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Global Economic Weekly - June 12, 2017

I am sure you must all be sick and tired of pundits explaining why Mrs May got it so wrong, and what the implications of last Thursday’s political debacle are. But one cannot avoid it. I have been asked to produce a brief Note on the economic ramifications, which I will do as soon as I put this report to bed. But this week is all about politics – and it is all pretty terrifying.

First, I was broadly sympathetic to the PM. I took her at her word that a thumping Parliamentary majority would make

‘Brexit’ negotiations a lot easier – if only because  Juncker,  Barnier,  Selmayr et al. would  not be able to fantasize about a change of government and a new pro-Remain PM in Downingstrasse. Hence, they would have no incentive not to negotiate a relatively painless exit for the UK – and, make no mistake, whatever nonsense the mainstream UK press says, it is Brussels that is refusing to compromise, not London. Now, who knows? There is talk that Mrs May could be toppled by die-hard ‘Brexiteers’ like David Davis – or by an unprincipled Johnny-come-lately like BoJo. But I am much more concerned that this will be seen by Remainers (in the Tory party and in the press) as an opportunity to build a pro-EU coalition and/or to push for a new referendum. I have always said (to much skepticism) that it was only a 70% probability that we would leave the EU; now, it is only around 60%. Certainly, we can expect Brussels to ratchet up the pressure should Mrs May remain in office; there will be no compromise on offer so long as there is a realistic chance that there could be a new referendum. And if there is to be a new referendum, the EU’s perceived interest is in making ‘Brexit’ as painful as possible.

That said, everything I read says that the election pushes us in the direction of a ‘soft’ Brexit – as if the choice is in our hands, and as if Mrs May actively prefers a ‘hard’ Brexit. Understand, please, that until the election, the UK really only had two-and-a-half “red lines” – control of immigration, the ECJ’s jurisdiction and (the half) a sane deal on an exit fee. Now, I guess, we have to add a soft border with the Irish Republic. The problem is that at least the first two are “red lines” for the Commission, too – and that is why we are being pushed inexorably towards a ‘hard’ Brexit. Not because, we, Mrs May or David Davis wants it.So, what went wrong?

I think that is pretty easy to see in hindsight. There was a poll just before the election that should have alerted us all: it found that, in the 18-24 demographic, voters split 85/15 for Labour. I guess we all figured that yoof would stay home, as it usually does. But we grossly underestimated the power of a social media campaign (organized, it would appear, by Momentum) – and we also grossly underestimated  how pissed off students were by university tuition fees, and by Nick Clegg’s alleged ‘betrayal’ when confronted with the lure of a place at Cameron’s Cabinet table. Not only was Labour’s manifesto promising to abolish university fees, Corbyn himself subsequently promised to write off existing student

debt if Labour was elected. That was powerful stuff – even if there wasn’t much of a hint how he was going to find the

£41 billion needed. The result was that, in every constituency where voters’ rolls increased sharply as ‘students’ sobered up long enough to fill in the form, Labour romped home. I think we also underestimated how alienated younger voters were by the result of the ‘Brexit’ referendum. Even though it was their own stupid fault that they stayed home in droves, they somehow felt disenfranchised – and decided to take it out on the hapless Tories. (There was, it appears, a seven-point swing to Labour in constituencies that voted Remain.)

And the Tories were hapless. If anyone in Tory Central Office had cared to analyse the US election (or even to look at CNN or Fox), they would have seen the appeal of spontaneity (Trump) and sincerity (Sanders) – and the way that contemporary voters are repelled by slickness (Hillary and Cruz – as well as all the other Republican contenders). For some reason, rough edges are back in fashion in the Anglo-Saxon world (the Frenchies are different). Instead, they gave us Amber Rudd, in ‘serious’ glasses provided by central casting. Yuk. (That said, I am sorry to see that her father, Tony, has died.)

And then, of course, there is now a generation (perhaps two) that doesn’t remember British Rail or the winter of discontent, that thinks Cuba is just a great place for a cheap boozy holiday, and that regards the IRA as rather romantic. It is nothing like as scared of Corbyn and McDonnell as it ought to be. On top of that, there is the NHS… It is pointless trying to convince anyone either that it has not been starved of cash, or that pouring yet more money into it won’t solve its problems. I happened to visit my 21-year old local doctor the morning of the election, and (bless her) she asked me straight out whether I was going to vote Labour to ‘save’ the NHS.

But it is not just yoof… Team May has been peculiarly ham-fisted when it comes to dealing with older voters and its natural White Van Man constituents. The hoo-hah over NIC hasn’t been forgotten – and the U-turn over the so-called ‘dementia tax’ hasn’t been forgiven. And fox-hunting… Oh come on, not even Cameron fell for that one. No wonder the wrinklies stayed home.One may, I guess, ask why the LibDems weren’t the beneficiary of all this angst. Clegg’s position on tuition fees is obviously a large part of the answer – and it has finally cost him his seat. But, after all, the LibDems were the only national party reflecting the wishes of the 48% who voted to Remain. The answer, of course, is the rather sad one – that having sincerely-held, and public, Christian beliefs is now an insuperable barrier to high office in Britain. It is OK to be seen popping into the odd CofE church in rural England, just. But please don’t believe anything – and, most importantly, don’t diss the LGBT(I) community. Tim whatever-his-name-is dead meat politically – which, of course, leaves the LibDems as a national machine just waiting for a new driver. I imagine that Vince Cable is ready to throw his hat into the ring – and good luck to him. For once, being 73 and a bit raggedy may be an electoral advantage – but (for those who have pooh-poohed my predictions in the past) keep an eye on Gorgeous George Osborne.  I see he is being pimped as a potential successor to Mrs May; I see the LibDems as a more natural home (albeit one he might have to share with Ed Balls).

And then, of course, there was the collapse of UKIP… I don’t see that as a sign that Britain has suddenly changed its mind on ‘Brexit’, though I am sure lots of Remainers want to believe it. Rather, natural Tory voters were reasonably comfortable with Mrs May’s approach – so they went back to their traditional home. Same with Labour voters -- thanks to Corbyn’s surprisingly effective ambivalence on Europe. Everyone knows that, personally, he and McDonnell have always been Eurosceptics – even if their Euroscepticism was rooted in a belief that Europe is run by top-hatted capitalists, ever eager to grind the faces of the poor into the dirt. The fact that most of Labour’s MPs are die-hard Remainers for the opposite reason, that they see Brussels as a Social Democratic paradise, seems to have slipped by unnoticed. Indeed, Labour’s greatest success was to keep ‘Brexit’ – the single biggest issue facing Britain – out of the election almost entirely. Well done, Seumas Milne.

What next? The hapless Paul Nuttall has already gone. Farron must soon follow – and there is at least a chance that the 1922 Committee  will hand Mrs May the revolver. However, the problem seems to be opening up all the time – young/old, urban/rural, ‘somewheres’/’anywheres’ with getting rid of the PM is that, at the moment, the chances of a smooth succession are close to zero. The party is hideously split – as, indeed, is the country. New cleavages. And then of course, there is the problem of how to handle the possibility of an alliance with the DUP – which, however, one looks at it is barely house-trained.

I cannot see a way out. There are romantics who somehow imagine Ruth Davidson can be parachuted into Westminster – but they tend to be precisely the metropolitan elitists whose understanding of Tory support stops at Watford. Mrs May has to produce a Queen’s Speech next week, which is going to take some doing. Negotiations on ‘Brexit’ are also due to start on the 19th – and, I suppose, that will still happen. After all, Oliver Robbins and his merry band will have position papers on absolutely everything ready to hand to their Euro-homologues. But no decisions can betaken until there is a government that genuinely has a mandate to govern – which this one patently doesn’t. Damn damn damn…

Is there any silver lining? I guess that the election has taken a second Scottish referendum off the table – at least for a while. And there is certainly going to be no more austerity. Indeed, the Queen’s Speech seems certain to be devoid of any economics – just ‘Brexit’ and security. All the controversy of the Tory manifesto has been consigned to the oubliette of history (I hope).

There has also been a mini-reshuffle – with Michael Gove popping back into Cabinet, but probably being outflanked by arch-Remainer Damian Green. As for the City, I think it will be pretty happy that Philip Hammond seems to be safe for now. Indeed, I suppose it is a plus that sterling ‘only’ fell less than 2% on the vote, and that UK equities actually rose; as I said last week, the markets were not pricing in this kind of result. Other than that, however, the answer is No: the election was halfway between a disaster and a catastrophe.

Trump:   For once, Trump was upstaged last week by our own shenanigans - but only just.

The focus of attention in Washington was former FBI Director James Comey’s Senate testimony. Depending on which report one reads, Comey either produced evidence that Trump committed a criminal act by pressing him to drop the FBI investigation of Michael Flynn, or exonerated the President who was simply acting naively out of “wronged innocence” (Politico).  The markets have tended to take the latter view; there is no “smoking gun”, and Trump probably did not try to obstruct justice. That is good news – though Trump was wise to “lawyer up”. There are now five separate investigations into his campaign’s links with Russia: by Special Counsel Mueller, by the Senate Intelligence and Judicial Committees, and by the House Intelligence and Oversight Committees.

In the meantime, Trump has made two significant nominations:

-    Christopher Wray to take over as director of the FBI; and

-    Joseph Otting to be Comptroller of the Currency.

Wray (who had not figured in earlier speculation) is a former head of the criminal division at the DoJ, who ran the Department’s Enron investigation. Since then, he has represented NJ Governor Christie in the “Bridgegate” affair. Despite that, it is hard to argue that he is not well qualified. Otting is an ally of Treasury Secretary Mnuchin, with whom he worked at California’s OneWest Bank. He should have no trouble winning confirmation.The global economy:   This is the season for many international organisations to produce updated economic forecasts. For the most part, they are reasonably encouraging. The World Bank’s Global  Economic  Prospects report, for instance, puts global growth at 2.7% this year, 2.9% in 2018 and 2.9% in 2019. Perhaps as important, it expects a 4% increase in global trade this year, up from 2.5% in 2016.

As for the OECD, its semi-annual Global Economic Outlook projects GDP growth in the advanced countries of 1.6% this year, up from a prediction of just 1.2% in November. Although it has cut its growth forecast for the US this year from 2.4% to 2.1%, the OECD has upgraded its forecasts for both the Eurozone and the UK. For Europe itself, the EU Commission’s Spring forecast is now for GDP growth this year of 1.9% (up from 1.8% three months ago), with the eurozone growing at 1.7%. Perhaps surprisingly, of the 28 EU countries, the one that is currently said to be growing most slowly is the UK – where GDP was up just 0.2% in the first quarter. Nevertheless, it is expecting a recovery of sorts.

Most recently, the ECB has produced new economic forecasts, in the context of its monthly meeting (this time, in Tallinn). Justifying its decision not to increase interest rates, while at the same time pledging not to cut them any further, the Bank raised its growth forecast for the Eurozone this year to 1.5%, with growth next year of 1.3% and 1.6% in 2019. 

None of this suggests particularly vigorous growth, but the advanced countries are clearly picking up some momentum. 

Looking at the US first, the big issue in Congress last week was Sen. McConnell’s warning that, unless the Administration can present a revised healthcare bill in the next fortnight,  his a ttention w ill  “ pivot” from Obama ca re to   taxes. Frankly, given that Trump’s core supporters don’t share mainstream Republicans’ distaste for the ACA, that would probably not be unwelcome to the White House – but House Speaker Ryan will almost certainly try to present a modified American Health Care Act, perhaps as early as this week. Whether it will make much progress is, however, open to doubt; Trump’s focus is now on taxes rather than health.

As far as US economic releases are concerned, the main ones last week were:


-    the ISM services PMI for May, which fell from 57.5 to a still strong 56.9;


-    the JOLTS (job openings) measure for May, which rose 259,000 to a record high of 6.04 million;


-    non-farm productivity, which was flat in the first quarter, after having fallen 0.6% in the final quarter of




-    initial jobless claims, which fell 10,000 in the latest week; and-    factory orders, which fell 0.2% in April, after rising 1.0% in March.

It was also reported that America’s total household wealth increased US $2.3 trillion in the first quarter of this year, to US $94.8 trillion.  That’s good and bad. Roughly US $1.3 trillion of the increase came from stock market appreciation, with US $500 billion from real estate and just US $100 billion from an increase in savings. 

The FOMC meets later this week, and – notwithstanding the mixed tone of economic releases over the last two weeks

– there is little or no chance that Yellen  et al will resist  the temptation to push up the Funds rate. A quarter point increase is a near-certainty, with another two or three increases very likely before the end of the year. 

In the meantime, US equities were marking time for most of last week – although both the S&P500 and Nasdaq were trading at near-record levels for much of the week. The previous week, the DJIA had been up 0.59%, while the S&P was up 0.96% and the Nasdaq was up a hefty 1.53%. Last week, through the close on Friday, the Dow was up 0.3% at

21,272, the S&P (which fell on Friday) was down 0.2% at 2,432 and the Nasdaq Composite was down a fairly hefty 1.5% at 6,208 following a sharp fall on Friday. The VIX index has tended to trade at a multi-year low, and most investors remain fairly bullish – even if some market analysts continue to worry about a bubble. As for bonds, they actually sold off slightly last week, with the yield on the 10-year Treasury firming from 2.15% to 2.20% and the 30-year yield increasing from 2.81% to 2.86%.

At the Eurozone level, the big news last week was as expected – the ECB’ Council left its key interest rate unchanged at zero and its deposit rate at -0.8%. There were hints from Draghi that the Bank will begin to ‘taper’ within the next few months, but, for the moment, its position remains doveish – certainly more so than the Fed.

Why? Almost all the economic releases for the Eurozone last week were strong. In particular, it was reported:


-    that GDP within the Eurozone was up 1.9% year-on-year in the first quarter, or by 0.6% for the quarter –


better than the 1.7% year-on-year increase in the fourth quarter or the 0.5% increase in the quarter itself;


-    that the Sentix investor confidence index rose in June from 27.4 to 28.4; and


-    that retail sales rose 0.1% in April, and were up 2.5% year-on-year.


In addition, it was reported that, in Germany, industrial production was up 0.8% in April, or 29% year-on-year – a sharp increase from the fall of 0.1% recorded in March. True, German factory orders fell 2.1% for the month, but they, too, were up 3.5% year-on-year – an improvement from the 2.5% gain in April.In France, the last week has been mostly about politics – with the early results from Sunday’s first round of

Parliamentary elections suggesting that Macron’s Republique en Marche! has won around 33% of the vote – an astonishing achievement, which ought to guarantee him a majority of seats after next Sunday’s definitive second round. However, the French economy doesn’t look so good – which may concern PM Philippe more than the President. Indeed, it was reported last week:

-    that industrial production fell 0.5% in April, after a rise of 2.2% in March;


-    that the trade deficit rose from €478 million to €5.54 billion; and


-    that Markit’s services PMI fell in May from 57.8 to 57.3.

Mixed news, too, from Greece, where it was reported that the unemployment rate fell in March from 22.9% to 22.5%

- probably as the result of continued emigration – while industrial production was up 1.0% year-on-year in April. That sounds positive, but the year-on-year increase in March was 10.1%, so that might not be so good.

Nevertheless, it is hard to understand the ECB’s reluctance to at least consider ‘normalisation’. It is beginning to look as though Draghi is deliberately making a point vis-à-vis the Bundesbank (though there have also been reports that Jens Weidmann is sucking up to Draghi in the hope of succeeding him, take your pick).

Outside the eurozone, I am forced to concede that the UK economy also looks a bit rough – though more because its economic cycle is out of kilter with that of the eurozone. In particular, it was reported last week:


-    that (according to the British Retail Consortium)  like-for-like sales were down 0.4% year-on-year in May;


-    that automobile registrations were off 8.5% in May, or by 4.2% year-on-year;


-    that Markit’s services PMI fell last month from 55.8 to 53.8; and


-    that industrial production was down 0.8% year-on-year in April – though it was up 0.2% for the month –


while manufacturing was flat.

On the other hand, the UK trade deficit has improved a bit. It fell to £ 2.05 billion in May, from £ 3.9 billion in April. Now, it has just been reported that (according to the semiofficial National Institute) GDP in the second quarter is estimated to have risen just 0.2% - same as in the first quarter. Given that the first quarter appeared to be anomalous, it had been hoped that growth would pick up, so this is a bit of a disappointment. With the UK now at the bottom of the EU’s growth league (albeit primarily because of asynchronous  business cycles), the background noise for ‘Brexit’negotiations – if they do indeed begin in seven days – is likely to be distinctly negative. More on this in a separate Note.

Meanwhile, as noted, UK equities have been largely unaffected by Thursday’s general election.  Indeed, the FTSE 100 (which is made up in significant measure of companies whose revenues are predominantly in currencies other than sterling) actually recouped much of the ground it had lost earlier in the week, closing up 0.8% for the day at 7,527, or down only 0.3% for the week. (The more domestically focused FTSE 250, however, was down 0.5% on Friday and 1.2% for the week, reflecting the likelihood of political paralysis in the UK.)


As for other European equities, the Xetra Dax (which had been up 1.8% the previous week) closed down 0.1% last week at 12,816, while the CAC40 (unchanged the week before last)  closed down 0.8% on Friday at 5,300. That was something of a surprise, given the widespread expectation that Macron will end up with a comfortable majority of anywhere between 385 and 415 seats out of 577 after next week’s run-off.


Since I initially dismissed him as just another pretty face, it is worth acknowledging that the way Macron has put a new party together so quickly is astonishing. However, his ability to push economic reforms through is about to be tested. He and PM Edouard Philippe are said to be ‘consulting’ with the unions on a raft of labour liberalization measures. If they get those through, one will have to acknowledge Macron as a far more substantial figure than he first appeared. If he fails, well… lots of others have tried, but the CGT’s power is considerable.

 The other country worth watching is Italy – where last week’s multi-party agreement on a new electoral law appears to have unraveled.  As a result – for the moment, at least – the prospect of a September election has receded. Given the strength of Grillo’s 5-Star Movement, that will be good news for mainstream Europeans 


Turning to Japan, it has been a busy week – albeit one that was mixed as far as economic releases go. The most disappointing news was an unexpected downward revision in the first quarter GDP growth rate from 2.2% to 1.0% - mostly because of a swing in inventories. This came on top of a fall in the index of leading economic indicators from

105.7 in March to 104.5 in April (according to preliminary data). Fortunately, for PM Abe and Governor Kuroda, it was not all bad news. It was also reported:



-    that Markit’s services PMI rose last month from 52.2 to 53.0;


-    that the index of coincident indicators rose in April from 114.4 to 117.7;


-that the Ecowatchers survey for May was generally strong, with the current conditions subindex rising from 48.1 to 48.6 and the outlook from 48.8 to 49.6; and

-    that the government’s tertiary activities index rose in April from -0.2% to +1.2%.However, the absence of inflation is still a problem, with the GDP deflator stuck at -0.8% year-on-year in the first quarter.



Whatever, Japanese equities took a breather last week. After having risen 2.5% the previous week, the Nikkei225 closed down 0.5% at 20,013 on Friday, still close to a two-year high.



In China, it has also been a busy couple of weeks, with the annual EU-China Summit and the US-China BusinessCouncil’s annual meeting in DC at the beginning of last week. If the US is retreating into its shell (in terms of trade and investment), China is certainly coming out of its shell – ready to sign any kind of deal with practically anyone (David Davis, are you listening?).



As far as Chinese economic releases are concerned, the most significant last week were probably exports and imports for May – which were both very strong. Exports (in RMB terms) were up 15.5% year-on-year, an acceleration from

14.3% in April. Imports were up 22.1% year-on-year, up from 18.6% in April. In addition, it was reported:




-    that FX reserves rose Y3.054 trillion in May;


-    that the Caixin services PMI rose in May from 51.5 to 52.8; and


-    that consumer price inflation is picking up, hitting 1.5% last month, up from 1.2%.




There has also been talk that China will increase its purchases of US Treasuries – presumably to keep Trump sweet on trade.



Turning to the emerging markets, I am puzzled by what is going on between Qatar and its Gulf neighbours.




True, the al-Thanis don’t have too many friends among Gulf royals, and Qatar has always been a bit of an odd one out within the GCC. And, of course, al-Jazeera is not quite as respectful of the status quo as the other Arab states would like. But the al-Thanis do, in the end, know which side their bread is buttered on, and there really ought to have been a better way to make the point that – in the new Trumpian world – this is not the time to snuggle up to Iran, or to be seen funneling money to jihadists anywhere. The fact that the US has military bases scattered around the Gulf – with one of the biggest just outside Doha – means that Washington, too, ought to have been a bit more careful. I still think this is a teapot tempest that will die down quite quickly, but it is an obvious own goal for both Washington and

Riyadh. There has been a lot of speculation about hacking of Omani government websites and astonishing ransom payments made to jihadists who allegedly kidnapped  a royal hunting party in Iraq, but who knows what the true story is? My guess is that it is more cock-up than conspiracy, and that all sides (including the US) just want to find a way outas quickly as possible. Whatever, it is discouraging that Germany, in particular, has indicated support for Qatar –


presumably to tweak Washington’s tail.






Elsewhere, the main developments include:




-India: The ruling BJP has apparently pledged to waive up to US $40 billion of lending to small farmers, who have been facing ruin. This pledge was initially promised  to Uttah Pradesh ahead of regional elections, but (not surprisingly) everyone now wants the same. Such is the power of populism.



-Brazil: There is increasing pressure on the judiciary to resolve the current crisis by invalidating the 2014 election (which produced a government with Dilma Rousseff as President and Michel Temer as her deputy) on the grounds of illegal donations. That would have the desired consequence of getting Temer out of the way without a messy court case. It hasn’t happened yet, but it would be a neat way out of a very messy situation.



-    Mexico: The Mex$ has appreciated sharply as the result of a win by President Peña Nieto’s PRI in elections


in Mexico State. This was a key test of opinion, and a big defeat for the Left.




-South Africa: It was reported last week that GDP fell at an annual rate of 0.7% in the first quarter of 2017 after a previous fall of 0.3%. This puts South Africa into a formal recession – the second in just eight years. The sooner Zuma splits for Doha the better – though I guess that will have to wait until the al- Thanis sort out their little problem.




Currencies:   There is no doubt that sterling took a beating over Thursday’s UK election. The only mystery is why it didn’t fall even more sharply, given that the markets were pretty confident of a resounding win for May – even after the polls were said to have narrowed.



The week before last, the dollar fell 0.8% against the euro, to close at US $1.128/€. It also fell 0.7% against sterling, to US $1.288/£, and 0.7% against the yen, to Y110.45/US $. By the end of the week, it was generally at its lowest since the Trump election last November. Last week was rather different. By the close on Friday, it was:



-    up 0.5% against the euro, at US $1.1196/€;


-    up 1.3% against sterling, at US $1.271/GBP;-    up 0.2% against the yen, at Y110.30/US  $; and


-    up 0.5% against the Swiss franc, at SF0.969/US $.




On the other hand, it was down 1.1% against the Australian dollar and down 0.3% against the Canadian dollar.




It is obviously surprising that sterling hasn’t fallen further. Prior to the election, it hit a high of US $1.293/US $; immediately after, it was trading at US $1.260 – a drop of 1.8%. But, since then, it has drifted up slightly – which shows more faith in Mrs May than most political commentators share. The economic implications of the electoral stand-off include an end to austerity and a more difficult ‘Brexit’ negotiation. The former may imply higher inflation – and that may be supporting the pound. But the uncertainty over ‘Brexit’ ought to be sterling-negative.



Meanwhile, gold has been largely unmoved. With the dollar up across the board, it is (as one might expect) down. By the close on Friday, spot gold was off 0.9% for the week, at US $1,267/oz.



Energy:   It seems as though crude prices are destined to fall steadily, regardless of the data.




Two weeks ago, WTI for July delivery closed at US $47.76/barrel, while August Brent closed at US $49.95. Last week, one might have expected the furore over Qatar to have impacted the market, even though it produces very little oil. (It produces a lot of gas, and, at the margin, gas and oil are surprisingly fungible.) In addition, the API reported that private US crude stocks fell another 4.62 million barrels in the latest week, or over 13 million barrels in just two weeks.



Despite that, prices haven’t risen. Indeed, by the close on Friday, July WTI was selling at US $45.83/barrel, down


4.2% for the week, while August Brent was at US $48.15, down 3.7%.




What is happening? One thing is that the impact of the API stock data was swamped by news that the EIA was reporting the first increase in total US crude stocks in nine weeks, up 3.295 million barrels – after a fall of 6.4 million the previous week. In addition to that, it was reported last week:



-    that the Baker-Hughes rig count has now increased for 22 straight weeks, with 741 rigs now active in the




-    that US Interior Secretary Zinke has signed an executive order reopening  Alaska’s National Petroleum


Reserve to oil producers – which will boost US oil and gas quite quickly; and


-that the EIA forecast that US crude production will average a record 10 million b/d this year, with over 1 million b/d going into exports – up from 500,000 year-on-year.As a result, price forecasts are being cut across the board. According to the WSJ, the average Wall St. estimate for the price of Brent this year is now US $56/barrel, down from US $57 in April, while the forecast for WTI has fallen to US

$54. Brent is already at its lowest since last November, but it may still have further to fall.




Banking and finance:   There has been a great deal in the UK press over the last couple of weeks about the proposed


IPO of Saudi Aramco – and, specifically, on the various merits of listing in New York and in London. The catch in


NY is the legislation, introduced last year by Sen. Chuck Schumer, that would allow relatives of those killed during


9/11 to pursue the Kingdom for damages in New York courts. The catch in London is that a ‘premium’ listing is supposed to require 25% or more of a company’s equity to be floated.



In both these cases, the Kingdom has apparently pursued the possibility of waivers – though I wouldn’t bank on a US waiver being worth the paper it is printed on. There is also the option of not pushing for a ‘premium’ listing, and not having Aramco as a constituent of the FTSE100; that may be a better option.



The other big story last week was Banco Santander’s purchase of  Banco Popular for just €1 – following an ECB review of Spanish banks that said Popular was “likely to fail”.  This permitted the ECB’s SSM/SRB to impose losses on shareholders, junior debt holders and holders of so-called ‘co-cos’.  The general feeling is that the Spanish and European authorities handled the problems at Popular quickly and effectively – with much less panic/pain than in the case of Monte dei Paschi di Siena or Cyprus. Investors who have taken a hit might feel less charitable.



As for this week, I am just keeping my fingers crossed that we still have a government come Friday – though who will be leading it is not so clear.



Elsewhere, attention will be focused on France – though I think Republique en Marche‘s performance in the first round ought to be enough to settle concerns about a Parliamentary majority. In addition, Eurozone Finance Ministers are due to meet this week. After they have all had a good laugh about Britain, attention will turn to Greece. Latest reports suggest that Tsipras  may be offered a restructuring of Greece’s debt, but without IMF involvement. That was always a condition of Germany’s agreement, but (it is said) Berlin may now be satisfied with an endorsement of the restructuring by the Fund without it putting up any new money.



In the US, the big event is the FOMC meeting. It is over 90% certain that the Fed will increase the Funds rate, presumably by 25 basis points. Other economic releases include:



-    CPI and PPI data for May;


-    retail sales for May;-    the ‘Empire State’ (NY) and Philadelphia Fed business indices;


-    the NAHB housing index for June; and


-    the preliminary reading for the June Michigan confidence index. The Fed will also publish new US economic forecasts.

In Europe, key releases include:




-    the ZEW economic indices for June; and


-    inflation data for May.




Here in the UK, there will be hearings on the BofE’s  latest  Inflation Report.  The Bank’s MPC also meets, and will


publish the minutes of its latest meeting. (I wonder if anyone will be listening.)   Key UK economic releases include:




-    inflation for May;


-    retail sales for May; and


-    the unemployment rate for April.




In Japan, the BoJ’s MPC also meets.  In China, retail sales and industrial production are both due.




Inevitably, however, most of attention here at home will be focused on whether UK PM May (or anyone else) is able to put together a stable government. ‘Brexit’ negotiations are supposed to begin on the 19th, but – whatever civil servants might want – politicians may have other priorities.


Andrew Hilton

Government Australia Advisory Board

Simon Crean MP

John Brumby 

Kristina Keneally

Mark Vaile

Nick Greiner

Alexander Downer

Peter Charlton

Trevor Rowe

Warwick Smith


Bob Carr