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Wed, 22nd February 2017

Anirudh Sethi Report

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Archives of “united kingdom” Tag

Tony Blair leaves door open to second referendum on EU membership

Former British prime minister Tony Blair has hinted at his support to have a second referendum if a “significant part” of those who voted for Brexit change their mind.

Speaking to launch his campaign to “persuade” people not to leave the EU, Mr Blair said:

If a significant part of that 52 per cent show real change of mind, however you measure it, we should have the opportunity to reconsider the decision.

Whether you do it through another referendum, or another method, that’s a second order question.

The former leader of the Labour party also invoked the “propensity for revolt” seen across the developed to call on pro-EU supporters to convince people who “voted without knowledge of the true terms of Brexit”.

Mr Blair said he wanted to “strengthen the hand of the MPs who are with us and let those against know they have serious opposition to Brexit At Any Cost”, adding:

This is not the time for retreat, indifference or despair; but the time to rise up in defence of what we believe – calmly, patiently, winning the argument by the force of argument; but without fear and with the conviction we act in the true interests of Britain.

Who wants to know the latest European Commission economic forecasts?

what, you all do? Your luck is in boys and girls.

  • Eurozone 2017 GDP 1.6% vs 1.5% prior. 2018 1.8% vs 1.7% prior
  • Eurozone inflation 2017 1.7% vs 1.4% prior. 2018 1.4% unch
  • Eurozone unemployment 2017 9.6% vs 10.0% in 2016. 2018 9.1%
  • Eurozone aggregate budget deficit 2017 1.4% vs 1.7% in 2016. 2018 1.4%
  • Eurozone government debt 2017 90.4% vs 91.5% in 2016. 2018 89.2%

They see every EU member state growing in 2016/17 & 18.

For some reason Reuters has specifically noted that the EC see UK growth this year at 1.5% vs 2.0% last year, and at 1.2% in 2018. Official UK forecasts are 2.0% & 1.6% for those periods. Is the EC trying to say something? 😉

Other highlights;

  • German investment to slow to 2.1% in 2017 vs 2.5% in 2016. 2018 2.5%
  • France budget def 2.9% of GDP 2017 vs 3.3% 2016. To rise above EC target again in 2018
  • Spain budget def 3.5% 2017 vs 4.7% 2016. 2018 2.9%

Here’s the full report if you want to see the rest.

 

ECB sees seeds of next crisis in Trump deregulation plan

The European Central Bank rejected U.S. accusations of currency manipulation on Monday and warned that deregulating the banking industry, now being openly discussed in Washington, could sow the seeds of the next financial crisis.

Arguing that lax regulation had been a key cause of the global financial crisis a decade ago, ECB President Mario Draghi said the idea of easing bank rules was not just worrying but potentially dangerous, threatening the relative stability that has supported the slow but steady recovery.

 Draghi’s words are among the strongest reactions yet from Europe since U.S. President Donald Trump ordered a review of banking rules with the implicit aim of loosening them. That raises the prospect of the United States pulling out of some international cooperation efforts.

“The last thing we need at this point in time is the relaxation of regulation,” Draghi told the European Parliament’s committee on economic affairs in Brussels. “The idea of repeating the conditions that were in place before the crisis is something that is very worrisome.”

The ECB supervises the euro zone’s biggest lenders.

“Big mistake”

Andreas Dombret, a member of the board of Germany’s powerful central bank, the Bundesbank, said that reversing or weakening regulations all at once would be a “big mistake”, because it would increase the chance of another financial crisis.

“That is why I see a possible lowering of regulatory requirements in the U.S., which is under discussion, critically,” said Dombret, who is also a member of the Basel committee drafting new global banking rules.

Bank of England decision day – ‘Super Thursday’ preview

Bank of England announces
  1. Its interest rate decision
  2. The minutes from the policy meeting
  3. And the Quarterly Inflation Report
A three-in-one, that’s why its called Super Thursday.
  • All three come at 1200GMT
  • Governor Carney’s press conference follows at 1230GMT
1. On interest rates – the Bank is pretty much unanimously expected to keep rates unchanged (0.25%) and the asset purchase target at £435bn (I have seen just one analyst expect the target to lower).
It is worth noting the UK economy is showing better than expected signs:
  • Growth is stronger than it was expected to be after the yes vote on Brexit. There are plenty of expectations around for slower growth ahead as the impacts of Brexit become clear, but these have not been evident in the official data. I’ll admit to being in ‘you are all doomed, just you wait’ camp, but the evidence so far has been opposite this (i.e. don’t listen to me!). Yesterday I posted the view of the UK’s National Institute of Economic and Social Research – they are pretty much of the same view as me, & they’ve been eating humble pie too: NIESR has progressively revised up its short-term estimates for British economic growth since the referendum, thanks in large part to consumers who kept on spending
  • Unemployment is falling (at an 11-year low if I recall correctly)
  • Inflation is ticking higher, and will perhaps overshoot the topside target (2% is the target). BoE Governor Carney is on record as saying the bank will not be overly tolerant of an inflation overshoot.
Despite these better signs the Bank is expected to be remain in ‘wait and see’ mode, watching more data, especially on business activity and consumer spending. In November Governor Carney said the Bank had a neutral policy bias, so I’d expect a clear indication of a shift in the bias before any policy move on rates or QE. This (a shift in policy bias) is something to watch for from the Bank today.
 
2. The minutes will be scoured for hints of how the Monetary Policy Committee members voted and reasoned, looking for signs for the future direction on rates and QE
3. The Quarterly Inflation Report will be a big key focus. It will include the BoE’s latest forecasts for growth & inflation. The most recent Bank update to these forecasts was way back in  November;
  • the GDP forecast was 2.2% for 2016
  • 1.4% 2017
  • 1.5% 2018
  • 1.6% 2019

EU’s Donald Tusk takes a swipe at Trump

Brussels has hit back at US President Donald Trump over his repeated criticism of the EU, saying “worrying declarations” since he took power have put Europe in a difficult situation as it confronts mounting turmoil around the world.

Donald Tusk, president of the council of EU leaders, placed the new administration in Washington alongside China’s assertiveness and Russia’s aggression among the global forces making Europe’s future “highly” unpredictable. “We should remind our American friends of their own motto: United we stand, divided we fall,” he said.

The intervention by Mr Tusk, former prime minister of Poland, marks the most forthright response from Brussels since Mr Trump ridiculed the EU as a “vehicle for Germany” after taking office and predicted other countries would follow Britain in leaving the bloc.

Mr Tusk said the EU faces challenges more dangerous than at any other time in the history of European integration, specifically citing the Mr Trump’s administration among the external threats to Europe from the tense geopolitical situation in the world.

Coming Week : US GDP, earnings, Brexit ruling

With Donald Trump sworn in as the 45th president of the United States, investors will have their eyes peeled next week for more concrete details on his policies. The UK will also be in the spotlight as the Supreme Court rules on the government’s Brexit appeal.

Here’s what to watch in the coming days.

Brexit ruling

“We look for the court to rule that Parliament must vote to trigger Article 50, but any rally in [the pound] should be limited and short-lived,” strategists at TD Securities, said.

US GDP

In the US, the latest snapshot of US GDP remains the big ticket item on investors’ agenda. The data, scheduled for Friday, are expected to show that economic growth slowed in the last three months of the year. Growth is expected to have cooled to 2.2 per cent in the fourth quarter, from the previous quarter when it expanded by 3.5 per cent.

Davos 2017: UK will lead world in free trade after Brexit, says May

UK prime minister Theresa May has said Britain will seek to lead the world in free trade after the Brexit vote as she sought to reassure the global economic elite her government would remain a force for liberalisation and globalisation after the EU referendum.

Addressing the annual World Economic Forum in Davos this morning, Ms May said Britain would “step up to a new leadership role as the strongest, most forceful advocate for free markets and free trade anywhere in the world” as it seeks to strike new trade agreements after the referendum.

Despite seeking to align herself with the Davos crowd, the prime minister also used her speech to rail against a “cult of individualism”, quoting conservative British philosopher Edmund Burke in favouring a pace of change that would still “conserve”, in remarks delivered to a subdued main congress hall.

She added the Brexit vote was a decision to “restore our parliamentary democracy and national self-determination. A vote to take control and make decisions for ourselves”.

Theresa May’s speech touted for 11.45 GMT tomorrow

There’s been lots of people asking about the time of May’s speech tomorrow

Livesquawk have just said that there’s a touted time of 11.45 GMT for this big speech of hers. That’s come from CNBC they say, so not taken for granted.

There’s a lot of furore about what she will say in this speech so perhaps the market is getting a little ahead of itself.

The speech itself is to an audience of diplomats in London so her comments might not be as detailed as the market expects. They certainly shouldn’t be more detailed than what she would say to parliament, and might even be a repeat of what she’s said previously.

It’s being built up into something big but it has all the potential of not delivering. That would be bad in the market’s eyes but potentially good for the pound, even though still not hearing about her plans is bad, which is bad for the pound but might be read as good. It’s all a mucking fuddle if you ask me.

Livesquawk have been bugging No.10 for a definitive time for the speech but they aren’t playing ball, so we’ll have to be on our toes.

Watch these 5 events for Next Week

What events and releases will impact trading in the week starting Jan 16th.

  1. ECB interest rate statement. Thursday 7:45 AM ET/1245 GMT.  ECB Draghi press conference to follow at 8:30 AM ET/1330 GMT.   The ECB will meet next week and announce that rates will remain unchanged.  The last meeting the ECB moved increase the types of bonds that could be purchased for QE purposes (read German notes). That included bonds with yields below the -0.4% deposit rate. In addition, they lowered the maturity requirement to one-year from two- years (read German notes).  However, they also reduced the amount of QE purchases from 80B Euro to 60B Euro until the end of December.  There will be no change in policy, nor change in QE. So the focus will be squarely on the comments from Draghi during his traditional prepared statement and then Q&A.  Will he sway more toward the hawkish Germans or keep committed to the the same path..
  2. Bank of Canada rate statement.  Wednesday at 10 AM ET/1500 GMT. Press conference at 11:15 AM ET. The bank will also release its quarterly Monetary Policy Report (MPR) at 10 AM ET.  Stephen Poloz and Senior Deputy Gov. Carolyn Wilkens will give a statement and hold a press conference. The rate is expected to remain unchanged at 0.5%. In their last MPR, they saw 2017 CPI at 1.9% and core CPI at 1.7%. That was down from earlier projections of 2.1% and 2.0% respectively. For GDP they estimate growth of 2.2% (up from 2.1%).

  3. US CPI/Core CPI. Wednesday at 8:30 AM ET/1330 GMT. The US will release consumer price data for December with expectations for MoM rising by 0.3% (vs. +0.2% last month). The Ex Food and energy is expected to increase by +0.2%  (vs +0.2% last).   The YoY numbers are expected to rise to 2.1% from 1.7% and 2.2% from 2.1%. The core YoY ended 2015 at 2.1% with the high extending to 2.3% in Feb and again in August

  4. Australia employment change. Wednesday at 7:30 PM ET/Thrusday 0030 GMT. The Australian employment report is expected to show employment change of 10.0K vs 39.1K last month. The gain last month was well above the estimate of 17.5K. The unemployment rate did move higher to 5.7% last month from 5.6%. The estimate is for the rate to remain at 5.7%.  Last month full time employment rose by 39.3K. The part time employment fell by -0.2K.
  5. UK Retail sales. Friday at 4:30 AM ET/0930 GMT. The November retail sales in the UK are expected to to dip by -0.1% vs. +0.2% estimate last month. Ex auto fuel a larger -0.4% decline is forecast. The YoY changes are expected to show healthy 7.2% and 7.5% gains respectively.
Other key events/releases

What will drive political uncertainty in 2017?

As 2016 draws to a close, a sense of unease is gripping many commentators as they look ahead. This year brought victories for Brexit and Donald Trump. The outcome of both votes were largely unexpected. What will 2017 bring? The EU is facing three, or even four, elections in major member states. The Netherlands, France, Germany and possibly also Italy will go to the polls. The outcome in all four elections is far from certain at this stage. Indeed, voting behavior seems to have become difficult to predict.

Economic and sociological research points to a number of different factors provoking these recent results. The debate is broadly about whether it is economic issues such as income inequality, cultural issues such as a rejection of equal rights for women, minorities and gay people, or factors relating to citizens’ perceived loss of control over their destiny that has driven people to support populist candidates and causes.

 At first sight, the economic factors seem to have played a strong role. The vote for Brexit predominantly came from the countryside, where GDP per capita levels are significantly lower than in the cities. Moreover, income inequality levels are much higher in the United States and the U.K. than in continental Europe. And indeed, one can show that the Brexit vote is significantly affected by regional income inequality though the effect may not be very large.

The second explanation is a rejection of progressive cultural norms. An interesting study by Ingelhart and Norris emphasizes very much this aspect. They offer evidence that the recent protest votes are a cultural backlash against progressive values. And indeed, discourse especially on social media has totally changed. Unfortunately, it seems to have become widely acceptable to talk of white supremacy and engage in racist discourse.