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Saturday 11th August 2018
Hi Friend,
Growth Up, Sterling Falls ... Trade Deficit Increases ...
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| "Economic growth rebounds as feel-good World Cup boosts growth", the headline in the Telegraph today. Let's not get too excited. Underlying UK growth in the second quarter was just 1.3% compared to 1.2% in the first. Not much of a rebound really, as we warned in The Saturday Economist last week.
We expect growth of 1.4% this year and a similar level next. The pattern over the last three months remains very much the same. Service sector growth of 1.5%, supported by strong growth in transport, storage and communications. We expect an ongoing, weak performance in production and construction.
Manufacturing growth was up just 1.3%, construction increased by 0.8%. Government related services increased by just 0.2%. In spending terms, household spending, investment, and government expenditure increased by an average 1%. Domestic demand is moribund. Growth hopes are sailing away. The trade deficit increased in the second quarter, compounding the woes for the UK economy.
Sam Coates writing in The Times today, suggests there is an "end of days feel in Westminster. A cry out for strong leadership". This is as true over Brexit as it is over the economy. "A sense of helplessness and drift" borne out of a lack of direction and development of policy. Fears are increasing, Britain will leave the EU without a deal.
Sensing the mood, Sterling fell on Friday to $1.27 against the Dollar. It will surely test the $1.25 level this week. Sterling closed down against the Euro closing at €1.1188. The holiday season is upon us. Holiday makers will face expensive trips abroad over the next few months.
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| Let's make a wish ...
Iran, Turkey and Russia where under pressure this week. Congress announced sanctions against Russia for the nerve gas attack in Salisbury. Sanctions were announced against Iran for violations of the nuclear treaty. The President announced a doubling of tariffs on steel and aluminum imports from Turkey because, well, because he could.
Aluminum imports from Turkey will face a 50% tariff on arrival in the USA. The Turkish lira plunged by 20% against the Dollar. The Russian Rouble fell by 12%. Sentiment is with the Dollar as forecasts for US growth this year are increased to over 3%. The Fed plans two more rate hikes in 2018.
The problems for the Turkish economy are increasing as inflation increased to 16% in July. The Central Bank increased base rates to near 18%. Ten year bond yields jumped to 20.8%. The economy faces a crisis with fears of contagion impacting on lenders across Europe and the US. Trump tweeted "Our relations with Turkey are not good at this time". "The Turkish Lira slides down against our very strong Dollar". So true!
"Our relations with Turkey are not good at this time"
In other news, Trump tweeted, "The deal with Mexico is coming along nicely" "The new President has been an absolute gentleman". Enrique Peña Nieto is in. Justin Trudeau is out. "Canada will have to wait. Their tariffs and trade barriers are far too high. I will tax cars if we can't make a deal". Trudeau made the mistake of squeezing the President's hand too hard when they first met. The price must be paid, if we are to make America Great again.
The trade wars with China continue to escalate, adding tension to world economies and markets. Somewhere in the Pacific a a giant shipload of soya beans circles off China. A victim of the trade war with the US. Trump unveiled a second round of tariffs on $16 billion of Chinese goods. China responded in equal measure. The Peak Pegasus is a bulk carrier with a 43,000 tonne capacity. The vessel rushed to port to unload before tariffs came in to force. Too late, the ship owned by JP Morgan Asset Management was turned away. The good news soya bean prices have jumped. Just as well. The charter costs are $12,500 dollars every day as it circles around in the Yellow Sea.
Who would have thought tariffs could be such fun. Trump has discovered trade tariffs can be used just like late payments to suppliers in the construction business. No need for approval or just cause for that matter. Just a tweet and chaos ensues. The President is now on a working golf vacation. Time alone with Fox News and Twitter. White House staffers are nervous, any semblance of control now abandoned over the break ...
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| Don't Miss Our Monday Morning Markets ...
Our Monday Morning Markets is back. The update is released every Monday Morning at around 8:00am.
We look at key stock markets, bond markets, interest rates and currencies every week and monitor trends and direction in key areas.
Last week our eToro "Empires of the Cloud" fund recovered. The NASDAQ moved up. We are in the black and 90% invested. Don't miss the updates. It's just for fun.
That's all for this week, we will be back next week, with more economics. Need more information? Check out the Monthly Round Up on the Saturday Economist Web Site. Here we provide more detail on monthly data.
Have a great weekend,
John
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| | | © 2018 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing.
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