No money to spend ...
It was to have been The Chancellor's big moment. The budget date set for the 6th November. Bonfire of the Sanities, the government was set on a spending spree to cut taxes and boost expenditure on health, education, defense and almost everything else for that matter. No time to fix the roof, the objective to please the electorate and return to power with a working majority to empower the front bench to back foot remainers in the house.
More police in the capital, mainly to escort members of parliament in and out of the office. It would have been a great occasion, with a few fireworks for good measure. Alas it was not to be. The Tory timetable began to fall apart as the Prime Minister failed in his attempt to leave the EU by the end of the month. Boris Johnson was committed to taking the EU out of the EU on Halloween. He had also committed not to ask for an extension to the Article 50 period.
The compression timetable to rush through the withdrawal agreement through the house was rejected. In the latest twist, the government announced on Thursday, the PM will let MPs give proper consideration to the withdrawal bill, provided the House agrees to a general election on the 12th December. This "Quid Pro Quo" a "non sequitur", is causing confusion in the direction of travel for Labour and Tories apart.
The prospect of an election in December, rendered a November budget redundant. Probably just as well. The latest borrowing figures suggest the government is set to borrow over £50 billion in the current financial year. An increase of over 5% in spending in the year to date, led to a borrowing increase to £40 billion in the first half of the year compared to just £30 billion last year. Borrowing will exceed the 2% of GDP target attributed to fiscal prudence. No real room for tax cuts or for an increased in spending for that matter. The Chancellor will have to take time out to re write the guidelines for budget planning.
No time to fix the roof, the Chancellor is carrying an umbrella as he leaves Number 11 Downing Street. It is a subtle message about the financial largesse to follow perhaps ...
The extension will just have to wait ...
Want an extension? You will just have to wait says Donald Tusk, President of the European Council. Having asked for an extension that he didn't want, the Prime Minister has introduced the prospect of an election that he probably doesn't really need before the end of the year at least.
Make a decision on the election and we will make a decision on the extension, says the EU. Agree the withdrawal agreement and we will agree to an election say the opposition parties. Agree to the election and we will provide an extension to the period to discuss the withdrawal agreement says the Mogg. "I may not agree to anything" says Macron the President of France. "Rien ne va plus" as the roulette wheel spins.
Boris and Brexit, Trump and Tariffs have created an overhang on business and consumer confidence in the UK, Europe and the U.S.A. Now among the uncertainty we add the problems of an election in the UK and impeachment in the U.S. In the UK, the Tory hard liners are swayed by a 35% rating in the poll which could deliver over 400 seats in the house. The Labour Party could end up with just 150 seats. The LibDems would have 32 seats. Johnson would be returned victorious to Downing Street with "Carte Blanche" to deliver Brexit on whatever terms of choosing.
Be careful what you wish for must be a concern to some in government. The Tories have a great chance to screw up the manifesto once again. Support for fox hunting and cock fighting may not feature this time. Hopefully the fiscal attraction of an amnesia tax will be forgotten.
By the end of next week, it seems probable, the EU will grant an extension to the end of January next year. The House will debate the withdrawal agreement with amendments tacked on to the initial agreement. No budget in prospect before the end of year and not much chance of an election either. The uncertainty will continue into the New Year ...
Trump and the Phony Constitution ...
"You don't have to be a stable genius to work here but it helps." So reads a sign in the White House. It serves as a warning to all. Maybe not for much longer.
The impeachment process is accelerating. Conviction in the House is a given. The President's moves suggest Republican support in the Senate may be wavering. This week Trump complained about the phony emoluments clause embedded in the U.S. constitution.
The President was obliged to reverse his decision to take the G7 meeting to his own Trump National Doral Resort in Miami, Florida. The media and Democrats were to blame for the backlash claimed the President. A few calls from Senior Republicans precipitated the process. The President was clearly in breach of the "emoluments" clause in the constitution. A President benefiting financially from executive decisions, Trump could see nothing wrong with that. "Being President has cost me between $3 and $5 billion dollars" claimed the President. What's wrong with a little give back? "I should be allowed to keep my foreign gifts".
Mick Mulvaney acting head of staff, explained "The President still considers himself to be in the hospitality business". The founding fathers would be confused by the claim. Doral is struggling and could do with a little cash, the more likely explanation. The Trump empire is seeking too ditch the D.C. hotel, concerns about the Trump lost revenue claims begin to accelerate.
The President is surrounded by doubtful advisers now the adults have left the White House. Mulvaney agreed the Ukrainian conversation was a quid pro quo. When asked about the political interference in foreign policy he stated "That's what we do!"
This week John Bolton revealed he considered Rudy Giuliania to be a "hand grenade which will blow us all up". Now the "personal attorney" is himself looking for a "personal attorney". Giuliani may be heading for jail.
The President's personal attorney is not the only weapon in the arsenal with a penchant for self destruction. The President created additional outrage suggesting the impeachment process was akin to a lynching. The decisions on Syria, Ukraine and Doral this week will make the Democrat task much easier. The process is scheduled to go public in November ... "
The Democrats offer a fair trial and a first class hanging, not literally of course!
That's all for this week, have a great weekend. We will be back with more news and updates next week!
Super Saturday Special Edition ...
It seemed like a good idea at the time. It was billed as "Super Saturday" after all. Parliament was meeting for the first time in over thirty years to resolve the Brexit matter. To the amazement of many, Johnson had returned from Brussels with an agreement before the October deadline. The withdrawal bill was to be put to the house, ERG were in the camp, Corbyn had been wrong footed? What could go wrong?
I decided to apply for an extension and publish the Saturday Economist on a Monday morning. In this way the clarity offered by the weekend proceedings in Westminster could be shared with readers. Decisions made, the way forward outlined, we would be leaving the EU, deal agreed. Reclaiming our sovereignty, taking back control, securing our borders, Brexit done and dusted, free to trade with the rest of the world, rebuilding the trade empires of yore.
The day started well. England beat Australia convincingly to proceed to the semi finals of the World Cup. Excitement was building as the All Blacks dismissed Ireland. Next up the trip to the mother of parliaments for a serious, honest, intellectual, exchange of views and opinions. The house would sit and rise to the occasion.
Johnson set the tone, It was time to heal the rift and unite warring factions. The surrender bill had been surrounded. ERG had won, just get over it. The deal was clear, Northern Ireland would remain in the single market but would be part of the UK customs union and part of the EU customs union. There would be no hard border, just a line drawn in the waters of the Irish sea. No EU tariffs on goods between Great Britain and Northern Ireland but EU tariffs on goods moving from Northern Ireland into the EU. Johnson had returned with a "lexicon of ludic loops". A collection of words and phrases not necessarily in the right order.
The debate soon deteriorated into the perils of chlorinated chicken and hormone impregnated beef. Labour feared US troops withdrawn from Syria would soon be running the NHS. The paucity of debate was measured in that Theresa May was afforded the best line. It was her "sense of déjà vu "which brought the house down. How those backbenches enjoy a touch of European irony.
Then came the Oliver Letwin amendment. A cunning plan to scupper the Johnson move to secure agreement before the 11:00 pm deadline. It was a "wizard wheeze". The move was passed with 322 votes for and 306 against. The Prime Minister would be obliged to climb into the ditch of despair and send a letter to Brussels requesting an extension.
And so it was. The Prime Minister was obliged to send a letter to Brussels requesting an extension beyond the October 31st deadline. The Benn act demanded the PM send the letter but nothing on the statutes to say he had to sign it. The missive left Downing Street unsigned, scented with a stink bomb with drawings of a large penis with a "Bollocks to Brussels" message for good measure. How those public school boys enjoy a good laugh.
A further letter explained it was not really his idea, he didn't really want an extension anyway. Please ignore the other letter. We won't need an extension, the withdrawal agreement would be put to the house this week. Jacob Rees-Moog would smooth talk the process. We are leaving at the end of the month. Gove is in charge of "Operation Yellowhammer". He has a bet with Matt Hancock to that effect, a pecuniary incentive, the wagers of sin. The Mogg has been long Sterling since the start of the month for good measure.
And so it continues, into the week. A sense of exhaustion evident. BBC held a Newsnight special, a chance for Emily Maitlis to shout at politicians, expressing the frustration of a nation. Today Sky News announced a Brexit free news channel. Let's hope Question Time makes the same move.
The Saturday Economist move to Monday undone by events. Cynics might suggest I was too busy watching rugby and missed the deadline. Well it was a one off, it won't happen again. Not even next week as we line up in the semi finals against New Zealand, kick off is at 9:00 am plenty of time before we hit the press send deadline. Who knows, by then we may even have an agreement ...
That's all for today, have a great week ahead. We will be back on Saturday with more news and updates. Yes and may be some economics ...
Markets Rally ... Sterling Soars ...
Hopes for Brexit Deal Rise ...
Markets rallied, the Pound soared, as hopes for a Brexit deal seemed possible at close of the week. A wave of optimism pushed the FTSE 250 up 500 points, Sterling closed above the $1.26 level from $1.23 last week.
Britain and the EU have agreed to intensify discussions and to enter the "tunnel of talks" that may lead to a solution. The alleged progress followed a meeting with Boris Johnson and Leo Varadkar, the Irish Prime Minister on Thursday.
The meeting was held at Thornton Manor in Cheshire, described as a "luxury wedding venue". Love was in the air and fudge was on the menu. Boris Johnson has resurrected plans drawn up by Theresa May for a customs partnership between the UK and the EU.
"Northern Ireland, effectively stays in the EU's customs union but for the purposes of trade it's the UK's customs union". Under the plan Britain would collect tariffs on behalf of the EU for goods ending up in Northern Ireland but companies could claim rebates on goods sold on into the EU area including Ireland. Furthermore, Northern Ireland will be able to take "full advantage" of new trade deals Britain signs after it leaves the EU trade bloc."
Don't throw the confetti just yet. No thought of the rules of origin, or the contradiction of an inside/out agreement. Not much can have been achieved in the two hour meeting. The EU and the UK have agreed to intensify discussions over the coming days ... and months and years ...
As for the Sterling rally, the move through heavy overhead resistance at $1.25 was a bear squeeze leaving the shorts struggling for cover. By start of week, the honeymoon will be over for travelers in the tunnel of love. Travelers to the EU and beyond should expect to pay more ...
Hopes For Trade Deal Rise ...
In the USA hopes for a trade deal were on the rise as President Trump met with top trade official Vice Premier Liu He. The US and China struck a tentative "Phase One" deal.
China will commit to buy up to $50 billion more of Agricultural products, the planned increase in tariffs on Chinese imports next week, have been put on hold. Additional agreements were reached on intellectual property protection and financial services.
Trump was optimistic. Advising U.S. farmers to buy bigger tractors. "There is nothing bigger than what we are doing with China" "There has been friction between the two sides but now it's a love fest, we will have a great deal that is beyond tariffs."
China Daily welcomed the move, creating as it does a "badly needed breathing space for both sides to reflect on the bigger picture". Some were more cautious. Trump can be fickle. The Chinese had done nothing to assist the Normandy landings. A cruel test of loyalty in White House world of foreign relations, to which the Kurds can attest.
The mini deal brings relief to farmers but offers no long term solutions. American businesses and consumers continue to pay billions of dollars more for imported goods. The uncertainty persists as agents lobby for product exclusions from the random product list.
Trump talked of a comprehensive deal but achieved a tiny truce and declared victory. Markets rallied but surrendered gains, the Dow closed 320 points higher from an initial 500 point romp. Trump's trade tactics are threatening the jobs of those who voted for him. World leaders are warning of a slow down which could spread from trade and manufacturing into financial and service sectors.
The Federal Reserve moved into action, with a commitment to buy $60 billion of Treasury Bills over the next thirty days. The purchases will continue into the second quarter of 2020. "This is not QE " explained the Fed, "It is a move designed to improve short term liquidity conditions".
The Fed is worried about White House policies. In the USA there is no recession coming, the Federal Reserve will make sure of that ...
Hopes For Impeachment Rise ...
How likely is it Trump will be on the ballot in 2020? Jennifer Rubin writing in the Washington Post this week asks the question. It has been a tough week for the President.
The impeachment enquiry is accelerating. More whistles are heard in Washington. The revelation of deep state concerns on Trump's calls with foreign leaders increase.
The courts have ordered the release of Trump's tax returns. The latest Fox news poll has approval ratings deep in the red. 55% disapprove, 47% disapprove strongly. Among female voters 56% disapprove strongly.
This week we learned Trump ordered the withholding of aid to the Ukraine in exchange for help to dig the dirt on Joe BIden and Son. In this Trump could see nothing wrong, he had asked many other countries for similar help including Australia, the UK and China.
In the House Trump would fall to the impeachment debate. The Democrat majority will suffice. In the Senate, a two thirds majority is required. The Republicans, it is thought, will stand behind their man. Really? This week GOP support was tested as the President made a brief call with President Erdogan and agreed to pull U.S. troops out of Syria. Overnight the tanks rolled into Kurdistan. The U.S. abandoned a close ally.
Trump explained the Kurds had done little to assist the US in the second world war. They had not been present at the Normandy landings. No landing craft in land locked Kurdistan was no excuse. Senators on both sides of the Senate were outraged by a clear betrayal.
Trump was unbowed. He had made a commitment to bring the troops home. 50 special forces troops left the Syrian battle zone. "Moving into the Middle East was the worst decision we ever made", Trump tweeted on Thursday. By the end of the week, 2000 were on their way to Saudi Arabia ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
The WTO slashed the growth forecasts for world trade this year to just 1.2%. In April, growth of just under 3% had been expected. Trade tariffs and business uncertainty led to a significant reduction in estimates in the latest update.
A "high degree of uncertainty" surrounding trade policy had led to a significant slow down in the first half of the year. The lack of progress in trade talks with China, is now yielding to the challenge of increasing tensions between Europe and the USA.
The ruling by the WTO, to award punitive tariffs of some $7.5 billion dollars to the US, as a result of the subsidies paid to the Airbus launch, won't help. Boeing had paid the price of EU support, now whisky, wine and olive oil could bear the burden of a price hike by way of redress. American consumers will once again pay the price of myopic moves by the Trump administration. The EU is advocating moderation for the moment. The WTO will rule on a counterclaim against Boeing in the months ahead.
In the UK, the latest survey from the British Chamber of Commerce confirms exports are sliding as Brexit uncertainty increases. Factory exports fell in the last quarter to the lowest for a "decade". Manufacturing has been affected by the continuing uncertainty of just what will happen next. The latest proposals from the Johnson administration will not help.
According to the latest deal, Northern Ireland is to remain inside the free trade area but outside of the customs union. A hard board is avoided, the Irish Sea will carry the tide for goods. On the Island of Ireland an invisible border will be created using new technology in which Artificial Intelligence will play a role no doubt. No thought of rules of origin. The "deal" is a lexicon of keywords, assembled without thought or order. The EU may smile politely, the Stormont veto, enough to kill off the deal.
We are leaving in less than four weeks according to the Prime Minister. Not according to the courts if the "Surrender Bill" is to be honored. The uncertainty grows and recession fears increase ...
UK Recession fears grow ...
This is the week in which markets brace for the latest release from the IHS Markit CIPS surveys. Manufacturing output fell for the fifth month in a row according to the latest data. The last time U.K. factories recorded five months of decline was in 2009 at the height of the financial crisis.
A global slowdown, trade tensions and uncertainty over Brexit were widely blamed for the set back. In similar data for the EU area, manufacturing output contracted at the steepest rate for seven years. Output in Germany was badly affected by the slow down.
Then came the construction data. UK construction is stuck in a "devastating downturn" according to the headlines. Output fell in September. The sector experienced one of the fastest declines in activity in more than a decade. A relentless six month decline in order books has resulted from Brexit uncertainty and political indecision, the explanation.
So what of the service sector? Services accounting for 80% of UK output, also fell in September. The index fell to 49.5, down from 50.6 in August. Markets had expected a slow down in the month but had expected output to remain above the critical 50 point level. The latest index data signalled a cut in activity and the biggest reduction in employment in over nine years.
The "All Sector Index" fell to 48.8 in the month from 49.7 in August. Fears are growing, the UK could be headed for recession in the face of continued Brexit uncertainty. The Bank indicated this week it would be prepared to act to cut rates if need be, too maintain confidence in the economy.
The Bank should be slow to act. More data is required before the MPC should make a move. The latest ONS data confirms the economy grew by 1.6% in the first half of the year. We still expect growth of around 1.2% for the year as a whole. The economy would experience a significant rebound if the Brexit uncertainty was lifted. Of this there would appear to be little prospect in the weeks ahead ... but for the moment, do not be too alarmed by the survey data.
U.S. Recession fears ease ...
In the U.S. markets were hit on news of a manufacturing set back around the world. The US data was mixed. The U.S. manufacturing PMI increased in September to a five month high. The improvement was a modest, "slight " improvement.
Expansion in production and new orders was of limited dimension. Business confidence remained gloomy due to muted demand conditions.
The index posted 51.1 in September, up from 50.3 in August. So why so gloomy? Any reading over 50 indicates continued positive growth. Markets fell on the news. The Dow lost 1,000 points in the mood swing, closing at 26,000 mid week. The S&P and Nasdaq closed 3% lower as the bears squeezed.
Then came the jobs data on Friday. 136,000 jobs were added to the payroll in September. The unemployment rate fell to 3.5%. Unemployment in the US has fallen to the lowest levels in 50 years. The economy is not broken. There is no recession in sight. The Fed is not expected to make a move this year. Markets rallied from mid week lows.
The continued expansion in the economy continues to make the drag on trade. The trade deficit in goods increased to $74 billion in August. The deficit will hit $1 trillion dollars this year despite the Trump tariff policy.
The White House now faces a full impeachment process. The President considers this to be a coup ...
"As I learn more and more each day, I am coming to the conclusion that what is taking place is not an impeachment, it is a COUP, intended to take away the Power of the People, their VOTE, their Freedoms, their Second Amendment, Religion, Military, Border Wall, and their God-given rights as a Citizen of The United States of America!"
Well at least he is learning on the job ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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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.
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