Forecasts are for UK GDP to have fallen by around 10% this year. The unemployment rate is expected to end the year at around 5%. Government borrowing will have increased to £400 billion during the financial year. The Bank of England has stepped up as the buyer of last resort. The process of monetary financing of the fiscal deficit is in play.
Central bankers in Europe, the USA, Japan and the UK, are in on the process. The Fed balance sheet has expanded to over $7 trillion dollars from less than $4 billion prior to the crisis. This week the Bank of England MPC voted to maintain the target of gilt purchases at just under £1 trillion for the moment.
Most analysts expect UK growth in 2021 to be 5.5% with a peak in unemployment in the second quarter at around 6.5%. Government borrowing in the next financial year is likely to be around £200 billion. The Chancellor suggest the borrowing cannot be sustained at present levels, then announced an extension of the furlough scheme to the end of April next year ...
Boris Johnson admitted yesterday, things are looking difficult in discussions with the EU. The "door is open and we will keep talking" said the Prime Minister. French fishermen are in fighting mood. UK lorry drivers will be unable to take a ham sandwich across the channel. The Pound closed up at $1.35. Ten year gilts closed up to 25 basis points.
In the US, the Dow, S&P and Nasdaq closed up. The S&P PE tracked 37.1 compared to a long run average of 19.5. Bitcoin closed at $22,973, Ripple and Ethereum missed out on the crypto rally.
Is anyone beginning to thing Tesla is overvalued? Jumping to $695. The stock trades on a PE of 1400 with a market cap of over $600 billion. Ford and GM have market cap of $35 billion and $58 billion respectively. Add in Boeing and the trio add up to a combined cap of $200 billion.
So what of market prospects in the year ahead? Markets are in bullish mode, looking through the pandemic to a recovery, supported by large scale vaccine distribution. Asset prices are pushed higher by central bank largesse and the search for yield. Traders have their favourites. For gold the test of $2,000 was too much. Some suggest $400,000 is the bitcoin bounce.
More than ever it is important to remember analysis, analysis, analysis is key. Capital, liquidity, profitability and diversification the platform. Hence our plans for more focus in markets in the year ahead ...don't miss that!
That's all for this week Have a great safe holiday and New Year ...
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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