Springtime for Hammond ... and Time for Tea ...

The Chancellor will deliver his Spring statement on Tuesday. The Office For Budget Responsibility will upgrade forecasts for the UK economy. Revisions will be made to borrowing forecasts for the current year and the year ahead. The Chancellor will be smiling at the Despatch Box. The fiscal gods are delivering a revenue bonus.

We expect growth forecasts to be upgraded to 1.8% in 2018 but more caution may be evident in the subsequent years. The overhang of Brexit will weigh heavy on key investment decisions unless the fog of negotiations clears and soon. Borrowing in the current financial year is expected to fall below £40 billion with a further fall towards £30 billion in prospect next year. The internal and external deficits are improving simultaneously ...

The latest trade figures confirmed the trade deficit in goods was £135 billion in 2017 unchanged on prior year. Weak domestic growth compared to strong growth in world trade is the primary reason. The trend was assisted by translation and elasticity effects from Sterling. The overall deficit for trade in goods and services fell to £28.3 billion from £40 billion in 2016. At less than 2% of GDP this is one thing less for the Chancellor to worry about. The figures (on goods particularly) will not look quite so strong this year.

The latest data on manufacturing suggest the modest march of the makers continues. Growth in January was 2.7% following growth of 2.8% last year. We expect growth of 2.7% in the current quarter averaging 2.5% for the year as a whole. The expansion is largely in capital goods destined for overseas workshops around the world.

Construction output increased by over 5% last year with a 9% growth in housing, a 7% growth in infrastructure and a near 5% growth in commercial real estate. Headlines today were focused on the poor performance in January. Output fell by 4% in the month compared to January last year. Should we worry too much about one month's figures? Not really, we expect growth of 3.0% this year despite the poor start to the year.

The year looks to be well set for the Chancellor, not so good for David Davies.The negotiations with the EU took a step back this week. Punitive fines in prospect for failing to secure our borders, the EU is staking a claim on our fish and demanding a solution to the Irish question before talks continue. With just over one year to go, there is too much uncertainty for business. Contingency plans are now in motion ... businesses are beginning to plan for the worst ...

Steeling for job losses ...
Trump's decision to hike tariffs on steel and aluminium reverberated around the world this week. Gary Cohn, the Director of the National Economic Council and chief economic advisor to the President resigned.

Peter Navarro, the Assistant to the President, Director of Trade and Industrial Policy, and the Director of the White House National Trade Council was jubilant.

A trade hawk and author of "Death By China : Confronting the Dragon"  Navarro had long been a trade sceptic. Trump demanded by Tweet a reduction of $1 billion in the near trillion dollar trade deficit with China. Detail never a strong point, the demand was upgraded to $100 billion in subsequent release. Cutbacks in covfefe quotas could only achieve so much presumably!

Allies were appalled. Concessions were offered to Canada and Mexico to the exclusion and confusion of Japan and the EU. The EU threatened action on Orange Juice, Bourbon, Harley Davidson and Levi Jeans. Menopausal males across Europe faced a set back. The steel industry in the UK faced job losses in the £360 million trade across the pond.

In a quiet week in the White House, Trump announced talks with Kim Jung-Un. Trump is acting as his own diplomat, negotiator and strategist in talks with North Korea. White House Staff were scrambling to react to Trump's response to the overture from "Rocket Man'. It all seems too much too soon. Trump is nervous as the Mueller investigation closes in and the "Stormy Daniels" scandal escalates. A President needs protection. Who would impeach a President as he saves the world from nuclear extinction and saves US Steel from a similar terminal fate.

Good news for the President. The economy created 310,000 new jobs in February. The unemployment rate was unchanged at 4.1%. The rate of pay increase eased back to 2.6% from 2.9% in January. The Fed is confident about growth this year. Three if not four rate hikes are possible in 2018. The Fed will meet later this month. The first hike is expected in May. Rate "normalisation" will become the new central bank mantra. The Bank of England and the ECJ will soon get on message.

Ten year bond rates jumped to 2.9%. UK ten year gilts moved up to 1.5%. Markets rallied after early year profit taking. The DOW still looks a little pricey but the fundamentals are in place for continued strength in main markets into Easter ...

That's all for this week, have a great week-end,

John