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Saturday 8th October 2016
Hi Friend,
We don't want to leave ...
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Business leaders have written to the prime minister. They don’t want a hard Brexit. Signatories to the letter included Carolyn Fairbairn, head of the CBI, Chris Southworth of the International Chambers of Commerce and Terry Scuoler, from the Engineering Employers’ Federation .
Leaving the E.U without unfettered access to the single market would cause grievous damage. It should immediately be ruled out as an option” they said. “Government must make sure that the terms of the deal to leave the EU ensure stability, prosperity and improved living standards for all.” Quite so ... a deal which works for all the country!
At a meeting this week in Manchester, business leaders met with The Right Honourable David Jones MP. David Jones was appointed Minister of State at the Department for Exiting the European Union in July this year. The event was organised by The Manchester Growth Company.
It was clear from the meeting, there is little enthusiasm for a hard Brexit amongst manufacturers and many other sectors for that matter.
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And what of immigration ...
Delegates were baffled by the statements made by Amber Rudd on immigration. Access to the single market with free movement of labour would be the preference amongst business. Listing of foreign workers, preference to home grown in the jobs market were considered to be undesirable developments in a free market structure.
The minister expressed surprise about the strength of feeling in support of foreign workers in Manchester given “We are so far from the coast”. Excellent! With 100,000 students on campus in Manchester, the universities particularly fear for research, recruitment and caps on student numbers.
The government is committed to reducing immigration to the tens of thousands, damaging the higher education industry and many other sectors in the process. Why not just take students out of the immigration stats they ask! A fair question from those so far from the coast.
The room was silent when asked what are the opportunities arising from Brexit. Many businesses already trading around the world were baffled by the concept of “new worlds and new opportunities”. They already have a world map stuck on the wall.
The ability to subsidise EU tariffs for Nissan, without being subject to state aid rules from Brussels, the most obvious perhaps. It is going to be a long haul to exit the EU, assuming Article 50 is triggered in March
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Sterling gets the finger ...
Markets could not wait. Sterling was hammered as the Prime Minister outlined the plans for a hard “Brexit”, adherence to the near zero immigration target and criticism of QE and life on Planet ZIRP.
Sterling fell to $1.246 against the dollar and €1.115 against the Euro. Fundamentals are moving against the currency but the Pound is in play. Technical support levels have been breached. It is open season to the downside unless the Bank begins to reverse stance on rates and soon.
Trade and Manufacturing …
The trade figures released on Friday didn’t help. Despite the depreciation of the currency the deficit trade in goods increased in August. No surprise there! For the year as a whole we expect the trade deficit to increase to £138 billion, up from £126 billion last year. The current account deficit over 5.5% of GDP is a real problem.
Manufacturing figures continue to disappoint with growth on prior year in the month up by 0.5%. Good news from the PMI Markit series …
PMI Markit Series … upbeat …
The manufacturing PMI increased to the highest level since the middle of 2014. At 55.4 in September, growth in output, new orders and employment all strengthened.
The service sector index, continues to bounce back from the post Brexit shock. New business increased at the fastest rate since February this year. At 52.6 the index remains in growth territory.
The construction index, at 52.3 returned to growth in September. Residential and new orders generally showed a positive increase in the month.
We expect the growth forecasts for the current year to be revised up to 2% following the post Brexit low. The outlook for next year remains positive, no need for the gloomy 1% growth outlook from the IMF and others.
Outlook for inflation …
Survey data confirms inflationary pressures are increasing. Oil Brent Crude closed at $51.77 a the end of the week. The average price in the final quarter last year was $44. At current prices (Oil and Sterling) inflationary pressures will increase by 50% over the quarter and by over 80% in the first quarter of next year. The CPI blip is coming, just in time for the pay round. A further rate cut is off the table. Rate hikes could be back on the agenda ere to long. Ten year gilts bounced back towards 100 basis points as gilt prices took a hit. The M&G Bond Vigilantes recommend a move to cash over gilts in move to force yields higher.
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So what happened to Markets?
Markets, were mixed - The Dow closed at 18,195 from 18,337. The FTSE closed up at 7,044 from 6,899.
Sterling fell against the Dollar to $1.246 from $1.297 and fell against
the Euro to €1.115 from €1.154. The Euro was fell against the Dollar
to 1.117 from 1.123.
Oil Price Brent Crude closed at $51.77 from $49.05 The average price in October last year was $48.43.
Gilts
- yields moved up. UK Ten year gilt yields closed at 0.97 from 0.75. US
Treasury yields moved to 1.740 from 1.590. Gold closed at $1,314 from
$1,340.
John
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