Theresa May was in Washington this week. An episode from "Daisy Pulls It Off". Despite the anxiety of some of the Prime Minister's closest advisers, the visit was a huge success. The special relationship was secured, the President asserted his 100% support for NATO. Brexit is a huge opportunity for the U.K. to be a beacon of free trade and the rule of law! A blow against the "consortium", the U.K. will be at the front of the queue for a deal, putting America first of course. Yep they even held hands outside the White House. Not to worry Melania is in New York.
The rule of law will be secured. No torture, despite his personal wishes. General Mad Dog Mattis doesn't really approve. It will be his call. There is a South African proverb, dating from the apartheid era, apparently: "How do you catch an elephant? You catch a mouse and keep beating it, until it admits it's really an elephant." Plans to kidnap and waterboard the President of Mexico, until he agrees to pay for the wall, were suspended when Peña Nieto cancelled the trip. A Twitter forewarning the real giveaway. The Mexicans will pay for the wall, as Sean Spicer the President's Press Secretary explained. The U.S. will impose a 20% tariff on Mexican imports! Really? Once explained American citizens will be paying more for Guacamole, the proposition was deleted from the White House website, along with stuff, about gay rights and abortion.
The White House staff will hope the Prime Minister visits more often. It was like Nanny McPhee in the Oval Office. The President was on his best behaviour during the Press Conference. Yes he even read a scripted opening statement. Lured by the promise of a British state visit, tea with the queen and a round of golf at Balmoral, Trump would admit to anything. "You do support NATO 100%" said nanny. "Yes of course" the reply. Love was in the air. Trump loves the U.K., Russia and China. Yes he even loves Mexicans. For the moment, he is not declaring his love for President Putin. Open minded? "I haven't even met the guy". Who says Trump is a bigot!
No soon had the nanny left, it was back to watching "Fox and Friends" for policy inspiration. Immigration controls for Muslims, restrictions on Green Cards at the border, putting miners back to work digging "Beautiful Clean Coal". That sort of thing! Let's hope Theresa May has a return ticket soon ...
Economic news this week ... growth up 2.1% in Q4
Back in the UK, things are going rather well. Growth in the UK was up by 2.1% in the final quarter of the year, the same level as prior quarter. For the year as a whole growth is around 2.1%. Revisions to business and financial service growth along with an increase in construction output forced the change in outlook for the year ahead.
The Bank of England will upgrade their forecasts in the Inflation Report due next week. We now expect growth of not less than 2% for 2017, with an upside potential of 2.4%, as our GDP(O) model explains. We also expect earnings to increase by 3.5% by the end of the year. Inflation CPI basis at 1.6% in December, will spike in the first quarter this year before easing to 2.5% by Q4.
So what does this mean for rates? In the U.S. growth in the final quarter of the year was just 1.9%. For the year as a whole, U.S growth is just 1.6%, compared to 2.5% prior year. The Fed is still committed to further rate rises this year. The President's policies will be expansionary and inflationary. In the U.K. the next move for rates will be up. It could be as early as April this year.
Economic news this week .. Borrowing on target!
Borrowing figures released this week confirmed the Chancellor is on track to better the OBR target for the year. Public Sector net borrowing decreased by £10.6 billion in the nine months to December to a level of £63.8 billion.
For the financial year as a whole, we now expect borrowing to be £64.6 billion compared to the latest OBR projection of £65.5 billion. A further reduction to £55 billion in 2017/18 appears to be within the realms of possibility, given the continuance of growth and the pick up in earnings and inflation. Public Sector Debt was £1.698 trillion at the end of December equal to 86.2% of GDP. The Bank of England QE expansion during the year, as always much appreciated, spreading the burden of borrowing ...
So what happened to Markets?
Markets, were up the Dow closed at 20,090 from 19,806. The FTSE closed at 7,184 from 7,198.
Sterling was up against the Dollar to $1.253 from $1.234 and up against the Euro to €1.171 from €1.155. The Euro moved up against the Dollar at 1.069 from 1.067.
Oil Price Brent Crude closed at $55.07 from $55.47 The average price in January last year was $37.00.
UK Gilts - yields moved up. UK Ten year gilt yields closed at 1.48 from 1.43. US Treasury yields held at 2.50 unchanged from 2.50. Gold closed at $1,189 from $1,204.
That's all for this week. Don't miss the pro-manchester Business Conference in March. We focus on Digital Disruption and the Smart City Challenge. Our next economics presentation is on the 9th February in Manchester. It's usually a sell out. So book now if you can make the list.
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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.