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Saturday 24th September 2016
Hi Friend,
Central Bankers don't know what they are doing ...
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Sales of domestic safes are booming in Germany according to Phil Aldrick in the Times today. Fears of negative interest rates are leading to cash withdrawals from the banking system. Too risky to store under the bed, the Teutons are investing in old technology to hoard cash.
Just hope the Germans are not wheeling the cash home in a wheelbarrow. Memories of the Weimar Republic still haunt with rampant inflation and currency depreciation the norm.
Maybe that’s why UK narrow money is growing by 8%. The velocity of circulation slows on Planet ZIRP - as we approach the NIRP crevasse.
No signs of rampant inflation in the UK just yet but oil prices will provide pressure into the final quarter of the year. By the first quarter of 2017, the year on year sterling denominated Brent Crude will be up by 70%. Pressure will feed into the CPI just in time for the pay round!
No signs of rampant inflation but a new “plastic fiver” sold on eBay for £200 quid this week. It’s all about the serial number. The Governor dipped his fiver into a curry this month. Great use of a first edition.
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Central Bankers don't know what they are doing ...
Central
bankers don’t know what they are doing, is the summary judgement of
Jason Cummins, Chief Economist at hedge fund Brevan Howard. “The public
is fed up with the output of the Frankenstein lab of monetary policy”.,
he told a US conference last week.
Quite right too! The ground
swell of opinion is moving against academic policy advice from a group
of PhDs sitting around hypothesising about implications of the moribund
Taylor rule.
Cummins draws a
parallel with central bank meetings and the Court of Versailles before
the French Revolution. Insular and incestuous, at least in thought. “Let
them eat cake” the solution for the starving of Paris. “Abolish cash”
the solution for savers.
MPC’s Kristin Forbes argued against a
further rate cut this week. The economy had been “less stormy than many
expected” following the referendum result. Forbes is not inclined
to vote to cut interest rates still further later this year, citing the
better than expected performance of the economy in the wake of the
Brexit vote.
Mark Carney admitted he could do little more passing
the buck to the Chancellor and the Autumn statement. He could do more.
Raise rates back to 50 basis points when the Fed moves in December,
abandon the Corporate Bond purchase programme and reserve the QE spend
ring fenced for Hammond’s Infrastructure Bonds to be announced in
November. Yes the time is right to increase borrowing. All will be
revealed in November …
Speculation
increases about the tenure of the governor’s future. Will he stay
through the Brexit adjustment period, with an eye to late retirement
presumably. It could take that long! Or will he serve just the original
five year plan. Forward guidance suggests he will stay on. Come dancing,
Bake Off and Get Me Out of Here, on hold for now ...
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Public Sector Borrowing August ...
Public
Sector Borrowing fell by £0.9 billion in August to £10.5 billion
compared to £11.5 billion last year. For the year to date, borrowing was
£33.8 billion, down by just under five billion compared to prior year.
Borrowing
is on track to fall in the current financial year to around £65
billion. Strong revenue growth from VAT and other taxes (almost 4%) were
a reflection of the strong post Brexit performance of the economy.
Austerity rules held spending in check producing growth of less than 1%.
Public
sector net debt was £1,621 trillion that’s almost 84% of GDP. What’s
another £100 billion on infrastructure bonds over the next few years.
Why fix the roof when the roads need repairing will be the new mantra.
Infrastructure
bonds will be issued in the Autumn statement. The Old Lady is a willing
buyer. They may even be classified by Treasury as outside the formal
classification of Public Sector Borrowing, just like the £300 billion
bank debt. Money for nothing, gilts for free and excluded from the total
debt figures, a perfect start for Hammond.
In other news … the OECD ..
The
OECD released their forecasts for the UK this week. Weak trade growth
and financial distortions are exacerbating slow global economic growth.
Exceptionally low – and in some cases negative – interest rates are
distorting financial markets and raising risks across the financial
system, it said.
The UK is projected to grow by 1.8 percent in
2016 and 1 percent in 2017, well below the pace in recent years. Most
forecasters are now revising up their forecasts for the current year
towards 2% growth. There is no reason to expect a significant slow down
next year, especially if Theresa May takes George Osborne’s advice and
waits until the Autumn next year to trigger Article 50. Business as
usual will remain the mantra into 2017. |
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So what happened to Markets?
Markets, were up - The Dow closed at 18,320 from 18,085. The FTSE closed up at 6,909 from 6,710.
Sterling
moved down against the Dollar to $1.297 from $1.303 and moved down against
the Euro at €1.155 from €1.168. The Euro moved up down the Dollar
to 1.123 from 1.116.
Oil Price Brent Crude closed at $45.99 from $45.79. The average price in September last year was $46.52.
Gilts
- yields moved down. UK Ten year gilt yields closed at 0.73 from 0.87. US
Treasury yields moved to 1.620 from 1.690. Gold closed at $1,340 from
$1,314.
John
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