Christopher Granville explains why there needs to be a Brexit Plan B.
- UK Brexit negotiation process creates economic risk
- The UK government may or may not be able to deliver ‘Plan A’
- Businesses need a credible Plan B before the end of 2017
- Failure to set out the alternative will see investment collapse
We believe investors have stopped worrying about secular stagnation but are convinced the ‘new neutral’ will keep bond yields at very low levels. While the global economy looks structurally deflationary, there is still a cycle in inflation and interest rates. And the major economies may not be as rate sensitive as everyone assumes.
Xi Jinping promised in November 2015, that the economy would grow at 6.5% through to 2020. This was necessary, he said, to fulfill a promise by his predecessor, Hu Jintao, to double the 2010 GDP and per capita income by the end of the decade. However, over the past year, there have been several signs that Xi might be willing to back away from this pledge. After recent conversations in Beijing, we believe:
• Policymakers will accept growth below 6.5% from next year.
• The change responds to a wide-scale recognition that the current rapid pace of...
Dario Perkins on:
• Markets are now more realistic on President Trump
• US tax agenda more important than fiscal
• Stimulus will come late in the business cycle
• No likely improvement in productivity and medium-term growth
• Border adjustment tax unlikely to happen
- 50% of S&P stocks gain from inflation, 20% lose
- Financials are the main winners
- Consumer discretionary and Healthcare also benefit
- Real Estate the big loser
We think that an ECB taper is increasingly likely in 2017. But the bank’s immediate problem is how to overcome a scarcity of bonds available for purchase in order to complete the current programme. The ECB needs to be able to credibly declare victory before it heads for the exit.
The latest US employment report was a bit of a shocker, with May’s dismal 38k job gain apparently killing any chance of a Fed rate increase in either June or July. Despite weaker than expected US jobs data and the downward revision of the Fed’s dot plot, we still expect two rate hikes from the Federal Reserve later this year. Click above to watch the video or below for our recent LSR View report.
Depending on who you believe, Brexit would either cause a crisis on a par to what happened in 2008, or herald the start of a British economic renaissance, an era of free trade and rapid deregulation. The truth, of course, is that nobody really knows what will happen because the outcome depends on what policies and institutional arrangements are put in place following the referendum. The only thing we know for sure is that this situation is causing considerable uncertainty and a Brexit vote would compound any short-term damage that is doing to the UK economy. While Brexit...
Following a surge in new loans earlier this year, investors are concerned again about the sustainability of China’s debt. Severe producer price deflation and decimated profits show just how unproductive investment has been. The good news is that China’s total non-financial debt is still low compared to most advanced countries. However, China’s refusal to tackle zombie companies has caused a massive slowdown in productivity, compromising China’s ability to grow its way out of the debt problem…
Charles Dumas, director of Lombard Street Research, discusses the EU referendum’s impact on the UK unemployment numbers, and Bank of Japan Governor Haruhiko Kuroda’s latest comments on monetary easing. He says the Bank of Japan has no control over the currency market and that people have an exaggerated understanding of the power of central banks. Click here to download and listen to the Bloomberg podcast or below to read his la...
Both the UK and the US are relying on consumers to power recovery. But while British households have largely shaken off the after-crisis blues, their US counterparts seem to be suffering from a case of Post-Traumatic Stress Disorder caused by past job and home losses. The difference is clearest in the savings rate. In both economies, there is a strong historical relationship between wealth and savings. However, whereas American consumers are currently saving more than their wealth ratios would suggest, UK consumers are setting aside less. What has driven this divergence?...
The Trans Pacific Partnership is publicly touted in Japan as a boon for exporters, but a well-designed FTA should be geared towards households. The chief gains from free trade typically arise from tougher import competition. The aim of an FTA in Japan should be to increase the efficiency of goods and services provision so that consumers benefit from a more competitively priced product while workers earn more thanks to improved productivity. That’s a heady ideal, and in practice it doesn’t always work like this. The report below examines two key issues: 1) to...
The yuan’s relatively small depreciation cannot explain its huge impact on investors’ attitudes. Rather, it served as a reminder of the persistent, powerful global deflationary trend. In the UK context, sterling strength has amplified global deflationary pressure on UK economy. Our analysis suggests that currency strength alone will have been sufficient to push annual CPI inflation around 0.5% lower today than it otherwise would have been. Along with large falls in energy prices, global deflation has done more than enough to contain any pick-up in inflation t...
The productivity puzzle is a central topic for investors, especially those investing in the US and UK. Productivity, which measures how much output an economy produces per unit of labour input, is a crucial determinant of living standards. Faster productivity implies that an economy can expand faster without causing inflation to rise. The fact that productivity has slowed sharply since the global financial crisis in 2008 is a big deal and economists and policy makers have spent considerable effort trying to explain it. What caused the productivity crash and how does slow...