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French (r)evolution 

7 December 2024 

by Tony Redondo 

The French government led by chief Brexit negotiator Michel Barnier fell last week after losing a vote of no confidence in parliament. France’s oldest prime minister also became its shortest-lived. With the French  parliament split three ways, the chances of any decisive changes to policy in any direction are close to nil.  Drift is likely for many months. 

Marine Le Pen proved beyond doubt that she is now the pivotal player in French politics but declined to call  for President Emmanuel Macron’s resignation. His mandate runs until 2027, he is politically very weak with  six in ten French people in favour of Macron resigning as president according to a new poll in the Le Figaro  newspaper.  

With Germany also set for federal elections in February next year, the two biggest eurozone economies are  politically rudderless. With President Trump’s inauguration just over a month away on 20 January and  Germany along with China likely to be the two economies hardest hit by his tariffs plan, the immediate future  does not bode well for the Euro and the EU project.  

Currency Exchange Rates Update 

The Pound edged up against the Euro to remain at the very top end of its trading range since March 2022. 

The Pound hit a 3-week high against the US Dollar before falling back on the latest US employment data  release on Friday. 

Events in South Korea hurt the Australian Dollar last week with the Pound hitting its highest level against the  Dollar since August 2023. 

The Pound hit its highest level against the Canadian Dollar since October on falling oil prices. 

What’s in the news? 

UK 

Reform UK has overtaken Labour in a national opinion poll for the first time with Nigel Farage’s party on 24% according to the Find Out Now poll. Labour is on 23% while the Tories lead with 26%. It is the first Westminster  voting intention poll to put Reform ahead of Labour. Last week, Reform passed 100,000 members and unveiled  Dame Andrea Jenkyns, a former Tory minister as a candidate for a mayoral election in May. 

BoE (Bank of England) Governor Andrew Bailey hinted that four interest rate cuts could be in the pipeline in  2025 with inflation coming down faster than the central bank had been anticipating. The money markets are  currently pricing in three rate cuts from the BoE with investors expecting the BoE to hold rates steady at its 19  December meeting. 

Good news 

BoE figures show the number of mortgage approvals rose in October to its highest level since August 2022. It  is the fifth straight monthly increase, suggesting a sustained recovery in longer-term borrowing. 

According to the Halifax House Price Index, UK house prices have now reached record levels as lower  mortgage rates have helped improve buyer confidence for the fifth month in a row. 

UK construction in November saw its strongest rise in commercial activity for two and a half years. However,  new order growth eased to a five-month low. 

Not so good news  

Andrew Wishart, a senior economist at Berenberg Bank warned that the minimum wage and national  insurance rate increases introduced by Rachel Reeves in Labour’s budget could cost 150,000 jobs with  sectors such as retail and hospitality expected to be hit particularly hard. 

The Berenberg economist said he expected the impact would be three-times as big as the OBR (Office for  Budget Responsibility) predicted.  

More than half of the firms surveyed by the BoE expect to raise prices in response to the Budget, with  reductions in staff and pay also on the cards. 

The CBI (Confederation of British Industry) expect slower than expected and “unimpressive” growth in 2025 for the UK economy thanks partly to punitive measures introduced in October’s Budget. 

Labour-run local authorities are on a “collision course” with the Government over the government’s  housebuilding targets according to Yvonne Gagen, the Labour leader of West Lancashire borough council,  who has warned that the target is “absolutely impossible and unrealistic”. One of the “milestones” for Labour  is its target to build 1.5 million homes in the next five years but Gagen warned Deputy PM Angela Rayner has “ignored” local authorities’ concerns over their targets. 

In its outlook for 2025, Dutch lender ING said that Reeves’ controversial October Budget “is likely just the  beginning” of several more Budgets characterised by tax hikes.

UK households cut back on essential spending at the fastest pace in five years in November as concerns over  the economic outlook weighed on consumer confidence. According to figures published by Barclays,  essential spending fell by 3.1% in November, the sharpest monthly fall since 2019. 

The IoD (Institute of Directors) optimism tracker fell to minus 65 in November, sharply down from minus 52 in  October and the lowest score since April 2020.  

Sir Tim Martin, the Wetherspoons boss, said “All democratic governments need to manage the relationship  between an economic horse and a public services’ cart – society needs both. This Government has  disincentivised and discouraged the horse.” 

Sir James Dyson accused the Chancellor of inflicting “an egregious act of self-harm” on the economy by  targeting family-owned businesses in the Budget. Dyson, one of Britain’s richest industrialists, said the  combination of National Insurance increases and changes to inheritance tax on family businesses “will kill  entrepreneurship, snuff out wealth creation and stunt growth” in the economy. 

USA 

The Federal Reserve is expected to cut US interest rates again when they next meet on 18 December after the  US labour market posted a “modest” rebound in November with the world’s largest economy adding 227,000  jobs last month, slightly ahead of expectations. 

President-elect Donald Trump picked venture capitalist David Sacks to become the White House’s AI and  crypto policy champion. Sacks, a former PayPal exec, has been tasked by Trump with making America the  “clear leader” in both areas. 

The largest intergenerational wealth transfer in US history is about to take place with about 80% of the wealth  held today, about $105 trillion projected to be passed down from older generations over the next quarter  century, an amount roughly equal to global gross domestic product in 2023.  

A US appeals court upheld a law requiring TikTok’s owner ByteDance to sell the platform or face a US ban  next year dealing a major blow to the Chinese company owner of the popular video app. 

Democrats have accused Joe Biden of putting “family before country” after he pardoned his son for federal  tax and gun charges, setting a precedent for politically motivated clemency agreements. The sweeping  pardon, which comes after he repeatedly pledged not to use executive powers to aid his son covers any  forthcoming legal challenges Hunter Biden may face.  

The EU 

In the past 24 years, the Euro has averaged gains of 1.6% in December and has ended up in 18 of those 24  years.  

2024 looks like being one of the years where the Euro is unlikely to maintain this record.  

A combination of no French government, an upcoming snap German election, geopolitical tensions and soon  to arrive Trump tariffs all add up to more misery for the single currency.  

Others

Talk of a BRICS (Brazil; Russia; India, China and South Africa) inspired alternative currency to the US Dollar  brought a swift response from President-elect Trump who wants them to commit that they will neither support  nor pursue a currency that sets out to replace USD otherwise in addition to his promised tariffs on almost all  countries, if such a currency union is pursued he will impose 100% tariffs on the BRICS countries.  

South Korea endured a tumultuous week after President Yoon Suk-Yeol declared martial law last Tuesday in  an effort to counter “anti-state forces” among his political opponents. However, the move faced immediate  backlash, including parliamentary rejection and public protests, leading him to revoke the measure within  hours. In response, South Korean legislators demanded Yoon’s impeachment, plunging the nation into its  most significant political crisis in decades.  

India’s central bank kept its benchmark interest rate unchanged at 6.5% as it struggles to contain rising  inflation without hurting growth in Asia’s third-largest economy and revised India’s GDP growth outlook for  fiscal year 2025 down from the 7.2% forecast in October to 6.6%. 

New Zealand’s government has outlined new rules aimed at slowing the rate at which farmland is being  converted into forestry for carbon credits, delivering on a key election commitment to protect food production. 

Quote 

Swiss psychiatrist Carl Gustav Jung, “You are what you do, not what you say you will do”

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