Wednesday 25 January 2017

Sex Toys, iPhones & Jeans




(No, it’s not a new Bob Dylan song!)
 
If we can take one thing from Trump’s inauguration speech it’s that America will buy American and there will be strict financial penalties and taxes for those who don’t. Or to put that another way……he announced a trade war with China.
 
Trump is somebody that has been far from consistent with any of his political messages, with one exception……China. As he has declared, China is “raping our country” and "stealing American jobs". He has promised to slap 45% tax on Chinese imports if Beijing doesn't start playing fair……a move that has led to concerns over a US - China trade war. Watching the two largest economies in the world squaring up to each other is not for the faint hearted……and there will be casualties along the way.
 
Whilst some will admire his stance on putting the US first, it seems at face value a flawed stance. Firstly, American consumers would end up paying more for Chinese made goods (sex toys, iphones, jeans, laptops, refrigerators, etc.) and will have less money to buy American made goods. Secondly, many US firms have manufacturing bases in China and would be hit by any kind of import tariffs as well.
 
So Mr Trump, it’s not as simple as ripping your shirt open, thumping your chest, shouting “American or else”……you could end up stabbing yourself in the back.
 
China's President Xi Jinping summarised the Trump chest thumping perfectly……”Nobody wins in a trade war".
 
And if history is anything to go by, then he is right.
 
Interesting times.

Wednesday 18 January 2017

Buoyant Brexit?


 
6 months have passed since the UK voted to leave the EU. Whilst it is not as simple as choosing what we want (there is the small matter of the remaining EU members that want what’s right for them……damn them for not making it easier), things became a lot clearer yesterday in Theresa May’s 12 point battle cry plan:
 
(1) Certainty & Clarity
“The first objective is crucial. We will provide certainty wherever we can.”
 
(2) Control Our Own Laws
“We will take back control of our laws and bring an end to the jurisdiction of the European Court of Justice in Britain”.
 
(3) Strengthen The Union
“A stronger Britain demands that we strengthen the precious union between the four nations of the United Kingdom”.
 
(4) Maintain The Common Travel Area With Ireland
'We cannot forget that, as we leave, the United Kingdom will share a land border with the EU. Maintaining that Common Travel Area with the Republic of Ireland will be an important priority for the UK”.
 
(5) Control of Immigration
“We need to build a fairer Britain. That means ensuring it is fair to everyone who lives and works in this country. And that is why we will ensure we can control immigration to Britain from Europe”.
 
(6) Rights For EU Nationals In Britain / British Nationals In The EU
“Fairness demands that we deal with another issue - we want to guarantee the rights of EU citizens who are already living in Britain and the rights of British nationals in other member states”.
 
(7) Protect Worker Rights
“As we translate the body of European law into our domestic regulations, we will ensure that worker rights are fully protected and maintained.”
 
(8) Free Trade With European Markets
“As a priority, we will pursue a bold and ambitious Free Trade Agreement with the European Union. This agreement should allow for the freest possible trade in goods and services between Britain and the EU’s member states.”
 
(9) New Trade Agreements With Other Countries
“But it is not just trade with the EU we should be interested in. A Global Britain must be free to strike trade agreements with countries from outside the European Union too. It is clear that the UK needs to increase significantly its trade with the fastest growing export markets in the world.”
 
(10) The Best Place For Science & Innovation
“A global Britain must also be a country that looks to the future. That means being one of the best places in the world for science and innovation.”
 
(11) Cooperation In The Fight Against Crime & Terrorism
“A Global Britain will continue to cooperate with its European partners in important areas such as crime, terrorism and foreign affairs.”
 
(12) A Smooth, Orderly Brexit
“These are our objectives for the negotiation ahead – objectives that will help to realise our ambition of shaping that stronger, fairer, global Britain that we want to see.”
 
The 12 point plan is certainly ambitious. Very ambitious. But then again, if it wasn’t we would have been disappointed and misrepresented.
 
Like it or not, Theresa May is the chosen one to pull the trigger shortly on the required 2 years notice to leave the EU and she will negotiate on our behalf. There will be winners. There will be losers. Let’s hope she sticks to her pledge when negotiating that “it is better to have no deal than a bad deal”.
 
That is ultimately what she will be judged on.

Wednesday 11 January 2017

The Big 2017 Survey


 
 
 
Economists are a funny breed…….on the one hand they keep the cardigan section of M&S in business……yet on the other hand so many cling on to every word they have to say.
 
So it is no surprise that the Financial Times annual 2017 survey of the 122 leading UK economists is always a ‘must read’ (I have no idea why 122 by the way before you ask!!!!).
 
The major headlines to come out of it are:
 
- UK economic growth will slow markedly in 2017 (which to be fair the Chancellor confirmed in his Autumn Statement).
 
- Household incomes will be squeezed tightly by higher inflation eroding wages in real terms.
 
- Businesses will hold back on investment decisions because of uncertainty about Brexit.
 
- There are more downside risks than upward risks.
 
Perhaps the most concerning headline is that most economists predict the rise in inflation will put pressure on household income and this will hold back consumer spending……which has been the engine of economic growth in the UK in recent years.
 
Economists do get predictions wrong……but they are paid to get it right and they are on the money more often than not. We shall see.
 
It will be interesting to see how 2017 plays out.    

Wednesday 4 January 2017

2017 – The Big Issues


 
 
Before I started to write this, I listed some of the things that could derail investment markets in 2017. The list was a long one. Interestingly, the various risks are interconnected and broadly fall under political, economic or financial concerns. Economic events will drive politics in 2017 and vice versa.
 
Political Risks
A Brexit vote, Trump election and the Italians rejecting the constitutional reforms proposed by the Prime Minister are unprecedented events that have left commentators struggling to interpret the ‘events’ of 2016. Voters, it seems, have decided old school politics for the elite need replacing and have voiced this belief to devastating effect at the ballot box.
 
No one can say whether the anti-establishment backlash has peaked or has further to run. The General Elections to be held in Germany and France in 2017 will provide further evidence.
 
One thing is for sure, the reality of both Brexit and Trump will unravel in Quarter 1 of 2017 and the direction of travel will become clearer.
 
Financial Risks
Stock markets tend to make the news but the bond markets are arguably of more interest currently. Bond prices and yields set the benchmark for global borrowing costs and asset prices more generally. So the timing of any interest rate rises in America is important for investors around the world. They will make cash more attractive relative to bonds and shares, putting pressure on prices.
 
The UK faces a special challenge though – looming inflation in response to Brexit. This will not be good for bonds as their yield is likely to be well below the rate of inflation (thus offering a negative return).
 
The key driver of stock markets, along with returns on competing assets such as bonds, is corporate profitability. Company earnings have been becalmed in the UK and US, while share prices are at, or near, record highs. So at some stage, investors may take fright.
 
 
If 2016 saw unprecedented political events, the theme of 2017 is how these will unravel.
 
2017 will be a very interesting journey full of twists and turns that’s for sure.