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Saturday 20th May 2017
Hi Friend,
Sales Boom Continues ... Inflation Soars ... The MPC looks on ...
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Rock bottom rates and more of Mr Carney's "infuriating obfuscations" the viewpoint from Phil Aldrick in the Times today. "Wouldn't it be refreshing if Mark Carney were to drop his guard just once and admit the Bank of England is never going to increase rates on his watch." Well maybe!
It would certainly make for a better understanding of policy. This week the ONS delivered more information on strong sales, rising inflation, more people in work and vacancies rising in an economy growing at around 2.4%.
The Bank is reluctant to raise rates, fearing the squeeze on incomes would hit spending and damage the recovery. Can the standby stance be maintained? This week inflation CPI basis jumped to 2.7%. Service sector inflation hit 3.0%. Producer output prices moderated slightly to 3.6% and input costs eased to 16.6%. The latest data for March suggests earnings in the three months to March were up by 2.7% in the private sector. Public sector pay restraint confined earnings growth to just 1.0%. Earnings overall were up by 2.4%. Unemployment fell to 1.541 million and the number of vacancies reached a record high at 777,000.
The retail sales boom continued with sales values up by 7% in April. Sales volumes jumped back to 4.0% from an average of just 2% in the first quarter. The average spend in the first three months of the year was 4.8%. Online sales jumped by 19% accounting for 16% of all retail sales. There is no slowdown in retail sales growth. The spending boom continues as real rates remain low.
Deming would say "In God we trust, everyone else must bring data". The data brought, objective analysis presents a "clear and present danger" to the benign monetary stance under the Mark Carney.
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In other news this week ...
At the beginning of the month, the PMI Markit manufacturing Index increased to a three year high, signalling a solid start to the second quarter in April. This week the CBI Industrial Trends Survey confirmed, the strong trend of growth, continued into May.
"Manufacturing order books improved on April, and output growth
accelerated in the three months to May", the CBI stated. No wonder Carolyn Fairbairn is smiling.
Rain Newton-Smith, CBI Chief Economist, said: “The summer sun has come out early for Britain’s manufacturers.
Robust demand at both home and abroad is reflected in strong order
books, output is picking up the pace. On the other side of the coin, we have mounting cost
pressures and expectations for factory-gate price rises." Strong order books and rising prices the overview. It is time for the "infuriating obfuscation" to end. The Bank should begin the move to normalize rates and soon.
The Tory or rather "May Manifesto" was released this week. "Blue sky thinking with a hint of rouge" will not please big business. Intervention in the board room with worker representation and curbs on pay will not curry favor among the ranks of the CBI. Arbitrary immigration caps on numbers will compound recruitment difficulties. The "jobs tax on Johnny Foreigner" is perverse and economically illiterate. May's please all centrist manifesto may win the election. The bigger the landslide, the bigger the bank bench problems will emerge. The play full spat over "winter fuel for the well fed" is just the beginning. The dementia tax will be challenged by the back benchers, if they can remember of course ...
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Trump in Saudi ... what can possible go wrong ...
Trump arrived in Saudi Arabia on his first world trip as President of the United States. What could possibly go wrong? An irascible, unpredictable president with jet lag? It should all be fine. Visits to Saudi, Israel and the Vatican? All will be well, assuming Trump doesn't mix up religions as easily as failing to remember which countries he bombed recently.
The president leaves the USA, as impeachment proceedings near. Robert Mueller, formerly a director of the FBI, has been appointed special counsel on the investigation into Trump’s potential campaign ties to Russia. The problems reach into the highest levels of the White House apparently, with some suggestion Jared Kushner is implicated. It just gets worse.
Former FBI Director James Comey is to give evidence before Congress. Comey claims the president asked for his personal loyalty and pressured him to drop the Flynn enquiry, "He's a good guy ... Can't you let it go?" Well not really! That's obstruction of justice. Comey was fired but recriminations will follow.
Pleased with the knock out punch to Comey, Trump couldn't help bragging to the Russians in the White House .... "I faced great pressure because of Russia. That's been taken care of. Comey was a crazy, nut job, I fired him". Trump may well have fired Comey but more will follow in his place.
Trump was also in trouble for releasing secret intelligence files about ISIS to the Russians. The Washington Post dropped a stunning story late Monday reporting that President Trump disclosed highly classified information to Russian Foreign Minister Sergei Lavrov and Ambassador Sergey Kislyak during their visit to the Oval Office.
"This wasn't just any classified information. This was what is known as “code-word information,” one of the highest classification levels used by American spy agencies". Israeli intelligence was infuriated, their deep throat sources could be compromised. Putin was sympathetic to the plight of the president, offering to share notes on the meeting with Congress. Who could have realised the Kremlin had such a sense of humour.
As Trump lurches through series of crises, exhausted White House aides "polish résumés and face a new reality". Can he really last a full term? "No politician in history … and I say this with great surety has been treated worse or more unfairly." moaned Trump before the 2017 batch of coast guard graduates. He may have a point, assuming four assassinations of sitting presidents are excluded of course. Not a great student of history, "It's the greatest witch hunt in American History" claimed the President. How the citizens of Salem smiled.
The President will stop in Brussels for a NATO meeting on this week's tour. Foreign Policy’s Robbie Gramer offered exclusive details about how NATO allies are planning to deal with the unpredictable American leader.
“NATO is scrambling to tailor its upcoming meeting to avoid taxing President Donald Trump’s notoriously short attention span. The alliance is telling heads of state to limit talks to two to four minutes at a time during the discussion.” One source briefed told FP, “it’s kind of ridiculous how they are preparing to deal with Trump, it’s like they’re preparing to deal with a child — someone with a short attention span and mood who has no knowledge of NATO, no interest in in-depth policy issues, nothing...they’re freaking out.”
How best to deal with Trump ... keep it short, boost his ego and give him an easy win. Tuck the real deal into the small print. He'll never find it ...
That's all for this week from The West Wing, Whisky, Tango, Foxtrot ... You can check out the series of blog posts here or leave any comments on the Facebook page here
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So what happened to Markets?
The Dow closed at 20,832 from 20,919. The FTSE closed up at 7,470 from 7,386.
Sterling up down against the Dollar to $1.304 from $1.289 and was down against
the Euro to €1.163 from €1.186. The Euro moved up against the Dollar to 1.121 from 1.086.
Oil Price Brent Crude closed at $53.60 from $50.77. The average price in May last year was $46.74. The Russian - Saudi output accord boosted prices.
UK Gilts
- yields moved down. UK Ten year gilt yields closed at 1.10 from 1.15. US
Treasury yields moved down to 2.25 from 2.38. Gold closed at $1,251 from $1,224.
John
That's all for this week. Thanks to all who attended the Quarterly Economics Briefing at PwC this week. Our Economics Forecasts for May will be released soon, following the second estimate of GDP from the ONS
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