Our balance of payments situation is so poor that a 10% weakening in sterling would be no bad thing – if there were not such a risk of things getting out of hand
Ever since his first written evidence to the Treasury committee, the governor of the Bank of England, Mark Carney, has hinted that he understands the UK’s real deficit problem. This is not the budget deficit, of which chancellor Osborne has made such a fetish, but the balance of payments deficit.
Indeed, that distinguished former permanent secretary to the Treasury and cabinet secretary, Lord Turnbull, recently pointed out that debt owed to citizens of this country is not a problem – and that by not borrowing more for infrastructure at such low rates, Osborne is actually impoverishing future generations. He is, said Turnbull, “playing a dirty game”.
The breakdown of the rig figures shows oil rigs falling by 11, gas rigs by 1 and miscellaneous rigs rising by 1 to give the total decline of 11 for the week.
The total is the lowest since November 2009, as oil companies continue to be cautious despite the revival in crude in recent days, with Brent around its highest levels for the year. The Baker Hughes figures showed:
The number of US oil rigs drilling has dropped for the sixth week in a row.
According to data from Baker Hughes, the number of rigs dropped by 11 to 420.
The strength of the yen after the Bank of Japan decided on Thursday to delay any further stimulus measures has helped push stock markets sharply lower on the last trading day of the month. The final scores showed:
Standard and Poor’s has kept its UK credit rating at AAA, but with a negative outlook due to the risks of Britain leaving the European Union in what it expects to be a close referendum vote. It said:
In our opinion, the possibility that the U.K. could leave the European Union (EU) as a consequence of a planned “leave or remain” referendum set for June 23, 2016, represents a significant risk to the U.K. economy, in particular to its large financial services sector and exports.
If the U.K. were to leave the EU, it may make financing its twin deficits more difficult, particularly its large current account deficit, which stood at 5.2% in 2015.
A vote to leave is likely to hurt confidence, investment, and GDP growth, and is likely to have a negative effect on public finances. As a consequence, a U.K. departure from the EU (or “Brexit”) would likely lead us to lower the long-term sovereign credit rating.
We believe that, having left the EU (the destination for about 44% of U.K. goods and services exports), the U.K. would largely lose its capacity to influence the EU’s policies for key sectors, including financial services.
Commodity stocks have been some of the main gainers in the past month. Tony Cross at Trustnet Direct said:
Recapping the month, it’s been the miners that have shone as commodity prices appear to be moving away from the dark days seen at the start of the year and some stability is returning to the market. Anglo American is up 40% on the month, whilst a number of the sector peers have added 15%-20% too. The index may be comprehensively off the highs we touched just 10 days ago, but without the boost from commodity stocks, the picture for April would have looked a whole lot bleaker.
A June rise in US interest rates looks a little unlikely, and not just because of the uncertain US economic data:
Unless the polls show no real chance of #Brexit I just can’t see the Fed hiking eight days before Europe could explode.
Oil prices have flattened out, with Brent crude now up just 0.1% at $48.2 a barrel.
But they are still on track for their biggest monthly gain in seven years, helped by a weaker dollar and signs of a dip in US production. The increase also came despite Opec’s inability to agree a cap on output at January’s levels to tackle the current supply glut.
And here’s a chart of the consumer sentiment index:
The survey’s chief economist Richard Curtin said:
Consumer sentiment continued its slow decline in late April due to weakening expectations for future growth, although their views of current economic conditions remained positive. All of the April decline was in the Expectations component, which fell by 4.8% from one month ago and by 12.6% from a year ago and by 14.7% from its January 2015 peak. The retreat from the 2015 peaks was evident across a wide range of expectations about prospects for the national economy.
The size of the decline, while troublesome, is still far short of indicating an impending recession. The decline is all the more remarkable given that consumers’ assessments of current economic conditions, including their personal finance, have remained largely unchanged at very positive levels during the past year. This divergence may reflect the strength of the consumer relative to the business sectors, and may have been exacerbated by growing uncertainty about the economic policies advocated by various presidential candidates. Overall, the data indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.
US consumer confidence is at its weakest since September last year, according to a new survey.
This was a disappointing start to the second quarter, with the Barometer barely above the neutral 50 mark in April. Against a backdrop of softer domestic demand and the slowdown abroad, panellists are now more worried about the impact a rate hike might have on business than they were at the same time last year.
US markets have followed other global bourses lower, with the Dow Jones Industrial Average down 46 points or 0.2% in early trading.
Markets remain nervous as the yen hits an 18 month high, on concerns that the Bank of Japan may hold fire on any further stimulus measures after disappointing investors at this week’s meeting.
Opec’s oil output in April rose by 170,000 barrels month on month to 32.64m barrels, according to a Reuters survey.
The rise, bringing the level close to January’s record high, was led by Iran, Iraq and the United Arab Emirates. There were declines reported by Kuwait following a strike, Nigeria and Venezuela with Saudi Arabian output little changed from March.
Traders across Europe have given a resounding shrug to the eurozone’s growth figures.
All the main stock markets are down today, with the FTSE 100 shedding 56 points (0.8%). The French and German markets are both deeper in the red, losing around 1.5%.
For tech shares, April has indeed been ‘the cruellest month’, and while the sector as a whole is still up since the February lows, it looks like any further market rally for US shares may well have to contend without support from these high-growth names.
Swiss bank UBS has upgraded its forecast for eurozone growth this year.
It now expects the region to expand by 1.6% in 2016, up from 1.4%, following the news that growth has doubled to 0.6%.
While temporary factors, including weather, may partly explain this outcome, today’s reading nevertheless comes as a rather positive surprise when considering the difficult external environment at the beginning of the year.
Today’s GDP report contains less detail than usual, as Eurostat have produced it within 30 days of the quarter’s end, not the usual 45 days.
Tomas Holinka, economist at Moody’s Analytics, reckons the growth rate could prove to be too optimistic, once more data comes in:
“The euro zone economy was at a better shape at the beginning of this year than expected. The quarterly growth accelerated to 0.6% in the three months to March, from 0.3% in the previous quarter.
Although this preliminary number might be revised down in coming months, the growth definitely surprised on the upside. Yet weakening U.S. and emerging market economies, the influx of migrants, and a possible U.K. exit from the EU are key risks to the region’s economy.”
Bert Colijn, economist at ING, says he’s “astonished” that eurozone growth has doubled to 0.6%:
The first months of the year were tumultuous with large stock market declines, growth concerns in the US, China and many emerging markets and plummeting confidence among businesses and consumers. Clearly, businesses and consumers have not acted on their gut feelings.
While the US and UK are suffering from a strong dollar and a possible Brexit, the Eurozone saw a marked acceleration.
This jump in eurozone growth comes at a good time, given worries over Brexit, political uncertainty in Spain, and the renewed tensions in Greece.
But Alasdair Cavalla of the Centre for Economics and Business Research urges caution:
This is the fastest rate of output growth since Q1 2015 for the Eurozone and its timing is propitious given the numerous sources of anxiety for the continent.
However, false dawns have been common since the financial crisis and nowhere more so than in Europe. Country-level figures revealed the French economy is finally getting into gear, showing a 0.5% rise.
It’s taken the eurozone a long, long time to reach its pre-crisis levels again.
As this chart shows, its post-Lehman recovery was knocked off course in 2011 by the debt crisis:
OFFICIAL: Euro-area GDP has finally recovered pre-crisis levels! Gap now closed, 3 years after UK, 6 years after US. pic.twitter.com/az5OJ6LrSV
Despite this stronger growth, the eurozone has fallen back into negative inflation.
Prices across the single currency bloc fell by 0.2% this month, Eurostat reports, having been flat in March.
So: unemployment is falling, the economy is growing MUCH better than expected BUT no inflation in sight. It just gets easier for the #ECB
In another boost, unemployment across the euro area has hit a new four and a half-year low.
The eurozone unemployment rate dropped to 10.2% in March, down from 10.4% in February, and the lowest recorded since August 2011.
Among the Member States, the lowest unemployment rates in March 2016 were recorded in the Czech Republic (4.1%) and Germany (4.2%). The highest unemployment rates were observed in Greece (24.4% in January 2016) and Spain (20.4%).
The eurozone has finally recovered all the economic output lost when the collapse of Lehman Brothers triggered the biggest financial crisis in generations.
But it’s been a bumpy ride, and Spain and Italy have yet to reach this milestone:
Currency bloc beats forecasts but inflation slips back into negative and experts urge against reading too much into data
The eurozone economy grew faster than expected in the first three months of 2016, but inflation in the single currency bloc has fallen back into negative territory, putting more pressure on the European Central Bank to keep deflation at bay.
Official statistics showed GDP in the 19-nation eurozone rose 0.6% in the first quarter despite a backdrop of turmoil on global markets at the start of the year. It was the fastest growth for a year and twice the pace recorded in the closing quarter of 2015. GDP was up 1.6% on a year earlier.
Uncertainty over EU referendum and ongoing political and financial turmoil in eurozone ‘casting a cloud over economy’
Worries about the EU referendum in June and over a resurgence of the eurozone crisis have knocked consumer confidence in the UK to its lowest level in more than a year, according to a report.
Market research firm GfK said its consumer sentiment indicator for April was the weakest for 15 months as households became gloomier about the UK’s economic outlook. The index dropped to -3 from a March reading of 0, when GfK also claimed referendum jitters had hit consumer confidence.
Telling us ‘it could have been worse’ is not a very compelling legacy
It’s hardly surprising for an outgoing president to be preoccupied with his legacy, or to gripe about low approval ratings. It’s more surprising for a president to blame them on his lack of communication skills, especially when that president is Obama.
Obama has been on a legacy-building press tour lately, most recently talking up his economic record in an interview with the New York Times. His main regret, reminiscent of the classic job interview cop-out “my biggest flaw is that I’m just too hard of a worker!” is that he failed to tell voters what a great job he did in managing the recovery: “If we had been able to more effectively communicate all the steps we had taken to the swing voter, then we might have maintained a majority in the House or the Senate”.
Prem Sikka (Opinion, 26 April) is right that BHS is a victim, but not of shareholder greed – rather director greed and flawed legislation. In the early 1980s most corporate pension funds had sizeable surpluses. As an accountant at the time, I argued that pension funds should be ringfenced, but I lost the argument on the grounds that companies had a liability to pay their defined pensions. So companies took “holidays” and in some cases raided the pension pot, and we all know what happened.