Europe: Wood and Trees

US: Oil on troubled waters

When the history books are written on the 2016-2019 period of the UK, it is odds on that writers will scratch their heads to explain that while the UK nationally was convulsed on leaving Europe or remaining in Europe, the mystery was why there have not been more cogent discussions about what exactly was the Eurozone economic picture and therefore what the UK was relinquishing by exiting from Europe!

Growth in Eurozone Gross Domestic Production Q3 2018 was 0.2% versus the UK’s 0.6%-hardly sparkling but three times that of the Eurozone! Italy is back in recession-no surprise there as Italy has had almost as many recessions as governments in the past 50 years! Eurozone industrial production is down 3.3% versus that of the UK of down 1.8%. Eurozone businesses have just reported the weakest output figures for 5.5 years! So, what should the UK growth figure look like on a “normalised” basis? 2.5%.

So, in summary the Eurozone economy is certainly not what some Remainer enthusiasts crack it up to be! Finally, and importantly since it is one of the best economic indicators of prosperity, average unemployment in the EU is 9.1% and in the UK 4.4% using the latest available figure as at June 2017.

So, the big questions are what sort of access we will have to/from the Eurozone and what our trading relationship will be going forward. History suggests that in the event of a no deal Brexit, in time those links will be re-established. What markets are agonising about is how long that will take and at what cost to both the UK and to the Eurozone.

Today Eurozone growth for Q4 will be released and is expected to be 0.2% versus the targeted 0.4% forecast. GBP remains steady versus both the USD and the EUR. FTSE remains at 7000, Gold at $1307 and Oil’s West Texas Intermediate at $55. Markets have paused while they absorb the expected pronouncements from the Federal Reserve that have dampened down rate rise expectations and soothed with forecasted inflation at 2%, sustained economic expansion and strong labour markets.

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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