Shock for the new Chancellor of the Exchequer, borrowing is up by 60% in the first four months of the financial year. In the current financial year to date, total borrowing was £16 billion compared to £10 billion last year. Spending increased by 6.5 per cent as tax receipts fell on the back of weaker corporation tax revenues. If current trends are maintained total borrowing will increase to almost £38 billion compared to the OBR target of £29.3 billion. The numbers suggest there will be little in the coffers to support a Brexit setback. A VAT cut to 15% could be on the agenda, together with a cut in Stamp Duty and a boost to the car market. Spending on infrastructure could be on the list, as Johnson plans to build HS2 from the North to South in a top to bottom review. The Prime Minister was in Europe this week. Meetings will Merkel and Macron went well apparently. Something may well have been lost in translation. President Truman had a sign on his desk "The Buck Stops Here". Macron had a similar sign on his desk apparently, "The Back Stops Here" and it's here to stay ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John  Harriet and Ken will form dream team ...
Ken Clarke returned from holiday this week to discover he is on the short list to become the next Prime Minister! Corbyn's bid to be the "Brexit Broker" banished, the former Chancellor of the Exchequer is ready to step up if need be. Clarke and Harriet Harman could be the dream ticket to form a cross party alliance to prevent the UK leaving the EU without a deal. Ken is ready to lead a government of national unity. "If this was the only way, in which the House of Commons could find a way forward, then I wouldn't object." said Clarke in a BBC interview. Many others including Dominic Cummings might ... Boris Johnson sidelined, the hard line "Brussels Bashers" are losing traction in the elected house. This all goes to show the dangers of going away on holiday even for a few days. The world is spinning out of control. A world in which the President of the United States is considering a contested bid for Greenland. In economic news this week, the latest jobs figures suggested the economy is stalling. Unemployment ticked up slightly as vacancies fell. The unemployment rate increased slightly to 3.9%. Yet the number of people in employment increased to the highest levels since records began, such is the perversity of data in an economy at turning point. Earnings excluding bonus payments increased to 3.9%, good news for households, the latest headline inflation was just 2.1% in July. Real earnings are rising. No wonder retail sales remain on track. Consumers enjoyed a shopping spree on line last month. Online sales increased by 13%, year on year, accounting for 20% of all retail transactions. With food penetration as low as 5%, the impact on all other categories is to take almost one in three transactions away from the high street, a trend set to continue as age demographics accelerate the move on line ... Yield Curve Inverting ... Markets were in a flap this week. The yield curve is inverting. Ten year U.S. bond yields fell to 1.5% at one stage, below the two year short yield. The FRED chart [above] had markets moving lower. On average the inverted yield curve has been a reliable indicator of recession to follow with a lead time of around 22 months. Should we worry about the inversion this time round? For many the evidence is convincing but this time may well be different. Janet Yellen former chair of the Federal Reserve, suggests "Historically it has been a pretty good signal of recession but I really would urge that on this occasion, it may be a less good signal. There are other factors pushing down long term yields". Here is the main difference this time round. Recessions are flagged when central bankers begin to increase rates to "take away the punch bowl as the party gets going". Interests rates are hiked to subdue inflation or to modify a looming trade deficit. Short rates rise, as long rates hold to the "Fisher Rule". The yield curve inverts reflecting central bank policy, central bank policy designed to engineer a slow down in economic activity. This time around the yield curve has been dislocated by life on Planet ZIRP and the introduction of QE. We model the relationship between the level of bond yields and the holdings of central banks. The higher the holdings of central banks, as a proportion of total bond debt, the lower the yields along the curve. A combination of central banks committed to buy, financial institutions obligated to buy and speculators motivated to buy, pushes prices up and yields lower. Andy Haldane, Chief Economist at the Bank of England has suggested we have created the biggest bond bubble in history. That was six years ago! A combination of cheap money and the search for "alpha" pushes prices to yet new highs. Already $15 trillion of sovereign debt, that's almost 25% of total world stock, is offering negative yield. Worryingly this week, Alan Greenspan suggested there is no barrier to negative yields in the US. "Zero has no meaning, it's just a certain level". Bond prices will move higher in search of the "Minsky Moment" when the madness finally stops ... For Trump the message is clear "Crazy, inverted yield curve ... thank you clueless Jerome Powell and the Federal Reserve ... the Fed is holding us back but we will win!" Trump's rally fading risks re-election hopes ... The White House is beginning to worry the economic cycle is in danger of moving at odds with the election cycle. The dream of a second term in office will be at risk if the economy tanks and stock markets fall. Farmers are worried about the impact of the trade war with China. Truckers are concerned about the loss of traffic as import activity slows. Retailers are nervous about rising prices. Confusion abounds over the second round of tariffs on $350 billion dollars of imports. The direction of White House travel is confusing. Tax cuts and spending plans suggest the economy should be booming. The imposition of tariffs, valued at 0.5% of GDP will effectively create a consumption tax impacting on household spending and consumption. Trump offers "a personal meeting" with President Xi, to resolve trade issues, then offers advice on how too deal with the problems in Hong Kong to assist with the process. The President demands China reinstate Soy bean purchases, then announces the sale of F35s to Taiwan. The President announced the 10% tariff hike, against the advice of his closest advisors. The decision to denounce China as a "currency manipulator" was made against the counsel of Steven MnuchIn. The President has no understanding of trade policy, trade deficits and the impact of tariffs on U.S. and world trade. Confusion abounds about the lack of consistency of message. On the reading list this week ... "The Dangerous Case of Donald Trump", 37 psychiatrists and mental health experts assess the President. This is the second edition of the original best seller. Ten more commentators have been added to support the proposition that anyone as mentally unstable as Trump should not be entrusted with the life and death powers of the White House. It doesn't make for reassuring reading but on the other hand, does explain a lot . That's all for this week, have a great weekend. We will be back with more news and updates next week!  "Bags of Time" says Boris ...
The Office for National Statistics joined the ranks of "Project Fear" doom mongers this week. The latest data on GDP growth suggested the economy moved into negative territory in June with ominous implications for the rest of the year. “GDP contracted in the second quarter for the first time since 2012. Manufacturing output fell back after a strong start to the year, with production brought forward ahead of the UK’s original departure date from the EU. “The construction sector weakened after a buoyant beginning to the year, while the often-dominant service sector delivered virtually no growth at all." It all sounded pretty gloomy with fears of recession returning as the Brexit deadline nears." In reality growth in the second quarter was 1.3% compared to 1.8% in the first quarter of the year. Service sector growth was up by 1.6%, the construction sector expanded by 1.4%. Manufacturing output fell by almost 1%. Stock building in the first quarter was reversed in the three months to June. The trade deficit on goods and surplus was extinguished as imports fell. Boris Johnson has offered reassurance there is still "Bags of Time" to secure an agreement with the EU. That will come as a surprise to many in his own cabinet. The pound closed below $1.21 against the dollar. Ten year gilts closed below 0.5%. Markets are adjusting to the idea of Dollar parity in the event of a no deal. For government, the clock is ticking. Michael Gove has a count down clock on the wall of his office to focus the mind. It is next to his ideas box ... worried about a banking crisis ... a Bank Holiday the solution ... worried about panic buying, rationing the obvious recourse. Johnson has created a survival cabinet. Gove is the fall guy, Dominic Raab is in the Foreign Office to ensure Johnson's FO tenure looks great. Jacob Rees-Mogg has been distanced from the ERG, content with the new role as stand up comedian in the People's parliament. Dominic Cummings has is the "attack dog" people love to hate. Taking the flack for the Prime Minister offering comfort, reassurance and confusion in equal order. Why worry about a vote of no confidence when people have little confidence in the administration anyway, the message. Let's call a snap election in a "People versus Politicians" vote. No one will know what that means. Special briefings to be offered to Brexiteers and Remainers to dress as round-heads and cavaliers at the hustings. The government is preparing for an election, in the event of a "no deal no deal." Johnson really wants a deal, but the way to get a deal is to convince the EU, we don't want a deal. It's a sort of Brer Rabbit strategy. Convince the wily fox, we really want to leave the EU because we really would like to stay ... not sure the analogy works or the strategy for that matter ... we could end up tossed into the Channel, reliant on French fishermen for rescue ... Job Done ... Trump's on Holiday .. Trump is off on holiday for ten days. Camp David is off limits. The President needs to spend more time with his golf clubs. Job done. The Nobel peace prize virtually assured, the President offered to mediate in Kashmir, annihilate Afghanistan, go to war with Iran and cancel the nuclear weapons deal with Russia. Military maneuvers in South Korea, for which the Koreans are paying of course, led to rocket launches in the North. Not to worry, the President received another beautiful letter from Kim Jong-un. It was three pages long, one page for every rocket fired. The President received confirmation planning permission had been secured for the Trump Condos on the South East coast of North Korea. The beach area has previously been used for weaponry drills and ballistic weapons launches. Yes in this way, peace is brought to the world. Chats with China are not going quite so well. Trump's principal adviser is Peter Navarro, author of "Death by China" and "The Coming Wars [with China]". That can hardly help. The coming wars with China is subtitled, "Where They Will Be Fought and How They Can Ce Won". Americans are hoping no one in Beijing has read it. This week, Trump denounced the "Renminbi Runners" as currency manipulators. The Chinese administration pegged the Yuan lower against the dollar in response. Exports to the USA are falling. Tariffs for which American consumers are paying, the cause. U.S. farm exports to China are stalled. China exports to the rest of the world are increasing. The Asean market offers growth beyond measure in the decades ahead. This week Huawei announced proprietary software for mobile phones which will eliminate dependence on Google Android. Someone at Huawei is an avid Navarro reader. Beijing is prepared for the break with Washington. Chinese requirements for farm and oil imports will find willing vendors around the world. The strength of the Dollar is an opportunity to off load the trillion plus holding of dollar bonds held. The monopoly of rare earth metal supplies will provide an opportunity to squeeze prices and destabilize the competitiveness of US high tech competition. Trump has dropped the broadest possible hint that he is ready to dig in for the long term in the Washington’s trade war with China. He may have little option. Trade talks are set to resume in September 2019. The stand off is expected to continue beyond the presidential election in November 2020. Meanwhile the overall trade deficit for Uncle Sam is increasing. Growth without imports, you just can't have it both ways ... That's all for this week, have a great weekend. We will be back with more news and updates next week! John  Trade wars and temper tantrums ...
Trump's decision this week to increase tariffs on Chinese goods caught markets by surprise. Close advisors to the President had thought further hikes were off the table pending the next round of trade talks. Irritation with China boiled over as Treasury Secretary Steve Mnuchin and Trade Rep Robert Lighthizer returned empty handed from Shanghai. No new proposals were on offer from the Chinese administration, following the impasse in May. Trump snapped. The cease fire was over. The President promised to "tax the hell out of China". A busy week for the President included planning the annihilation of Afghanistan and a big beef deal with Europe. Trump tweeted the "future between our two countries (China U.S.A.) will be a very bright one!" Markets were not quite so sure. Earlier in the week, the Fed had obliged with a rate cut ... "A mid cycle adjustment" of just 25 basis points. Stock markets bounced, Trump expressed disappointment. What the market wanted to hear from Jerome Powell Chairman of the Fed, was the beginning of a lengthy and aggressive rate cutting cycle which would keep pace with China and the rest of the world. As usual "Powell let us down". The Fed is confused about the direction of travel. Expansive tax cuts and spending plans are set to maintain growth in the U.S.A. The latest data on jobs suggests the economy continues to grow. Payrolls increased by 164,000 in July, the unemployment rate held at 3.7%. Powell speaking at the news conference this week, suggested the outlook for the U.S. economy remains favorable. So why the rate cut now? Powell added "the Fed was acting to insure against the downside risks from weak global growth and trade policy uncertainty." Uncertainty over trade is slowing the global economy and no one knows quite what to do about it. Powell admitted, he and other experts overseeing the economy are confronting “something that we haven’t faced before.” “The thing is,” Powell said, “there isn’t a lot of experience in responding to global trade tensions.” “We’re learning by doing.” Learning by doing and reacting to a rogue President with random ideas on international economics. Trump believes that China is paying for the tariffs. The truth is the American consumer is paying the bill. Tariffs are in effect a tax on consumption. The hikes planned for September will increase the levy to around 0.5% of GDP. The Fed is reacting to Trump policy on trade. The planned increase in September will hit imports from China including children's toys, video games consoles, mobile phones and laptops. Many will feature on gift lists for the end of year. "Trump has declared war on Christmas", according to Jock O'Connell, an international trade adviser to Beacon Economics. A war on Christmas and China is not picking up the tab ... Confusion over Brexit ... The Bank of England held rates this week. Uncertainty and confusion over Brexit produced a wait and see attitude by the MPC. U.K. growth is slowing, investment is falling, for the moment, job growth continues and real wages are rising as inflation levels are subdued. The Bank has reduced growth estimates over the forecast period. Global trade tensions have increased, global activity has remained soft. Manufacturing growth is falling around the world as trade volume growth slows. For the Bank, the likelihood of a no deal Brexit has increased significantly. The Governor warned, the response of monetary policy will not be automatic and it could be in either direction. Sterling closed just above the $1.21 level this week. The Bank has warned this could be a taste of things to come. Boris Johnson made a quick trip around the Union this week. Greeted with boos in Edinburgh and a lost seat in Brecon, it will take more than photo ops with a chicken to convince the EU the new team is strong in purpose. The car industry is facing severe disruption, Japan has made it clear, the UK is the gateway to Europe. Without a trade deal, relocation is inevitable. Internal government analysis warns of consumer panic, food shortages, medical supplies lost and chaos in the farming sector. This week Alun Cairns, Secretary of State for Wales offered some hope to farmers. The market in Japan has just opened to Welsh and British farmers. "Exports are already taking place. This is a market in which we haven't scratched the surface yet. " The UK exports almost £400 million of lamb products to the EU. Exports to Japan are expected to be around £10 million each year for the next five years. Lambs to the slaughter, is the real campaign slogan for the Brexiteers in Westminster ... if only China could shed that addiction to pork ... Markets react to week of turmoil ... Red on the screens of markets around the world by end of week, traders were forced to react to the threat of a further round of tariffs against China. Beijing is making it clear, there will be no conciliatory response to the Trump attack. A long haul is expected before a resolution is secured. Japan on Friday moved to increase controls on the export of a broad assortment of products to South Korea. Tokyo is raising the stakes in a political standoff that has plunged relations between the countries to their lowest point in decades. South Korea’s president, Moon Jae-in, condemned the move, which he said was aimed at sabotaging South Korea’s economy as it struggles with slowing growth. That's the problem with trade wars. They tend to escalate and operate indiscriminately. Central bankers are confused by the self harm inflicted by Trump and tariffs, Boris and Brexit. Central Bank commitment to maintain Q E levels is pushing bond yields lower. Ten year gilt yields closed at 0.56% in the UK. U.S Treasuries closed down 20 basis points to 1.88. In Europe, yields were negative 50 basis points. Why buy a negative yield? Well it could get more negative in the months ahead, the rationale. The Dollar is rising in value at the expense of Sterling, the Euro and the Renminbi. Oil prices are falling as fears for global demand increase. The threat of negative interest rates on bank deposits increases. Proposals are circulating for the abolition of cash ... Yes this week, the trade wars just got a bit more scary ... That's all for this week, have a great weekend. We will be back with more news and updates next week! |
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