The Daily Update - Populism and Europe

With the inauguration of Donald Trump as the 45th President of the United States today, it comes as little surprise that inequality, the rise of populism and dissatisfaction with the current status quo featured prominently as a theme at the World Economic Forum in Davos.

Christine Lagarde led a panel ‘Squeezed and angry: how to fix the middle-class crisis’ and opined when asked about there being little interest in the subject in 2013: ‘I don’t know why people didn’t listen, but certainly I got a strong backlash, in particular from economists saying that it was not really any of their business to worry about these things.’

The Daily Update - Let the trade games begin...

This week the who’s who of politics, economics, tech and business are gathered at the World Economic Forum in Davos. This year’s has so far been starkly different from previous summits, as the two biggest events of 2017 (so far), i.e. Brexit and the incoming less trade-friendly US administration, are against everything that Davos - the global problem-solving think-tank - stands for. This year the US shunned the annual global getaway, with no president-elect official representation.

The Daily Update - Brexit a truly global Britain

A new ‘truly Global Britain’ - that was the dream outlined in a carefully scripted Brexit speech from UK Prime Minister Theresa May, along with 12 points of much needed clarification that make that dream seem so orderly and achievable. Perhaps such simple optimism gave case for the pound’s largest one-day rally since the global financial crisis. More likely the main reason for the spike in sterling was the fact that it had already dropped over the days prior due to a leak of ‘hard Brexit’ proposals and that there was little further in the way of surprise in the speech. Indeed the most notable development was the favourable confirmation that parliament will get to vote on the Brexit deal - but only once, ‘we know what that deal is.’

The Daily Update - May day! May day!

May Day! May Day! Markets this morning braced themselves ahead of what has so far been the most important speech of UK PM Theresa May’s career, where today she shed some light on the highly anticipated Brexit strategy.

UK markets awoke with an acute risk-off tone which saw the yield on 10-year Gilts fall ~5bps to 1.248%, and the FTSE Index plummet ~0.45%; within the first 15-20 minutes of opening. The FTSE continued to track lower after Theresa May stated that the UK ‘cannot possibly’ remain in the European single market while the yield on the benchmark gilt spiked to an intraday high 1.32%.

The Daily Update - Brexit / Trump / Theresa May

President-elect Donald Trump says he will offer the UK a quick and fair trade deal after he takes office this coming Friday. Although the UK will not be able to sign any new trade deals until it has formally withdrawn from the European Union, it is free to begin laying the groundwork for possible agreements before then. Trump also announced that he would be meeting Prime Minister Theresa May soon after he takes office adding ‘We’re going to work very hard to get it done quickly and done properly. Good for both sides’.

The Daily Update - Mexico and Gasolinazo

Mexico has been hitting the headlines this month on the back of riots and demonstrations relating to a steep 14% average hike in gasoline costs as of 1 January.  Under the new system the price reflects the price of an international reference plus a fixed tax thereby transferring the volatility of prices to consumer and smoothing out government revenues.  Plus, maximum prices will be set for 90 regions rather than a single national price reflecting logistical differences. Unsurprisingly, consumers have been up in arms that the price has jumped by so much overnight.

The Daily Update - US demographics

So President-elect Trump’s press conference was as expected, what a good idea to bring your own cheer leaders……moving swiftly on.

Steven Mnuchin, Mr Trump's choice for US Treasury secretary is looking to achieve GDP of between 3% and 4% over the coming period, a big change from the around 2% per annum we have seen since 2009, of course we await details of how this will be achieved. We do have Mr Trump’s election promises of infrastructure spending, tax cuts and incentives for American companies to bring offshore funds back home.

The Daily Update - Trump

It has been 63 days since Trump won the presidency and today we have finally had the pleasure of a press conference allowing the president-elect to begin unfolding his plan for the next few years with more substance (or waffle) than can be attained in 140 characters (which is all that Twitter, his preferred medium of rabble rousing, affords). Now just 9 days away from Trump taking the oath of office to become the 45th President of The United States of America markets are still itching for clarity on healthcare policies and potential tariffs as well as reassurances that Trump’s history of bombast and conflicts of interest are resolved.

The Daily Update - Turkey forced behind the curve

Away from the hard/soft Brexit talks and Trump hiring his son-in-law as a top senior advisor, Turkey appears to have crept back into the headlines as political uncertainty mounts, social and security instability ensue, and the country’s economic outlook looks increasingly bleak.

Politically, the country’s parliament yesterday voted ~⅗ in favour of a constitutional amendment - and can thus hold a referendum in Q2’17 - which could see President Erdogan gain even more presidential power and potentially increase his term to as far out as 2029. 

The Daily Update - Brexit negotiations

Over the weekend the UK’s Prime Minister denied that both she and the UK government were guilty of ‘muddled thinking’ over Brexit negotiations, along with hinting that that she was prepared for the UK to leave the single market, thus initiating a hard Brexit. In an interview with Sky news she claimed ‘Our thinking on this isn't muddled at all, yes, we have been taking time’ adding ‘I said we wouldn't trigger Article 50 immediately, some said we should. I'm ambitious for what we can get for the UK in terms of our relationship with the European Union because I also think that's going to be good for the European Union’.

The Daily Update - NFPR

Today’s December non-farm payroll release showed 156,000 jobs added which was below expectations of 175,000 jobs created although the prior month’s reading of 178,000 jobs added was revised up to 204,000.  The unemployment rate edged higher to 4.7% from November’s reading of 4.6% and the participation rate was unchanged at 62.7%.  Although, average hourly earnings increased to 2.9% yoy, up from the previous month’s figure of 2.5% yoy, and above expectations of 2.8% yoy. 

The Daily Update - Fed and china

With the Fed continuing to operate ‘under a cloud of uncertainty’ the most recent FOMC minutes from the December meeting state that the committee is find it ‘challenging to communicate to the public the likely path of the federal funds rate’. Although the Fed officials expect upside risks to US growth, resulting from potential fiscal deployment, ‘participants emphasized their considerable uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives as well as about how those policies might affect aggregate demand and supply’.

The Daily Update - Uncertainty and Inequality in 2017

We’re only a few days in to 2017 and Brent oil has already touched $58 per barrel, 11 companies have sold a record $20bn of debt since US financial markets reopened for the New Year and the FTSE 100 has steadily climbed over the holiday period to reach a new all-time high, yesterday clocking over 7,200. But in contrast to these zeniths, overall optimism is still far from all-time highs; as it seems markets are trying to capitalise on short term opportunities whist remaining bearish of longer term prospects. For by no means have all of the root problems of the 2008 Global Financial Crisis been put to rest. 

The Daily Update - Trade and Trump

Whether the actual impact of a Trump Presidency on global trade will turn out to be as negative as the campaign’s protectionist rhetoric remains unclear save that even under a better case scenario Trump is clearly looking to renegotiate the status quo. While NAFTA (with Canada and Mexico) is one agreement that he has been particularly vitriolic about, describing it as ‘probably the worst trade deal ever agreed to’, any country running a large bilateral surplus with the US could well find themselves in the firing line.

The Daily Update - FOMC on a fast track to normalisation

The FOMC decided to raise the fed funds rate to 0.75% on December 14th, and have pencilled in an extra rate hike in 2017. The media would have us believe that the faster pace of normalising the policy rate to its long term norm now estimated at about 3% reflects both a stronger US economy and expectations of outsized fiscal stimulus under a Trump presidency. An upward revision to Q4 GDP also tends to have some carry-forward into the Q1 level of GDP in the staff’s forecast exercise, thereby explaining the small 2017 revision. 

The Daily Update - Aging workforces

A couple of recent papers from the IMF have detailed the palpable problem of aging populations and specifically aging workforces across Europe and Japan; highlighting the current and expected accelerating impact these will have on productivity and economic growth. Whereas an increase in the dependency ratio is an obvious drag to economic growth - the effects of an aging workforce itself is not obviously a hindrance to productivity. For an older workforce may make up for in experience what they may have lost in vigour and entrepreneurialism associated with youth; particularly in technologically advanced economies where the considered elderly may easily be just as effective in many fields of employment. 

The Daily Update - Japan and Russia turning over a new leaf for 2017?

After 77 years could 2016/17 be the year World War II finally ends? For since 1945 Japan and Russia have yet to formally settle the dispute over some ambiguities in the Yalta Agreement concerning a string of islands stretching from Hokkaido to the Russian Kamchatka Peninsula (in particular 4 of them known to Russia as the southern Kuril Islands and to Japan as the Northern Territories). Japan first took control of the nearmost islands in 1855 (and seized the entire string encompassing the Sea of Okhotsk by 1875 and through the 1905 Russo-Japanese War) but the Red Army seized them back in the final moments of WWII.

The Daily Update - Oil OPEC Fed

The big news at the weekend that Theresa May owns a £995 pair of leather trousers was overshadowed by news from OPEC. Saudi Arabia announced agreement for production cuts starting January with oil minister Khalid Al-Falih reporting that Saudi will ‘cut substantially to be below’ the target agreed last month. Brent rose to hit $57.89 up 6.4% in early trading and is now up around 20% from November when the agreement was first announced.

The Daily Update - Russia

This week Glencore and the Qatar Investment Authority announced the purchase of a 19.5 percent stake in Rosneft at a price of USD11.3bn in a move that is a positive step for the Russian government’s drive to raise funds from asset privatisation.

Privatisation and increasing the state-owned enterprise dividend payout ratio to 50 percent are one of the routes the government is looking to exploit to fund the budget deficit. 

The Daily Update - China...signs of change

For the first time in history a Chinese president will be welcomed at the annual World Economic Forum in Davos, Switzerland. Although not formally announced, reports suggest Xi Jinping is set to attend the summit to be held at the alpine ski resort in January next year; previously Chinese premiers have attended, but never a president. With expectations that the meeting will be overshadowed by Brexit, the anti-establishment movement in Europe and the US presidential transition, we expect Mr. Xi will have a much wider stage than ever before to push China’s global influence and pro-trade stance. The China-led Asian Infrastructure Investment Bank and One Belt, One Road initiative will likely garner much attention as the US, under a Trump administration, is expected to reshape trade agreements and pull out of Obama’s TPP deal.