Transcript of "The saturday economist 8th september"
The Saturday Economist johnashcroft.co.ukDraghi saves the euro and the world Saturday, 8 September 2012Economic news this week, OTHER NEWSExcitement in Europe as ManufacturingDraghi fulfills his promise to July output bounces back in thedo whatever it takes to save the month but 0.5% down in 2011.Euro (and the world). -------------------------------- Producer PricesThe ECB announced a Output prices rise by 2.2% asprogramme of unlimited short input costs increase 1.4%.dated government bond buying ------------------------------to reduce borrowing costs for Money Supplythe troubled economies of Italy Narrow money, notes and coinsand Spain. increase by 5.1% August ---------------------------------Alleviating the crisis will Base Ratesnot do much to attack the For those who consider the single currency is unsustainable MPC votes to keep base ratesfundamental problems within in its present form, the endgame has been pushed much on hold, no more QE for now.the Euro system but the can further into the future. -----------------------------has been given a hefty kick Jens Weidmann president of the Bundesbank appears to be Base Ratesdown the long long road for the sole opponent of the plan. Fears of Weimar Republic Why the next move will be upsome time to come. hyperinflation remain ever present. and much sooner than expectedClosing : FTSE : 5,794; 10 Year Gilts 1.71%, Oil Brent Crude $114.25; Gold $1,737; $ 1.601; € 1.249
The Saturday Economist johnashcroft.co.ukECB moves to mop up Euro bonds Saturday, 8 September 2012The ECB made the critical problems within themove to save the Euro and Euro system but themop up the bonds on the can has been givenolive branch of the Southern a hefty kick downstates. the long long road.Draghi fulfilled his promise For those whoto do whatever it takes consider theto save the Euro (and the single currency isworld). The ECB announced unsustainable in itsa programme of unlimited present form, theshort dated government bond endgame has beenbuying to reduce borrowing pushed much furthercosts for the troubled into the future.economies of Italy, Spain and Fears of Weimar Republic hyperinflation remain everGreece. Jens Weidmann present. The Germans begin large scale production of the president of the wheelbarrow industry. Perhaps this accounts for the 1.3%Alleviating the short term Bundesbank appears increase in German manufacturing output in July!crisis will not do much to be the sole critic ofto attack the fundamental the plan.
The Saturday Economist johnashcroft.co.ukManufacturing output up in July... Saturday, 8 September 2012In the UK, manufacturing According to the influentialoutput increased by over Marki/CIPS survey,3% compared to prior the downturn in UKmonth. manufacturing showed signs of easing duringCompared to July last year, August.output remains down by-0.5%. The seasonally adjusted Markit/CIPS PurchasingOver the first seven months Manager’s Index® (PMI®)of the year, output is down rose to 49.5, from 45.2by around 1.5%. in July, a four-month high and only slightlyIn the third quarter, we below the 50.0 mark that A further recovery could begin in the final quarter of theexpect output to remain separates expansion from year. We expect growth of 1.5% sustained into 2013.flat, but the trends suggests contraction.growth of around 1.5% Investment in capital goods, largely for the emergingcould materialise in the final Output still remains almost economies, will lead the recovery as European demandquarter of the year. 10% down on the peak responce to the Draghi drug fix helps. levels in 2008.
The Saturday Economist johnashcroft.co.ukInflation - producer prices tick up... Saturday, 8 September 2012Producer prices increased Oil prices Brent Crude basisby 2.2% in August closed at $114.25 at the endcompared to 1.8% in July. of last week. The average price was almost 2.5%This increase in the annual higher in August comparedrate is the first significant to August prior year.rise following a periodof slowing inflation from In the final quarter of theSeptember 2011 according year we think prices couldto the ONS. average $118, 7% higher than the end of 2011. ThatInput prices also increased would push producer inputby 1.4% compared to a fall prices to 3% and outputof -2.4% in July. Energy and prices to around 2.5%.food prices generated therise with fuel cost increases The implications for retailup by 5% and imported food price inflation such thatcosts up by 4.5%. Domestic inflation CPI basis wouldfood prices increased by average 2.8% in the finalalmost 14%. quarter of the year.
The Saturday Economist johnashcroft.co.ukInterest rates kept on hold at 0.5% Saturday, 8 September 2012 Thursday the Bank of Money supply, England MPC voted to Money supply notes and keep rates on hold and to coins increased by 5.1% contain the level of Asset in August compared to Purchases at £375 billion. 5% in July, in line with the long run average. No real surprise despite some calls for a cut in base Average rates of a further 25 basis amounts points. outstanding were £63.4 billion representing a Ten year gilt yields velocity of circulation of languish at 1.7%, the buy around 22.8. order for APF is still not Where next for rates? complete, the option for a Speculation continues cut in rates and further gilt We think inflation CPI Draghi’s drug may about the contribution of basis is likely to be provide the fix Euroland purchases is limited. QE to the economy and around 2.8% in the final needs. The UK economy economic growth. No quarter of the year, as oil could look a lot better by The next rate move will be up and much sooner than is evidence of impact on prices and food inflation the end of year. The next expected. broad or narrow money. head higher. move is up! Page 5
The Saturday Economist johnashcroft.co.ukWhat happened in the world this week Saturday, 8 September 2012 German output rallies Spanish boos German manufacturing The Chancellor was booed output rallied in July as when presenting medals at output leapt by 1.3%. the paralympics this week. There has been endless The ECB move is speculation as to why significant in calling an end 80,000 booed. to the calls for the end ofDraghi’s drug China - manufacturing the Euro. That was the capacity of theBond yields rallied as the In August, China’s stadium, the explanation.ECB announced the bond manufacturing purchasing Confidence and growthpurchase plan for Spain and managers index (PMI) was should follow ECB move. Yeah that and economicItalian debt. 49.2 percent, down by 0.9 policy perhaps. percentage points month-Outright monetary on-month.transactions could be “onmy tab” the fear of Jens In the first quarter of theWeidmann, the president year, the index averagedof the Bundesbank. The 51.5 - manufacturing outputplan will be implemented is contracting slightly.despite German fears. Page 6
The Saturday Economist johnashcroft.co.ukProfessor Milton Keynes column Saturday, 8 September 2012GDP and Claimant Count ComparisonsI am still puzzled by the In this chart the blue line GDP ONS PMKstrength of the employment represents the change in Q4 0.6 0.6data and the apparent GDP year on year and the Q1 -0.2 1.2weakness of the GDP red chart represents the Q2 -0.5 1.7figures as published by quarter on quarter change Q3 na 1.8the Office for National in the claimant count.Statistics writes our residenthead of research Professor It is inverted so that as theMilton Keynes this week. claimaint count increases, the inverted chart falls inMost people still think of line with the GDP change.employment as a laggingindicator of economic The most recent twogrowth but as my chart quarters suggest theexplains, the claimaint estimates for GDP declinecount provides an extremely are at odds with thereliable coincident indicator employment data. Far fromof trends in the economy. falling, the economy may well be growing. Page 7
The Saturday Economist johnashcroft.co.ukGrowth Inflation Unemployment Government BorrowingGDP in the second quarter Inflation CPI basis was 2.6% Claimant count in July fell In the first three months tofell by 0.5% year on year as in July. Inflation RPI and by 5,900 to a level of just June, Government was upthe recovery of 2010 petered RPIX increased to 3..2% from under 1.6 million and a rate by £4.5 billion. Borrowingout in 2011. 2.8%. of 4.9%. is likely to exceed the levels achieved in 2011/12.Growth in Q1 fell by 02%. In Manufacturing price inflation The LFS count fell slightly2011 UK growth was up by fell to 1.7% in July, latest (three months to June) to a0.8% and 1.8% in 2010 . earnings up by 1.8% in May. level of 2.56 million. 8.0%
The Saturday Economist johnashcroft.co.ukLatest Economic Indicators Saturday, 8 September 2012Indicator Period Latest Source NotesInflation CPI July 2.6% ONSInflation RPI July 3.2% ONSInflation RPIX July 3.2% ONSEarnings June 1.6% ONS Whole economyRetail Sales Volume July 2.8% ONS year on year comparisonRetail Sales Value July 3.1% ONS year on year comparisonUnemployment m June 2.56m ONS LFS millions trailing three monthsUnemployment % June 8.0% ONS LFS per cent trailing three monthsClaimant Count m July 1.593 ONS MillionClaimant Count % July 4.9% ONS per centagePPIs output August 2.2% ONS Manufacturing prices outputPPIs input August 1.4% ONS Manufacturing prices inputGDP change Q2 -0.5% ONS year on year comparisonManufacturing August -0.5% ONS year on year comparison
The Saturday Economist johnashcroft.co.ukThe Saturday Economist is a round up of the The publication of this document should not beweek’s economics news for the UK published construed as the giving of investment advice.on the web site johnashcroft.co.uk. Forecasting is subject to frequent revisionThe information is also available as a PDF Please remember we are forecasting the outputdownload. of the Office for National Statistics which may, of itself, be subject to revision.The information was originally published inshort form in the Sunday Times and Croissants All views expressed in the Saturday Economistweekly blog post and has been expanded are my own. Information is intended to providefollowing requests for more information. a general outline of the subjects covered. It should neither be regarded as comprehensiveThe material in the Saturday Economist is nor sufficient for making decisions, nor shouldbased upon information which we consider to it be used in place of professional advice.be reliable but we do not represent that it isaccurate or complete and it should not be relied Neither the Saturday Economist or anyupon as such. We accept no liability for errors, representative accept any responsibility for anyor omissions of opinion or fact. loss arising from any action taken or not taken by anyone using this material.In particular, no reliance should be placed on Data adapted from the Office forthe comments or trends in financial markets. John K Ashcroft National Statistics licensed under Open Government Licence .v.1.0.