The FTSE closed at 7,582 this week, that's a 500 point move since the start of month. Sterling fell back to $1.30 having tested the $1.35 level on post election euphoria.
UK markets were in "catch up" mode having been left behind by big moves in the U.S.A. and Europe. No threat of a Corbyn agenda and hopes for a trade truce between the Washington and Beijing boosted sentiment.
The Johnson government pushed the withdrawal bill through the house, with a majority of over 120. We are leaving the EU at the end of January. The new trade deal must be completed by the end of 2020 to "Get Brexit Done", the deadline built into law. It even made the Queen's speech in a clear message to Brussels. Fears of a "no deal Brexit" increased and unsettled currency markets.
Sterling pulled back to find support at the $1.30 level as fears the end of year deadline may be a stretch to far. Hawkish sounds of "No EU Rules and Regulations" pushed the probability of a no deal even higher. The excitement of free trade deals with the rest of the world, is in danger of overwhelming the practicality of embedded transactions with the rest of Europe.
One step forward, one step back. Sterling will trade in the $1.30 - $1.35 band over the near term. The FTSE will require consolidation at the 7,500 level with support at 7,300. A test of 7,750 will require a more conciliatory message from Downing Street, to convince traders and business, a trade deal with Europe can be secured ...
Inflation holds, unemployment falls ...
Strong economic data this week, provided support to market moves. Inflation CPI basis held at 1.5% in November, unchanged from prior month. Goods inflation increased slightly to 0.6% as service sector inflation eased to 2.5%. Markets expect inflation to move towards 2% overall by the end of 2020, with no evident pressure from producer prices for the moment.
The number of people in work increased slightly in October with 32.8 million in work and just under 1.3 million unemployed. The unemployment rate was unchanged at 3.8%. Average earnings eased back to 3.2% in October. We expect the average increase to be around 3.5% in the final quarter of the year, representing a significant real income gain over the period.
Low inflation, a strong jobs market and real income gains boosted consumer sentiment. The GfK consumer confidence index jumped 3% in the latest poll. Households were more confident about the future and were more likely to commit to large purchases. The election result is likely to provide a further boost to sentiment and spending in the near term.
The MPC voted to hold rates this month, Just two members of the committee voted for a rate cut. Low inflation, and a soft economy held sway in the decision making process. The Bank will hold off pending a review of the implications of the Brexit process. Courtesy would suggest the new Governor will have the chance to set the pace for the year ahead.
Andrew Bailey, Bank of England lifer and former Chief Executive of the Financial Conduct Authority was appointed to the role this week. The appointment was considered to be conservative and safe. No excitement for the Old Lady of Threadneedle Street considered best for now.
Latest update for growth confirms of just 1% growth in the third quarter. For the year as a whole we expect growth of 1.3% this year with 1.5% a possibility next year. Want to know more? Don't miss our Brabners Quarterly Economics Updates in Manchester and Liverpool in January.
Of Democrats and Dishwashers ...
Congress voted to impeach the President. Trump had other things on his mind. In a rambling speech in Battle Creek Michigan, the President spent part of a lengthy campaign rally bemoaning the problems of plumbing and the poor performance of dishwashers.
"Women tell me they have to run their dishwashers multiple times" the President explained. "Remember the dishwasher?
You would press it and boom, there would be an explosion. Five minutes later you open it up, the steam pours out. Now you have to press it twelve times".
The President has a thing about water regulations, impairing the performance of showers, bathrooms and toilets. He also has a thing about low energy light bulbs which make him look orange apparently.
The President faces trial in the Senate. The Democrats are in no rush to set the date. In a six page letter to Nancy Pelosi, Trump complained of an unprecedented and unconstitutional abuse of power. The process cheapening the "importance of the very ugly word impeachment". It is to declare open war on American democracy. "More due process was afforded to those involved in the Salem Witch trials" the President complained ...
That's all for this week, have a great weekend. We will be back with more news and updates on the 4th January. We will take a break over the break, here's wishing you all a Great Holiday, Merry Christmas and Happy New Year ...
A simple message stated with intense frequency, secured a "stonking" mandate for Brexit and an eighty seat majority in the House of Commons for Boris Johnson and pals.
"Get Brexit Done" the basic message, with auxiliary support for "health" and "law and order". It was the biggest Tory win since the eighties and the biggest Labour Loss since the thirties.
Masterminding the campaign was Isaac Levido, the 36 year old Australian protege of Lynton Crosby. The Tory slogan was linked to a relentless determination to stay on message. Ruthless execution was displayed. Jacob Rees-Mogg was locked up in a dark place following his Grenfell gaffe. Welsh Secretary Alun Cairns was sacked when a former aide was accused of interference in a rape trial.
Dominic Cummings stepped aside, Budgets didn't run to a suitable wardrobe for the "eminence grise". It was enough for the architect of strategy to step aside for the estate agent of the campaign. As Levido explained, "It's about getting your message across as many times as possible". The message included a "Love Actually" clip with the Prime Minister doorstepping a female voter. A for your eyes only "political billet doux" was offered with sound track, to the exclusion of a man in the house ...
For Labour, the result was a resounding rejection of a left wing manifesto and the a big "No to Jeremy Corbyn". The Tories questioned the spending plans as the campaign just kept on giving. Labour strongholds yielded under the bombardment. Dennis Skinner, MP for Bolsover lost his seat as life long voters moved to the right. "I have voted Labour all my life" said a former miner in the constituency, "but I just didn't like Corbyn or his cronies".
Confusion over Brexit cost votes for Corbyn. Assertion over Brexit cost votes for Jo Swinson. The Lib Dem leader lost her seat and leadership of party. Nicola Sturgeon was triumphant with a clear SNP majority in Scotland. The shadow of toll roads along the M6 looms, as the push for independence returns.
Corbyn will resign as leader. Boris Johnson will reshape his cabinet. We will leave the EU at the end of January, talks will take place to shape the trade relationship of the future.
Let the spending begin. 20,000 more in police service, 50,000 more nurses and 6,000 more doctors. More nurses, more doctors and a "crash team" for the economy. Growth is flat lining in the U.K. It will have to be a "stonking" budget. The election result will boost confidence in the short term. Uncertainty about the trade deal with the EU and calls for a referendum in the North will overshadow any short term exuberance as the New Year unfolds ...
The Democrats move to impeach ...
In the US, the impeachment process moves forward. President Trump will be just the third of forty five presidents to be impeached. Acquittal is surely to follow in the Senate. Mitch McConnell, Senate Majority leader has promised to work closely with the White House to ensure a "fair trial and a first class rebuttal" of all charges.
Donald Trump has already called the process "Impeachment Light" just two counts "abuse of "office" and "obstruction of congress" are on the ticket. The President listed many more claims which could have made the charge sheet, including bribery, corruption and profiteering from office.
Trump's approval ratings are unmoved by process. The Republican heartland is unswayed by the Democrat latest move. The economy continues to do well despite the Trump trade policy. The latest job figures point to continued growth into the final quarter of the year. Unemployment is just 3.5%. With no recession or inflation in sight, the Fed made no change to interest rates this week. No rate changes planned for the foreseeable future, the decision was a further boost to markets. So what was really on the President's mind?
The President took time, to lash out at Greta Thornberg. The young climate activist made the front cover of Time magazine as Time person of the year. A spot reserved for the President in his own mind at least.
"So ridiculous" Trump tweeted, "Greta should work on her anger management problem, then go to a good old fashioned movie with a friend, Chill Greta, Chill!" The sixteen year old responded with a twitter troll adjusting her twitter profile to respond to the leader of the free world's advice.
"What if Trump weren't nuts" the headline in Politico on Thursday. John Harris author of the "Altitude" column points out a disrupter with a smidgeon of self control would be remaking American politics and coasting to reelection. Instead we have a raging narcissist, who picks fights that no other President would pick.
Let us not forget, when asked about dealing with rocket man Kim Jong-Un, Trump explained :
"As far as dealing with a madman is concerned, that's his problem not mine ..."
Trump gets his trade deal ...
Markets rallied in the US and China this week as negotiators announced the outline of a phase one trade deal. The planned tariff hikes on Sunday will be abandoned. Some existing tariffs will be cut by 50%. The Chinese have agreed to restore some $50 billion dollars of agricultural products.
Trump needs a trade deal with China in the run up to the election. The USMCA trade deal with Canada and Mexico moved through congress this week. A "massive" deal with Boris Johnson is already in the pipeline. A softer touch with the EU is on the horizon. Into the New Year and Trump will focus on reelection.
With strong stock markets in support, "It's the economy stupid". The Fed will play it's part in the run up to the election. If only Trump would dial down the obsession with tariffs, the US would be a better place.
The campaign plan is well set. The Trump base secure. Impeachment will consolidate the process of re-election as the Democrats struggle to find a credible leader. A move to the left with Elizabeth Warren or a one term President with Joe Biden, hardly a great option to dislodge the incumbent ...
That's all for this week, have a great weekend. We will be back with more news and updates next week ...
Six days to go, the Tory Poll lead narrows to just eight points. The confident majority of 68 has now slipped to a more queasy 20, according to the latest electoral calculus data.
A few more votes lost and the SNP could be in the swing seats. The Tories would have just 330 on the government benches. Labour are set to lose some 30 seats.
The markets are confident of a Conservative victory. Sterling closed at $1.31 against the Dollar. Resistance at $1.30 was overwhelmed by upside sentiment. A blue win will push the pound to the $1.35 in the short term. Irrational exuberance may see a test of the $1.40 level.
It had been a good week for Johnson. A photo op with the visiting President was avoided. POTUS and FLOTUS waited outside number ten, taking the shots alone, without the host in the line up. Careful spacing ensured the Prime Minister was distanced from the President in the NATO family shot. What could go wrong?
The President made it clear he had no interest in the NHS or in the UK election for that matter. A carefully planned ambush by Jeremy Corbyn came to naught. The President's ambitions for the UK Health service were denied. "Wouldn't touch it if offered, in a kidney dish, on a silver platter" the official response.
Jacob Rees-Mogg remains house bound in Somerset. With just a few days to go, the constituency tag will soon be removed. Alas there is always one who will escape from the script ...
Sally Ann-Hart made the headlines this week. "People with learning difficulties should be paid less than the minimum wage", the MP for Hastings and Rye explained, "they just don't understand money".
So much for "Caring Conservatives", more details, yet to be revealed, on Tory plans for social care may wait until after the election ...
NATO: One for all and all for what ...
NATO nations trembled as the President touched down in London this week. It was the annual meeting of the 29 member nations. Last year's meeting had not gone well.
In 2018, leaders were berated. "Germany was a captive of Russia". Countries were "delinquent" in terms of payments to the club.
Trump thinks NATO is like Mar-a-Lago. The US runs the facility and members pay their annual subs.
The President believes a failure to spend the target 2% of GDP on defense, means the US is left paying the bill. Why should Uncle Sam pick up the tab to defend countries behind with their payments? Article 5 should only be invoked if installments are up to date, the President's belief.
The leader of the free world, as debt collector, was already making the call on South Korea and Japan. South Korea was facing a hike of hundreds of billions, the President explained in an impromptu conference. "My close friend Abe is about to cough up too" he added.. NATO allies must get the message and they have.
The President made his usual "look at me" call before arriving. The President warned, France could face tariffs of 100% on Champagne and Caviar, if the planned tax on US internationals were meant to proceed. The sessions were set for a showdown, the tensions between Macron and Trump evident.
There was some confusion about the role of NATO. Macron didn't help suggesting the seventy year alliance was "brain dead". The military threat from Russia had receded. No need to send in the tanks when you can just cut off the gas supply. Trump was affronted, "NATO has served great purpose" Macron's remarks were "nasty" and "very insulting".
Maybe NATO should seek new purpose, challenging the growth of China, and spending more on "Armies in Space". Yep and may be a look at Islamic terrorism. A common enemy to all in Europe, including Russia. Check out the Democrats too, an attack on one leader is an attack on all ...
Next year, the US may host at Camp David, Russia and the Taliban may get an invite, "Nasty Macron" and "Two Faced Trudeau" may not make the guest list ...
Trump orders toilet rule review ...
Back home, Trump had other important matters on his mind. Impeachment looms, Congress will press ahead with the process. The White House is in denial and will have nothing to do with the Democrat Hoax, until the removal men arrive.
Trump called for the World Bank to stop lending money to China, "they already have enough". In fact they have more than Uncle Sam. China's foreign reserves are over $3 trillion dollars, despite the trade war with the U.S.
Of more pressing concern for Donald Trump this week was water efficiency in the nation's bathrooms. Hand washing is nearly impossible, people are flushing toilets ten times or even fifteen times as opposed to once.
The President has ordered a federal review of water efficiency standards in bathroom fixtures. Trump explained, it was common sense to review standards. Some showers have water "quietly dripping out", some toilets use more water because of "repeat flushing".
The President said he's considering different standards for states with different levels of rainfall. "We have many states, where they have so much water comes down, it's called rain, they don't know what to do with it ..."
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 FREE weekly updates on the UK and World Economy.
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.