Markets rallied, Oil and Gold surrendered early gains, the prospects of war in Iran eased significantly, then both sides appeared to de-escalate the crisis. Neither the U.S. nor Iran are marching as to war, for very good reason, as we explain below.
U.K. car sales ended the year down by just 2%, confidence among CFOs bounced back, following the election result. A modicum of clarity over Brexit appeared. The withdrawal bill passed through the house with a majority of 99 votes.
Boris Johnson promised a deal with Europe by the end of the year. No extension will be considered, deal or no deal, the old "dead in a ditch" dictum still rules OK. Ursula von der leyen, the new President of the European Commission has made it clear, such a timetable is impossible. It will be a long and drawn out process before any deal is done.
In the latest news from the SMMT, UK car sales ended the year down by 2.4% at 2.3 million units. Diesel sales were down by over 20% accounting for just 25% of total sales. Petrol sales were up by 2%, the share of sale increasing to 65%. Hybrid sales are charging up. Alternative fuel vehicle sales increased by 50% accounting for 10% of new registrations. Consumer confusion over diesel continues. Hybrids are sent to overtake the poisoned fuel source within three years. Despite the set back in the UK this year, car sales are charging up, here and around the world.
What a difference a deal makes. The latest Deloitte CFO survey, shows an unprecedented rise in business sentiment. Brexit worries dropped to third place in list of concerns. Weak demand at home and geopolitical risks around the world moved ahead of Brexit and protectionism for the moment.
Businesses are more optimistic, less uncertain, more confident about profits but still casting a cautious cloak on costs and cash flow. UK stocks closed down, Sterling slipped against the Dollar to hold at $1.30. Mark Carney caution on the year ahead, spooked markets as the prospects of more QE and rate cuts appeared possible. Oil prices Brent crude basis returned to our $65 dollar benchmark ...
U.S. Wage Growth Disappoints ...
In the U.S. markets rallied as the prospects of World War Three slipped. The Dow and S&P closed up, Nasdaq moved ever higher. Recession indicators moved lower. Markets expect growth of just 1.8% in 2020 compared to 2.3% last year.
The U.S. trade deficit fell in November to $43 billion dollars compared to $47 billion prior month. Exports increased by 0.7% as imports fell by 1%. Whilst some rush to acclaim the Trump trade strategy, a slowing economy will provide the best explanation of the modest improvement for now.
Latest data on jobs and earnings disappointed. U.S. non farm payroll growth came in lower than expected at 145,000. The unemployment remained steady at 3.5%. Wages increased by just 2.9%, the smallest annual gain since July 2018. More women than men were on the payroll for the first time in ten years. The data marks ten years of continued job expansion in which 22.6 million have found work. Last year employers added 2.1 million jobs, slightly down on prior year.
Major job expansion is in the service sector. With education, health and business services featuring. Leisure and hospitality also strong, significant gains were made in construction, distribution and financial services. Any gains in manufacturing, were offset by losses in the mining sector. So much for "Make America Great Again" the blue collar workers are not the beneficiaries of Trump's economics.
With continued expansion in prospect and inflation subdued, the Fed is unlikely to make any move on base rates. Ten year bond yields were up by just one basis point at 1.84%. The economy is moderately set for the election in November ... bring on impeachment ...
Marching as to war ...
Tensions were heightened following the Iranian missile strikes on American bases in Iraq this week. China called for for restraint and the pursuit of a peaceful resolution of conflict. Neither side seeks war, least of all the Iranian government.
The Iranian economy is in poor shape following the imposition of sanctions by the U.S.A. in 2018. Economic growth fell by 10% last year following a contraction of 5% in the prior year.
Inflation is increasing at 30%, unemployment is rising to just under 20%. Oil exports are falling, the trade deficit is increasing, the internal fiscal deficit is also on the rise.
The economy is measured at around $400 billion in the current year. The defense budget at around 3% of GDP is valued at some $12 billion dollars. Compare that to Uncle Sam's coffers and it is clear Iran is in no shape "marching as to war".
The US economy is worth about $22 trillion dollars this year. Defense spending at around 3.6% of GDP is expected to increase to $800 billion dollars. that's twice the size of the economy of Iran and well over fifty times the money spent on defense.
This week, the Baghdad government called for the withdrawal of all U.S. troops in Iraq. The strategic prize is within reach for the leaders of Iran. Russia is the dominant great power in Syria, China is set to become the soft influencer in the East.
It is said President Trump would like to see the return of all troops from the Middle East. For the moment the administration is reserving the right to maintain "whatever force is required to achieve its goals there". If only we knew just what they were ...
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.