Calls for Unity and New Leader ...
Local elections this week ... the Tories were flagging a loss of 1,000 seats, Labour a modest 400 seat gain. In the end Vince Cable was victorious with with a Lib Dem gain of over 700. Independent ranks doubled in size with a 600 plus gain.
For both main parties it was a setback. Corbyn's councillors lost 80 of their number. Conservatives lost over 1,300. Over forty councils were lost by the Tories, Labour shed but six.
For the Prime Minister, the end is nigh. "Shattered Tories tell May to set the exit date " the headline in the Times today. Graham Brady, head of the 1922 committee, will meet with the PM on Tuesday, to confirm the departure date.
It is clear that voters have lost faith in the Conservative Party. A party divided, with policy confusion apparent. it is the worst set of results for the "Blues" since the time of John Major in 1995. Time to recover? Brexit will continue to tear the Tories apart, no matter who occupies the Number Ten hot seat.
Theresa May in a speech to Welsh Conservatives suggested the electorate had sent a "simple message" to "just get on and deliver Brexit". Only the Prime Minister could consider a resounding poll set back, to be a mandate to push "her deal" through Parliament.
Lovers of a whodunit hoping for a revelation of "H" , got an early taster this week. Line of Duty? The fifth series of Line of Duty ends tomorrow. Superintendent Ted Hastings is in the frame with odds of 10-3 for the fit up. If so, it is a clear message crime doesn't pay. Hastings lives in a hotel bed sit with dodgy plumbing. Theee poor fella had to flog his lap top to make ends meet.
Real life drama was brought into focus this week. Who leaked the information on Huawei from the National Security meeting? Gavin Williamson was sacked by the Prime Minister. The Defence Secretary, a serial leaker, with a penchant for tarantulas was out. The Prime Minister had decided two days before the sacking the ambitious former Whip was responsible.
Strong enough to tell the Russians to "go away and shut up" or to push or brand new aircraft carrier through the South China seas, Williamson denies leaking information from the security meeting. Who could have thought Williamson could be the leaker? "Only those who knew him" the more cynical response ...
Forecasts Upgraded ...
The MPC decided this week to keep rates on hold and maintain the current level of QE. The Inflation report upgraded forecasts for growth in 2019 and in subsequent years of the forecast horizon.
Growth is expected to be 1.5% this year, rising to over 2% by 2021. Inflation is set to rise above the 2% target over the period. Unemployment is set to fall to 3.5% as earnings continue to rise.
In the first quarter, growth is expected to be 2% at the annualized rate. Stock building ahead of the March deadline contributed to the surge allegedly. Hence the fade in second quarter growth according to the Bank model.
The Governor issued a warning to markets. The current assumed path of future interest rate hikes is incompatible with current forecasts for growth and inflation. Markets are assuming base rates will rise by just 25 basis points by 2021.
The Bank now expects to rise "slowly and to a limited extent". Ben Broadbent Deputy Governor for monetary policy suggests the economy could absorb a 25 basis points rise in each and every year over the next few years. There is little expectation of a rate hikes before the Governor heads to pastures new at the end of January next year
Mark Carney has just to two more inflation reports to deliver. There was an element of end of term to the May Press Conference. The Governor derived great amusement from the projection of oil prices and the element of "backwardation" in oil price futures. Oh how we laughed ... what fun lies ahead in August and November.
Only two can "contango" but many will look on and enjoy the dance ...
Fed Holds Rates ...
In the US, the Fed held rates. The Committee noted "the labor market remains strong and economic activity continues at a solid rate". It is almost an understatement.
The economy expanded by 3.2% in the first quarter. US hiring rose at a brisk pace in April, according to data released on Friday. Non-farm payrolls rose 263,000, well above the median forecast of 190,000. Average hourly earnings increased 3.2 per cent year-on-year. The unemployment rate fell to 3.6 per cent.
The good news for the Fed ... inflation remains below the target 2% for now. Inflation increased to 1.9% in March from 1.5% a month earlier. A strong dollar and a moderating oil price are assisting the process. The Committee decided to maintain the target for the federal funds rate at 2.25% to 2.5%.
Markets rallied and bond yields moved higher. The Ten Year bond yield increased to 2.53% from 2.50%. The Federal reserve decided to ignore advice from the White House to slash rates.
Vice President Mike Pence, called on the Fed to lower interest rates saying the "economy's engine could handle more fuel". "The economy is roaring" Pence said on Friday in a CNBC interview. "This is exactly the time not only to not raise rates but we ought to consider cutting them. President Trump had called for a 1% rate cut. Then the economy can "surge like a rocket".
"Taking the punch bowl away just as the party gets going" has been the guideline for monetary policy over the ages. The White House wants to "turn up the music and dish out the shots". Fed Chair Jerome Powell has his hands on the liquor cabinet for now. Attempts by the President to stack the Fed with Trump acolytes have been thwarted for the moment. Herman Cain and Stephen Moore stepped back from the nomination process, a result of Senate resistance to the White House moves.
The yield curve no longer inverting. No talk of recession persists. The Fed may have to act before the year is out.
That's all for this week, have a great Bank Holiday weekend. We will be back with more news and updates next week!
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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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