Uncertainty reigns gravitational pull

Uncertainty Reigns

Uncertainty Reigns: Navigating 2024’s Global Complexity

Uncertainty over interest rate policy decisions by the foremost central banks around the globe.

Uncertainty with our political leadership. This is the year of elections with over 40% of the world’s population eligible to vote in an election in 2024.

Uncertainty over the outcome of a rising number of flashpoints around the globe including the Ukraine, the Middle East and Taiwan.

The UK economy continues to outperform but the outlook remains uncertain given the global situation and domestic political challenges with the local elections due next month and a general election due before the end of January 2025.

Currency Exchange Rates Update

The Pound Sterling to Euro exchange rate is recovering after the Pound fell on 22 April to its lowest level since 3 January after market expectations for a mid-year interest rate cut by the BoE (Bank of England) rose sharply. However, the gravitational pull of the 2024 trading range remains strong, and the Pound then regained nearly 1% of value to close last week at a one-week high.

The Pound to US Dollar exchange rate remains turbulent, hitting its highest level since 21 March on 10 April before falling over 3.2% in the next 12-days and then recovering by 1.56% by the end of last week as each successive economic data release forces the financial markets to reappraise its interest rate expectations.

What’s in the news – Uncertainty Reigns?

The IMF (International Monetary Fund) raised its global growth forecast, saying the global economy had proved “surprisingly resilient” despite downside risks. The IMF now expects global growth of 3.2% in 2024, up 0.1% from its January forecast.

UK – UK Political News Summary

Professor Sir John Curtice, Britain’s foremost polling expert has suggested: –

  • Susan Hall stands little chance of winning the London Mayoralty despite Sadiq Khan ‘not being particularly popular’.
  • There are more people in favour of the Rwanda scheme than against, though it depends a little bit on how you word the question.
  • Reform is the party that is picking up more 2019 Tory voters than anybody else.
  • One of the striking features about British politics at the moment is the absence amongst any of our principal party leaders of a charismatic figure who could encapsulate what they’re about in simple language, articulate a vision for the country. They’re all very, very weak at this.
  • The conditions for a relatively low turnout are in place and particularly the circumstances that were contained in 2001, which is the election where we had the lowest turnout, 59%. Rishi Sunak – unpopular, uncharismatic, can’t do the vision thing. Keir Starmer – boring, uncharismatic, can’t do the vision thing. Ed Davey – nice bloke, little impact, can’t do the vision thing.
  • We should not rule out the possibility that we end up with a hung parliament, a scenario the Labour Party is desperate to avoid.

In Scotland, Humza Yousaf’s coalition with the Scottish Greens has collapsed after he decided to scrap their power-sharing agreement. Yousaf is battling to keep his job as first minister of Scotland, insisting he won’t resign, while facing a no-confidence vote in the Scottish parliament as soon as next week.

Meanwhile, Peter Murrell, the SNP’s former chief executive and former leader Nicola Sturgeon’s husband has been charged in connection with embezzlement of funds from the Scottish National Party.

Good news in the UK: robust Growth & business optimism

The UK economy’s recovery from recession gained further momentum at the start of this month with falling inflation and the subsequent strong rebound in consumer real disposable income boosting UK economic growth. The UK composite PMI (Purchasing Manager’s Index) rose from 52.8 in March to a stronger-than-expected 54.0 in April. This marks the most robust growth in business activity since May 2023 and means the UK has outperformed even the US every month so far this year.

The CBI (Confederation of British Industry) quarterly Industrial Trends survey showed that business optimism rose to its highest level in nearly three years while sentiment within the manufacturing sector improved, with output expectations the strongest for six months.

UK GfK consumer confidence for April increased from -21 to -19, a slightly bigger rise than forecast. That confirms the upward trend of at least the past year, consistent with a modest improvement in consumer fundamentals now that interest rates have peaked, and wages are rising again in real terms.

In the latest statistics from the UNCTAD (UN Conference on Trade and Development), the UK is now the fourth largest exporter of goods and services in the world, overtaking France, Netherlands, and Japan, and behind only China, the US, and Germany.

Oxford Economics and the Manufacturing Technologies Association (MTA) published its in-depth ‘The True Impact of UK Manufacturing’ report. It shows UK industry is worth £518bn and supports 7.3million UK jobs directly and across the supply chains/communities it operates in. This represents nearly a quarter of total GDP (23%) and far bigger than the direct contribution of 8.2% that is usually quoted by economists. It also shows that ‘making things’ accounts for 34.5% of all UK goods and services exports.

Rolls-Royce has won an order worth hundreds of millions of pounds from India’s IndiGo, one of the world’s fastest growing airlines for 60 Trent XWB-84 engines. This follows last month’s announcement from Rolls-Royce that it is creating more than 200 new jobs in Derby to support a 40% increase in engine production required to meet unprecedented global demand. In total, the British engineering giant is investing £55 million and creating over 300 jobs in Derby and at its Dahlewitz site in Germany to address growing long-term demand for new civil large engines and improve customer aftermarket support services for its global Trent fleet. Rolls-Royce also recently announced plans to invest more than £1 billion upgrading its Trent engines – the world’s most successful aero engine family in history having accrued over 180 million flying hours.

Not so good news in the UK – Not so good news in the UK; Borrowing Target

The ONS (Office for National Statistics) reported that the number of workforce dropouts claiming to suffer long-term sickness has surged to a record high as Britain’s labour crisis deepens with more than 2.8 million people saying they are too ill to work, the highest number since records were first collected. In total, 9.4m people aged between 16 and 64 years old are economically inactive – neither in work, nor looking for work with long-term sickness the most common reason for inactivity. That is the highest number since 2012.

Chancellor Jeremy Hunt has missed his annual borrowing target in a blow to his efforts to get the deficit down. Public sector borrowing excluding banks hit £11.9bn last month, according to the ONS, which was £1.9bn more than forecast.

It meant the Government overshot its £114.1bn borrowing target set by the OBR (Office for Budget Responsibility) by £6.6bn, despite borrowing falling by £7.6bn compared to last year.

It comes despite the Chancellor raising the tax burden to its highest level since the Second World War in an attempt to balance the books.

The CPS (Centre for Policy Studies) has warned that Britain’s businesses are spending an extra £6bn a year under the Tories as they grapple with an onslaught of red tape. Policies introduced by the Tories have added £35bn in expenses on businesses in today’s money, rising to £57bn when including pensions.

The latest UK retail sales figures fell short of expectations despite February’s figure being revised up from 0.0% to 0.1% but March’s figure was flat.

USA News: Trade Deficit

US economic growth slid to an almost two-year low last quarter at an annualised rate of 1.6%, well below the 2.5% forecast interrupting a run of strong demand and muted price pressures.

The Fed’s preferred metric of inflation unexpectedly rose to 2.7% in March raising pressure on the Fed to further delay any cuts and even to consider whether borrowing costs are high enough.

The US trade deficit in goods trade with China narrowed to its lowest level since 2010 last year, as imports from China fell by more than $100 billion compared to the previous year. In fact, imports from the world’s largest exporter were even lower than in 2020, when imports from China had fallen to $432 billion amid an ongoing trade war between the two countries and disruptions caused by the Covid-19 pandemic.

Chart: Is the U.S. Pulling Away from China Economically? | Statista
Chart: Is the U.S. Pulling Away from China Economically? | Statista

In a potential victory of sorts for Donald Trump, the US Supreme Court suggested it might drag out his claim of immunity from prosecution, likely dooming any chance of a pre-November trial on charges he sought to subvert the 2020 election.

Eurozone News: Credit Rating Agencies

The S&P Global composite PMI for the Eurozone climbed to 51.4 in April with German private-sector activity growing for the first time in 10 months.

The latest Ifo report showed that German business sentiment improved to its highest level in a year, reinforcing signs that Europe’s largest economy is healing.

In France, government borrowing looks set to stay high and get worse. The debt to GDP ratio is 110% and is forecast to grow to 115% by 2029.

The credit rating agencies are all contemplating a downgrade from its current AA rating.

In the latest shock poll, Marine Le Pen’s party is polling far ahead of President Macron’s with the populist party opening up a 12-point lead over Renaissance ahead of polling day. National Rally, which is led in Brussels by Le Pen’s protege Jordan Bardella, registered 30% support, up 7% compared to the last election. Macron’s centrist coalition has seen its support tumble from 22 to just 18%.

Macron is facing a double threat with socialist Raphael Glucksmann increasing his support from just 6 to 12%.

Other news from around the globe: CO2 and shipping

China now emits more CO2 each year than the entire developed world combined.

The Stockholm International Peace Research Institute reported that global military spending hit all-time high in 2023 after jumping 7% to $2,443 bn. The Ukraine-Russia war, tensions in the Middle East and other trends contributed to the jump according to the report. The US, China, and Russia were the three biggest military spenders in 2023.

It is four months since attacks by Houthis on shipping in the southern approaches to the Suez Canal commenced. Traffic has dropped by 66% and the additional costs of insurance, fuel and wages by shipping being re-routed around the Cape of Good Hope that adds 14 days steaming time for shipping, are inevitably countering the progress already made on curbing inflation. There is also the huge rise in costs in the container market where prices have risen 300%.

Quote of the Day

Stephen Covey “If there’s one thing that’s certain in business, it’s uncertainty.”

Stephen Covey’s most popular book, first written in 1989 is ‘The 7 Habits of Highly Effective People’.

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