Blog

Mending the UK public finances: a Sisyphean task

19 October 2017 |  by Tom Traill

The UK public finances enjoyed a welcome reprieve recently, recording the first July surplus since 2002 and the best August outturn for a decade. These positive outturns follow poor June data, meaning that the cumulative deficit for the current financial year is virtually the same as...

Overdistribution, an alarm signal for the UK stock market?

11 October 2017 |  by Liseth Galvis

The dividend cover ratio for the FTSE100 companies fell below 1 last year, and threatens to fall further when the 2017 results are in. UK quoted companies have come under increasing pressure from institutional investors to grow their dividends and, whenever possible, make additional one-off...

Bursting the central banking bubble

04 October 2017 |  by Yvan Berthoux

The synchronisation of global activity indicators, as illustrated in the chart, over the past few months is a welcome reprieve after the sequential concerns over Chinese, Japanese and European growth. Policy largesse over an extended period has finally raised the water level and floated nearly all boats...

There is no safe exit from unconventional monetary policy

27 September 2017 |  by Peter Warburton

The synchronisation of global activity indicators, as illustrated in the chart, over the past few months is a welcome reprieve after the sequential concerns over Chinese, Japanese and European growth. Policy largesse over an extended period has finally raised the water level and floated nearly all boats...

Hold your nose and buy industrial commodities!

21 September 2017 |  by Tom Traill

There is a fashionable bearishness about commodities that should immediately arouse suspicion. The China slowdown narrative is trotted out as the clinching argument to refute the expectation of further commodity price gains or commodity fund appreciation. The problem here is twofold...

Catalonia: a push for fiscal autonomy, not independence

14 September 2017 |  by Robert Sierra

With just over two weeks to go before Catalonia’s independence referendum, tensions are boiling over once again. Attempts by Madrid to force Barcelona’s hand and abandon its plebiscite appear to have gone nowhere. Such is the determination to proceed...

A short-lived bounce back in Brazil?

6 September 2017 |  by Liseth Galvis

Recent corruption scandals in Brazil, including bribery accusations against President Michel Temer, cast doubts on the durability of the recent improvement in some of the country’s economic indicators. GDP grew by 0.2 per cent in Q2 2017 compared with the previous quarter...

Quantitative Tightening

30 August 2017 |  by Peter Warburton

Any hopes that keynote speeches at Jackson Hole would illuminate the road ahead were comprehensively dashed last weekend. Both Janet Yellen and Mario Draghi steered clear of monetary policy issues and the Fed chair went a stage further...

South-eastern house prices: autumn come early

23 August 2017 |  by Tom Traill

London house prices have led a charmed life for most of the post-financial crisis period, buoyed by international and domestic investors, brisk population growth and disproportionate prosperity, aided by QE-supercharged asset revaluations...

Bolstering Japan’s growth credentials

17 August 2017 |  by Nadya Mihaylova

Japan’s economy is much maligned: its painful progress over the past 25 years has engendered deep distrust in its political leadership in the realm of economic policy. Yet, in summer 2017, it is the upbeat economic news that could revive Abe’s plunging approval ratings...

Preparing for the next inflationary push

09 August 2017 |  by Peter Warburton

At our “Year of the Stag” seminar on 27 June, we set out the arguments for a global stagflationary outlook and warned against reading too much into the relapse of the oil price. We argued that the restraining influences over global inflation – including globalisation – are weakening while the permissive influences...

The bank of England's blindspots

02 August 2017 |  by Peter Warburton

Under Mark Carney’s leadership, the Bank of England has maintained a much higher media profile. These days, the Bank blasts us with messages about the merits of plastic banknotes, its planned US-style town hall meetings and what it is doing to keep us all safe.  The Bank wants to be loved...

Italy: the worst case scenario

26 July 2017 |  by Robert Sierra

Much has been written about Italy’s economic woes in recent weeks. The prospect of tighter monetary policy, in particular, could damage Italy’s shaky debt sustainability dynamics while the rise of anti-euro parties...

Handheld banking: a quiet revolution

19 July 2017 |  by Tom Traill

The adage that you are more likely to get divorced than to switch your bank account may soon be outdated. While the annual churn rate for UK personal current accounts (PCAs) is still less than 2 per cent, there are three drivers...

India’s inflationary twist

12 July 2017 |  by Nadya Mihaylova

After 17 years, the Indian government has finally introduced the Goods and Services Tax (GST) which will subsume multiple indirect state and central taxes into one tax structure with four different rates: 5%, 12%, 18%, and 28%...

Central bankers embarrassment over tightening

07 July 2017 |  by Peter Warburton

“There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat…”
Julius Caesar, Act-IV, Scene-III

Argentina: sale of the century?

28 June 2017 |  by Robert Sierra

Wanted: investors willing to fund a century bond of a Latin American emerging sovereign in the sum of US$2.75bn that has defaulted 6 times since 1950 and has an impressive track record of shafting domestic and foreign lenders...

Taking the ‘flationary temperature

21 June 2017 |  by Tom Traill

The interplay between inflation and real output growth can have huge implications for portfolio allocations and subsequent returns. Continuing our series of blogs on stagflation...

Could stagflation happen in the US?

14 June 2017 |  by Nadya Mihaylova

In the days when average annual inflation and the average unemployment rate were of similar magnitudes, someone dreamed up the misery index, the simple sum of the twin perils...

Stagflation: it’s all in the mix

7 June 2017 |  by Peter Warburton

The deteriorating performance of the UK economy, in terms of its real growth-inflation mix, is symptomatic of supply-side deficiencies and pinch-points. While real GDP growth still registers...

Keeping calm about US auto finance concerns

31 May 2017 |  by Robert Sierra

The expression “sub-prime” still strikes terror in the public mind after the US mortgage debacle a decade ago, as depicted in “The Big Short”.  However, recent reports of a brewing crisis in sub-prime auto loans should...

Online retail sales: stronger than irl

24 May 2017 |  by Tom Traill

Beneath the headlines of an above-expectation growth of retail sales in April, there are two increasingly divergent narratives – online and offline. Despite the unhelpful backdrop of Brexit uncertainty, rising inflation and falling real wages...

A green light to buy the Euro

17 May 2017 |  by Nadya Mihaylova

Bullish sentiment is rising in the Euro area following signs of increasingly solid economic recovery and diminishing presence of geopolitical risks. The outcome...

Riksbank risks another hasty retreat 

10 May 2017 |  by Robert Sierra

In 2010, against the grain of the US Fed, ECB and the Bank of England, the Riksbank decided that the time had come to lift interest rates from their post-GFC lows...

US economy: spring forward or fall back?

03 May 2017 |  by Peter Warburton

Stresses are building in the global financial system, evidenced by weaker performance of US banks and insurance companies....

Profiting from tourism

26 April 2017 |  by Tom Traill

In contrast to world trade volumes, which are little better than stagnant, world tourist volumes are buoyant. For some countries, particularly small island economies...

Vote early, vote often!

19 April 2017 |  by Peter Warburton

A general election in 2015, an EU referendum in 2016 and now, another general election in 2017: the lure of the ballot box is compelling. Is this a stroke of genius or a disastrous misjudgement...

Draghi’s downside risk: Marine Le Pen victory!

12 April 2017 |  by Robert Sierra

With less than two weeks to go, the outcome of the French presidential election has been plunged into uncertainty by the strong showing of radical left candidate Jean-Luc Mélenchon. Japanese investors...

UK TRADE IMPROVEMENT: HOLD YOUR HORSES!

05 April 2017 |  by Nadya Mihaylova

Whoa there! Don’t jump to conclusions about the sharp narrowing of the UK trade gap, announced last Friday. Once trade in oil and erratics has been stripped out, there has been no underlying improvement – indeed the bilateral deficit with the EU has...

STUDENT LOANS: A LESSON IN INFLATION AND COMPOUND INTEREST

28 March 2017 |  by Tom Traill

From September, student loans in England and Wales will accrue interest at a rate of more than 6% per annum. The exact rate depends on the March Retail Price Index inflation rate, released on 11 April. Annual RPI inflation was 3.2%...

JAPAN: PREPARING FOR A WAGE GROWTH 
SURPRISE!

22 March 2017 |  by Nadya Mihaylova

When it comes to economic theory, nothing works in Japan. The latest data points confirm that Japan’s labour market is tight as a drum: the unemployment rate is down to 3% and there are job openings outnumber applicants...

THE HEAD-HEIGHT US DEBT CEILING

15 March 2017 |  by Robert Sierra

We’ve been here before. In 2011, a bitter battle brought the federal government to almost complete standstill as overnight negotiations yielded little compromise from Congressional Democrats and Republicans. Markets were rattled. Banks and companies...

US BUDGET PROPOSALS: CURB YOUR ENTHUSIASM

08 March 2017 | by Peter Warburton

Listening to president Trump’s effusive address to Congress last week, almost anything seemed possible: healthcare reform, corporate tax reform, immigration reform, infrastructure and de-regulation...

FAKE MATHS

01 March 2017 | by Tom Traill

Reportedly 70% of the ‘facts’ that President Trump presents turn out to be inaccurate. There are worrying reports that his habit of misrepresenting the facts could start to become misrecording or institutional misreporting of the national statistics...

PICKING UP PENNIES (IN FRONT OF STEAMROLLERS)

22 February 2017 | by Peter Warburton

“Investors rush to junk bonds in big bet on Trump pledges” ran the headline in the London edition of the Financial Times on 9 February. Just try taking those pledges on economic growth, lower tax burdens and less regulation to the bank...

AN EMBARRASSMENT OF RICHES: GERMANY'S EXTERNAL SURPLUS IS SET TO FALL

15 February 2017 | by Nadya Mihaylova

Germany’s current account surplus has surged over the last few years to reach 8.5% of GDP, accounting for three-quarters of the overall Euro area external surplus. Germany does not consider this to be a problem...

WHEN IS GLOBAL INFLATION NO LONGER LOW?

8 February 2017 | by Tom Traill

Over the past few months the inflationary landscape in advanced countries has been re-drawn. Scepticism surrounding OPEC’s planned output cuts has abated. The extremely weak oil prices of a year ago are a fading memory...

Institutional paralysis at the MPC

1 February 2017 | by Peter Warburton

The Bank of England’s Monetary Policy Committee meets this week and another Inflation Report will be published. Hardly anyone expects a change in policy settings...

A little inflation is good for large supermarkets

25 January 2017 | by Tom Traill

Will the return of inflation be good for supermarkets? Around the world, consumer inflation rates are undergoing a rapid normalisation: in the UK CPI is back to 1.6%, in Germany inflation is 1.7% and the US 2.1%... 

Blame the Messenger

18 January 2017 | by Robert Sierra

As Peter Warburton commented last week, Andy Haldane has triggered a backlash from economists for wearing a metaphorical hair shirt on behalf of the economics profession. Economics has not failed...

Economics In Crisis?

11 January 2017 | by Peter Warburton

Bank of England chief economist Andrew Haldane’s recent remarks in public conversation for the Institute of Government have already caused a minor storm of protest among, mainly, economic professors... 

IS TURKEY THE NEXT BLACK SWAN?

5 January 2017 | by Nadya Mihaylova

Strains on the EU’s immigration deal with Turkey could reach breaking point over the next few months, paving the way for an intensification of the refugee crisis... 

Redefining maximum employment in the age of the gig economy

22 December 2016 | by Peter Warburton and Tom Traill

The US Federal Open Market Committee (FOMC) is famously tasked with a dual mandate: maximum employment and stable prices, although the Federal Reserve Act does contain a third: moderate long-term interest rates...

FOMC unimpressed by Trumphoria

15 December 2016 | by Nick Stamenkovic

Wall Street has marked its growth and inflation forecasts higher since the election of president Trump, but the Fed has not. Despite unchanged growth and inflation projections, FOMC members raised the profile of the “dot plot” for the first time since December 2014...

OPEC’s output cuts are not a done deal

8 December 2016 | by Robert Sierra

The recent OPEC deal lifted oil prices towards US$55pb and emboldened analysts into revising their forecasts for next year towards the US$60bp mark... 

Six key fiscal challenges for Philip Hammond

1 December 2016 | by Nadya Mihaylova

The first Autumn Statement delivered since the June referendum has attempted to support the economy through the challenging and uncertain times that lie ahead...

US Dollar: The only way is up?

24 November 2016 | by Nick Stamenkovic

A gentle upward trend in US Dollar index from its May low turned exponential in October and ballistic since 8 November. All the old reasons to prefer the Dollar have been dusted down...

Trump: influenceable, inflammatory, inflationary

17 November 2016 | by Peter Warburton

The electoral victory of Donald Trump has brought no greater clarity to the economic and financial outlook than Brexit.

Stuffocation

10 November 2016 | by Tom Traill

Have we passed the point of peak stuff? Is social media changing the patterns of our consumption? James Wallman, in Stuffocation, suggests that technology is helping consumerism migrate from conspicuous consumption to the envy of experience.

ECB looking for the exit, any exit?

2 November 2016 | by Robert Sierra

A couple of weeks ago, “unnamed sources” claimed the ECB was thinking of winding down its bond purchases, or tapering, triggering an immediate jump in yields across bond markets. This would be done, it was claimed, in gradual steps of about €10bn a month, broadly in line with the actions of the Fed in 2014. Strategists and the financial market in general were torn between suspicion that...

Super-sizing the Bank’s asset purchase programme: what is to be gained from buying McDonald’s corporate bonds?

27 October 2016 | by Nadya Mihaylova

As part of its strategy to revive the economy following the EU referendum, the Bank of England committed to purchase £10bn worth of corporate bonds in companies which were believed to deliver ‘material contributions to the UK economy’...

Martin Wolf needs a supply side

21 October 2016 | by Peter Warburton

The world bemoans two-handed economists with splinters in their backsides (from spending too much time sitting on the fence). This charge cannot be levelled at the chief economics commentator of the Financial Times. Over many years, Martin Wolf...  

UK Inflation: love it or hate it, it’s not going away

19 October 2016 | by Tom Traill

The UK referendum result has sent a series of shock waves through the currency markets that leaves Sterling 16% weaker on an index basis, 18% weaker against the US Dollar and 15% weaker versus the Euro. It is fanciful to suppose that currency effects of this magnitude can somehow... 
 

Sterling: Have no FEER

13 October 2016 | by Peter Warburton and Nick Stamenkovic

After the initial turmoil of the post-referendum fall out, Sterling appeared to be finding its feet again, buoyed by firmer economic data and the settling of the political dust, post-Cameron. Not a bit of it....

Saudi Arabia's U-Turn: Back-tracking Meets Fracking?

10 October 2016 | by Nick Stamenkovic

Saudi Arabia has finally backed down from it's high horse to seek a cut in OPEC oil output...

Nailing Down the Nominals

28 September 2016 | by Peter Warburton

The painfully slow growth of nominal (current value) incomes and expenditures is a source of great consternation in policy circles...

Target 2: Don’t Panic

22 September 2016 | by Robert Sierra

It is extremely appealing to be able to look at a single chart to know whether the grand European project is succeeding or failing...

WISHFUL THINKING ON UK INFLATION

15 September 2016 | by Peter Warburton and Tom Traill

The New Normal crowd has had it their own way for much too long: the notion that grindingly slow economic growth will be accompanied by the long-term sterility of consumer prices has a powerful grip on Bondworld...

Behind the logic of buying bonds on negative nominal yields

7 September 2016  | by Tom Traill

Once you have battled through his inane introductions, Bill Gross (alias ‘The Bond King’) invariably has something interesting to say and his September Investment Outlook is no exception...

Central banks are killing capex

1 September 2016  | by Peter Warburton

Experimental monetary policy is killing off the business instinct to invest, other than in rapid payback categories such as IT and autos. ...

Negative interest rate apologetics

24 August 2016  | by Federico Corrado

Former Bank of England MPC member (now president of the Petersen Institute of Economic Affairs) Adam Posen has got an FT column in which he writes about negative interest rates. He focuses on what he thinks are two analytical errors routinely made in the discussion ..

Failure to launch – US trend growth and monetary policy normalisation

18 August 2016  | by Graeme Chamberlin

At each meeting of the Federal Open Market Committee (FOMC), members are each asked to provide their projections of US GDP growth and the appropriate path for the Federal Funds rate over the next three years...

MPC sends in the plumbers

10 August 2016  | by Peter Warburton

The package of measures that the Bank announced last week was not designed by Mark Carney. Most of this will have had to have been explained to him, as to the rest of us...

Eurozone fiscal rules and zero percent fines

08 August 2016 | by Robert Sierra

Early in the 2000s, when Germany, France and Italy were running excessive budget deficits the European Commission proposed that fines of up to 0.2% of GDP would be applied to any member state that failed...

Blanchard on currency wars, coordination, and capital controls

28 July 2016 | by Federico Corrado

In 2014 soon to be former India Central Bank governor Rajan famously inveighed against developed markets (DM henceforth) disregard for the effects......

What’s next for UK fiscal policy?

20 July 2016 | by Graeme Chamberlin

It is often said that ‘rules are made to be broken’, but in the case of the UK’s fiscal rules it is more apt to say ‘rules are made to be abandoned’...

9 reasons why George Osborne was right about cutting corporation tax

13 July 2016  | by Tom Traill

George Osborne, the now former Chancellor of the Exchequer, went down fighting for the UK’s business agenda. He was recently in New York, spreading reassurance that the UK is not “withdrawing from the world”. ...

Carney: killing us with kindness

7 July 2016  | by Peter Warburton

Since 23 June the Governor has bombarded us with announcements in support of the UK economy and financial system. Their declared intent is to prepare the economy for the post-Brexit challenges, but their subliminal message is ‘Take cover’. ...

Spain: Yes, we have no Podemos

29 June 2016  | by Robert Sierra

If investors were hoping for an end to political uncertainty in Spain, Sunday’s electoral outcome has failed to deliver. Six months after an indeterminate electoral result, Spain went back to the polls only to produce another one...

The Fed can’t cope with uncertainty anymore!

28 June 2016  | by Federico Corrado

The FOMC kept rates steady last week. Heavy on Governor Yellen’s mind was the lack of a consistent data narrative showing a healthy pace of US growth. This time around, it was mostly May’s soft non-farm payrolls report, but also, arguably, the possibility of severe market disruption related to Britain’s EU referendum that stayed the hand of the Yellen Fed...

How much are UK households really saving?

16 June 2016  | by Graeme Chamberlin

The household saving ratio measures the share of household income that is left unconsumed and is therefore available to fund consumption in the future. In the UK, the official household saving ratio reported by the Office for National Statistics has fallen significantly in recent years, from 11.6% in 2010 to just 4.2% in 2015...

Helicopter money: the fundamental deceit

9 June 2016  | by Tom Traill

There is no escape from the topic of helicopter money. It is like the opening sequence of MASH is on infinite loop. Almost every newspaper columnist and celebrity blogger has offered their opinion on its merits and demerits...

Secular stagnation versus secular reflation

2 June 2016  | by Peter Warburton

Larry Summers has been dining out on some throwaway remarks at an IMF economic forum that included the phrase “secular stagnation” for two-and-a-half years now...

Germany: arch currency manipulator?

26 May 2016 | by Robert Sierra 

Last week’s US Treasury report into potential currency manipulators was fairly predictable in naming Japan and China as countries that in the past have sought to weaken their currencies in aid of their export competitiveness...

Mario Draghi boosts Europe’s economy but his authority is waning

19 May 2016  | by Federico Corrado 

There was a small riot in financial markets last December when ECB president Mario Draghi failed to satisfy expectations of a monetary boost to the Eurozone. ...

Buying online: intense competition is driving down pricing

5 May 2016  | by Tom Traill 

Is the internet to blame for the lower inflation that we have seen in the past few years? Internet usage has grown vastly (in 2015 78% of adults in the UK used the internet every day, or almost every day, up from 35% in 2006), and online shopping has continued to gain popularity...