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Saturday 24th July 2021
Hi Friend,
Synchronised Swimming ...
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| Europe Holds The Line ...
Christine Lagarde, President of the European Central Bank, is used to holding the line. As a former member of the France National Synchronised Swimming Team, she knows a thing or two about maintaining formation.
In the US, the Fed remains committed to maintaining interest rates at the zero bound and continuing the $120 billion per month asset purchase programme.
In the UK, despite noises of debate on the MPC, there really is no real prospect of an increase in rates as yet. The NHS isolation App is making sure of that. Rishi Sunak's £1 trillion pound bank note, may yet be filled before the end of the financial year. Borrowing may be falling but not yet to levels within the purchase capacity of the private sector. Trapped on Planet ZIRP, the process of Gross Asset Inflation continues.
Bond yields were unchanged during the week. Markets moved higher in The US and Europe, the DOW, NASDAQ and S&P closed at new highs, following the early week flutter. Markets are playing "What time is it Mr Wolf". Each step closer to the time to run but pushed ever nearer by peer group pressure and the fear of missing out. Expect more volatility as experienced at the start of the week. The Dow dropped 4% before recovering at close.
At its latest meeting, the ECB governing council said it would allow inflation to rise above target without corrective action. European Central Bank pledged to maintain monetary stimulus for even longer. As Phil Aldrick, writing in the Times explained. "The change in emphasis was likely to mean no rate rises until 2023 at the earliest. It reflected the ECB’s new “symmetrical” inflation target. The previous target, circa 2003, had been to keep inflation below but close to 2 per cent."
The ECB governing council stated the plan
to get inflation back to 2 per cent “may also imply a transitory period
in which inflation is moderately above target”. Christine Lagarde, the
ECB president, said the comment “underlined our commitment to
maintain a persistently accommodative monetary policy”.
Sound familiar? Yes even in Europe, inflation is always and everywhere a transitory phenomenon. Fortunately for the Europeans, CPI inflation is just 1.9% for the moment ... The Pandemic Emergency Purchase Programme continues, Pepping the markets in the process ...
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| Borrowing Is Falling ...
Good news for the Chancellor this week. In the first three months of the financial year, borrowing fell to £69.5 billion compared to almost £120 billion last year.
The out turn was £19 billion below the OBR forecast. The fiscal watchdog had penciled in borrowing of £234 billion in the current financial year. If the current trends were to be maintained, the outcome could be a drop in borrowing levels to around £175 billion.
The fall reflects stronger than expected tax receipts and lower than expected spending. The OBR had forecast growth of just 4% in the current year. Market expectations are for growth of between 7% and 8% this year, a significant adjustment worth between £30 and £40 billion in receipts alone.
Corporation Tax, Income Tax, and National Insurance Receipts were all much higher. Stamp duty receipts spiked in June, as transactions were brought forward to beat the deadline. The downside surprise in the data, was the reduction in government spending due to lower subsidies including CJRS and SEIS. Social spending was lower, as was the expected debt interest costs, despite the rise in total debt to £2.2 trillion.
The recovery is on track despite the Pingdemic shock. Borrowing is set to fall to less than 5% of GDP in the net financial year. Even so policy seems "All At Sea" as the Treasury seeks control. No money for police pay, no money for doctors as applicants for training places are told to come back next year. No money for overseas aid, no money for leveling up. No money to complete the extreme Northern loops of HS2.
The Chancellor is set to announce his three year spending plans in the Autumn. Budget action is set to be delayed until the Spring. It is not clear if the Chancellor and the Prime Minister are swimming in synch ... evidence of formation remains "all at sea" ...
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| That's all for this week, we will be back with more next week.
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