Overview of the week commencing 28 November
Graham Cross, CEO
Other than the announcement of a UK National Productivity Investment Fund, week the week beginning 21 November didn’t provide us with as much fiscal stimulus as we would like. Meanwhile, deflationary pressures eased a little in Japan.
A commitment to reduce corporation taxes from 20 percent to 17 percent and cancellation of plans to hit a public finance surplus by 2020 will help foster faster growth over the next few years. And while an additional £23billion of capital spend (assuming this is actually spent) is stimulus of some kind, we can’t help feeling that we were expecting something more expansionary. Instead we feel the Chancellor missed the opportunity for a ‘game changing’ intervention.
Deflation pressures in Japan have eased a little of late. October’s 0.1 percent year-on-year gain is the first rise in prices for 8months. Still, Japanese inflation is someway from the 2.0 percent target. Here’s how Moody’s summarise the situation…
‘While it's true that low commodity prices have complicated Japan's fight against deflation, overall domestic demand remains weak. Low wage growth will crimp consumers' purchasing power, and we are unlikely to see spending on big-ticket items increase. Moreover, businesses have shied away from investing, despite record profits over the past few years. This is unlikely to change’.
Nevertheless, the Bank of Japan are sticking tot heir guns. They expect to hit the 2.0 percent target some time in the 2018-2019 tax year.
The coming week ahead sees two indicators; Chinese manufacturing PMIs and the US non-farms payroll report. We’ll report on those in next week’s blog.