Overview of the week commencing 11 September
Graham Cross, CEO
Starting with the global outlook, the Organisation for Economic Cooperation and Development (OECD) are forecasting stable growth for the global economy in the next six to nine months.
That’s good news generally and, all other things being equal, good news more specifically for nervous stock market investors.
In other words, there’s nothing in the most recent release of the Composite Leading Indicators (CLI) report to indicate of any material deterioration in the macroeconomic outlook – at least on a global scale, although there are signs of slowing output in the UK. Indeed, the OECD expect the British economy to grow 1.6 percent this year and slow to 1.0 percent next year. Global growth, meanwhile, will tend toward a 3.5 percent increase this year and is on course to a 3.6 percent gain in 2018.
However, 3.6 percent isn’t a particularly fast pace. The average, stretching back to 1987, is a little less than 4.0 percent. In summary, the outlook isn’t entirely bright but it isn’t entirely gloomy either!
In the UK, the trade deficit for July came in at £2.9 billion compared with expectations for a - £3.3 billion and a £4.6 billion deficit in the prior month. Mind you, the monthly trade data are particularly volatile. That is why the boffins at the Office for National Statistics promote the rolling 3-month figure instead and, on that measure, the UK’s trade gap is little changed. The 3-months to July accumulated a £8.9 billion shortfall compared with £8.8 billion in the 3-months to June. The aggregate hides a £25.8 billion surplus in services and a whopping £34.4 billion deficit in goods.
A year ago, the total deficit amounted to £8.3billion. That is really quite remarkable when you think about it. Ordinarily, you’d expect a 15.0 percent decline in sterling’s trade-weighted exchange rate would help to limit expensive imports and boost cheaper exports. In turn, you’d expect a narrower trade gap today. But increased costs for raw materials and labour – both sourced abroad for many British manufacturing firms – have largely offset any currency gains that might otherwise have been there for the taking.
Elsewhere, last week saw the European Central Bank opt to do nothing at it’s meeting of the governing council. We expect that course of action will prevail for a while yet. Similarly, policymakers at the Reserve Bank of Australia opted to maintain the target cash rate at 1.5 percent.
That contrasts with policy changes in Canada and in Brazil. Rates are being driven higher in Canada, fuelled by a strong increase in GDP, voracious consumption spending and healthy income growth. Indeed, the Canadian economy is expanding at a healthy clip. Meanwhile, lower inflation metrics allowed for lower interest rates in Brazil where the main policy rate was reduced from 9.25 percent to 8.25 percent.