Daily Brief – October 28

October 28

This turns out to be the date that UK Chancellor Healey has selected for his first Autumn Budget. Importantly it is the date that the UK will find out whether the symbiotic relationship between Prime Minister and Chancellor can withstand the stress of reconciling PM Andy Burnham’s promises and spending plans with the finance available. There is some skepticism, that the increase in Defence spend together with the Burnham eyecatchers of Bus Fare subsidies, VAT relief on Energy bills and relief for the Hospitality sector can be met without either an increase in taxes despite the pledge not to do so, or even more controversially a cut in welfare payments. What everyone agrees is that there is precious little headroom for the Chancellor and even less if he is going to make good on his promises to promote economic growth.

GBP/USD 1.3483.

Fed Communication

As regular readers will know, the new Chair of the Federal Reserve wants to do things differently from his highly communicative predecessors who despite being economists made valiant efforts to articulate their thoughts and offered forward guidance albeit somewhat delphically on occasion. Chair Warsh has got off to somewhat of a poor start on his desire to being “boring” since his every action and word is scrutinized and sifted for meaning given his less than articulate performance at the presser this week following the FOMC Meeting. Then there is his decision to scrap forward guidance which is being questioned since it has sent US Treasury yields higher as investors have reacted with caution, thereby costing Main Street additionally since businesses have to price in uncertainty. In Chair Warsh’s words earlier this week: “the message from markets is the message from markets.” By the high standards of Central Bank speak, this is at best inane. Well, the markets have spoken unlike the Chair of the Federal Reserve and yields are up and USD is down. Kevin Warsh may have to taper his ambitions and explain why core CPI inflation is much above target at 3.5% and he has done nothing about it.

EUR/USD 1.1528.

EU Inflation

Envious eyes from the UK in past months as EU President Lagarde claimed victory over EU inflation. In July, EU inflation ticked up to 2.9% rather than maintaining its glide path down to the 2% target. As always, in the EU inflation varies considerably from a high of 5.6% in Lithuania down to 2% in neighbouring Estonia. Of the large economies, Spain is heating up at 3.8% while Italy and Germany are close to the 2.9% average, but France is cooler at 2.4%. At present markets are sanguine about the prospect of a rise in EU interest rates, but that could all change given oil being back up through USD 100 at the end of last week.

EUR/GBP 0.8553.

The Glorious 12th

No not a reference to the first day of the Grouse Shooting Season, but the day that the biggest solar eclipse for 27 years where the Sun will be 90% obscured in Gloucestershire, Somerset, Devon and Bristol. However, in Cornwall and the Scilly Isles the Sun will be as much as 95% obscured. If you are keen on eclipses and think that like a Number 11 bus, there will be another one along shortly, you will have to wait for 66 years until September 23 2090. 

EUR/JPY 181.43.

Wonderful Tonight

This day in 2004 in a move that proves that disruptors and rockstars and those who are both do have the propensity to conform once that revolutionary ardour has cooled later in life, Eric Clapton bought a 50% share in gents outfitters, Cordings. Founded in 1839, the London outfitters had fallen into financial difficulties and needed a cash injection. Makers of the Covert coat which was invented in the 19^th century for hunting, shooting and horse riding the Covert coat is a short overcoat. That plus the Tattersall shirt and riding boots custom made for the Queen Mother, the Duke of Windsor and Mrs Simpson are quite some distance from the type of rock chic espoused by the world’s best known axe man, EC.

It’s late in the evening
She’s wondering what clothes to wear
She puts on her make up
And brushes her long blonde hair

And then she asks me
“Do I look alright?”
And I say, “Yes, you look wonderful tonight”

We go to a party
And everyone turns to see
This beautiful lady
That’s walking around with me

And then she asks me
“Do you feel alright?”
And I say, “Yes, I feel wonderful tonight”

I feel wonderful
Because I see the love light in your eyes
And the wonder of it all
Is that you just don’t realize how much I love you

It’s time to go home now
And I’ve got an aching head
So I give her the car keys
And she helps me to bed

And then I tell her
As I turn out the light
I said, “My darling, you are wonderful tonight”
Oh my darling, you are wonderful tonight

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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