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Saturday 18th January 2020
Hi Friend,
No Alignment Says Sajid Javid ...
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| The Chancellor is Out of Step ...
The Chancellor warned this week, there will be no alignment with EU regulations following the exit from the European Union. "There will be no alignment, we will not be a rule taker, we will not be in the single market, we will not be in the customs union".
It was all going so well. The election result, produced a Boris Bounce in confidence among business and the markets.There was even talk of a "Brino" deal, Brexit in name only, trade secured with our biggest trading bloc.
During the referendum campaign it was Boris Johnson who asked the question about EU regulations. In a lorry park in the South East he asked, "Why should Brussels determine the dimensions of our lorries and containers?". It's a fair question but if they are to travel safely across Europe, it is best if UK drivers are able to pass over motorways and under bridges without a problem. Size is everything after all ...
For regulation, read standardization. Manufacturers like common standards on products and components in many markets. Common standards guarantee quality, generate lower unit costs, economies of scale and improve productivity. The Chancellor claimed the Treasury would not lend support to manufacturers favoring EU rules. That just does not make sense.
The Chancellor is out of step with industries including car manufacturing, chemicals, food and pharmaceuticals. Javid admitted, that some businesses may not benefit from Brexit.
"The UK economy would ultimately continue to thrive in the long term. Once we have this agreement in place with our European friends, we will continue to be one of the most successful economies on earth".
This week, the new boss of the IMF, Kristalina Georgieva, warned the global economy risks a return of a Great Depression comparable to the thirties. The benchmark for success may just be getting lower ... the Chancellor's trade stance will assist the process ...
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| Retail sales disappoint ...
One of the most successful economies in the world, had a disappointing end to the year. In the three months to the end of November, growth in the UK economy slowed to just 0.9% year on year. Manufacturing output fell by almost 2%.
Growth of 2.2% in the first quarter, slowed to 1.2% over the following six months. The economy is slowing. Retail sales are falling. In December retail volume growth year on year was just 1%. The value of sales increased by 1.5%.
Online sales increased by almost 6% accounting for 20% of all volume activity. Exclude food and the number rises to 30%. Almost one in three sales have now been lost from traditional retail to online trading.
Boohoo is one of the great beneficiaries. Sales jumped 44% in the four months before Christmas. The share price has risen over 70% in the last year. The business now has a higher market cap than M&S. The online platform has rescued Karen Millen and Coast, now in the stable along with Boohoo, Nasty Girl and Pretty Little Thing. M&S slipped out of the FTSE 100 last year, Moody's is warning off a credit rating adjustment to "junk". No change in retail trends any time soon ...
Price pressure is easing in the economy. Retail prices CPI basis slowed to 1.3% in December from 1.5% prior month. Low oil prices, a stronger currency and a slowing economy led to lower prices in food, clothing and services.
Markets began to price in a rate cut at one stage last week. Michael Saunders, and MPC dove, suggested a rate cut may be necessary citing a slowing economy and subdued inflation. Let's hope not. What on earth could a 25 basis point cut achieve as we await the maiden budget from the "No Alignment Chancellor".
Ten year gilt rated closed at 0.63% this week. Deposit rates for one high street bank were reduced by ten basis points to just 0.1%. Further pressure on savers and pension funds set to follow. The Bank would do well to hold rates for the moment until the Chancellor has his day at the Despatch Box ...
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| Google Joins the Trillion Dollar Cap Club ...
Google shares moved higher this week, joining the $Trillion dollar club along with Apple, Amazon and Microsoft. Together the four stocks account for almost 20% of the total market cap of the S&P 500.
U.S. markets moved higher as Trump signed the "phase one" trade deal with China. The "currency manipulator" tag was removed from Beijing before the signing. China committed to buy $200 billion of goods from Uncle Sam across four main sectors including manufacturing, energy, agriculture and services. Plans for further tariff increases have been cancelled, some tariffs have been cut. 25% charges on some $250 billion of goods remain in place. Trump is now free to turn his attention to Europe.
Whatever the merits of the trade war, it is clear U.S. manufacturing has not been the beneficiary. Latest data confirmed the manufacturing sector moved into recession last year. U.S. economic growth is slowing, the US deficit is set to hit $1 trillion dollars. The Treasury is issuing a twenty year bond, last seen in 1986, to assist with the huge funding process.
China reported growth of 6.1% in the past year, with a further 6% growth in prospect this year. Growth in the US slowed to 2.3% in 2019 , with growth of just 1.8% expected in the current year. So much for "Make America Great Again."
Next week sees the release of "A Very Stable Genius: Donald J Trump's Testing of America" "Taut and terrifying, it reads like a horror story" according to the New York Times. "It is as if the President, as patient zero, has bitten an aide and slowly bite by bite an entire nation lost its wits and compass."
"You're a bunch of dopes and babies" Trump launched a stunning tirade against his generals during a Pentagon briefing, the book reveals. Impeachment looms. This week the President beefed up his legal team to include two of the biggest celebrity lawyers of the 1990s. Some express surprise, the President just doesn't handle the whole thing himself ...
That's all for this week, have a great weekend. We will be back with more news and updates next week.
John |
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| | © 2020 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
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