What to expect this week – 18 November – 24 November 2019

Highlights

> —Minutes of the last Fed’s meeting (Nov. 20) and of the last ECB’s meeting (Nov.21)
The Fed’s minutes will reveal the discussions on the drop of the Fed’s benchmark rate but the most useful part will be on the commitment to stop, at least temporarily, the downside trend on the benchmark rate.
In the ECB minutes, the focus will be on the discussions related to the important disagreements between governing council members after September decisions —

> Markit flash estimates for November in the Euro Area, Japan and the US (Nov.22)
In October a rebound in the US for the manufacturing sector was a surprise reflecting mainly the spike in the New export Orders index. The divergence with the eurozone and Japan was astonishing. The November survey will highlight the possibility for the US to remain strong while Japan and the EA are still weak.  —

> The French Climat des Affaires for November (Nov. 21)
The French index has been above its historical average for months. This is consistent with the stronger momentum of the French growth when compared with the Euro Area. This is linked to the specificity of the French economic policy that feed domestic demand in order to cushion a possible external shock. This strategy limits the possibility of a downturn.

> Eurozone Current Account for September (Nov.19)
The Euro Area current account shows a large surplus. It is circa 3% of GDP. This means that there is an excess saving in the Euro Area and that we have means to invest in order to improve the autonomy of our growth process. Because accumulating surplus is just useless.

> Existing homes sales in the US for October (Nov. 21) and Housing Starts (Nov.19)
Existing home sales indicator is a measure of a wealth effect on consumption expenditures. Its recent profile suggests a slowdown in expenditures during the last quarter of this year before a mild rebound at the beginning of 2020. —

> Productivity in the third quarter for the United Kingdom (Nov. 20)
The strong slowdown in the UK productivity suggests an extended period of low growth except if investment rebounds strongly. This will not be the case whatever the Brexit agreement because Brexit will continue to provide large uncertainty. —

> The Phylli Fed index will be release on November the 21st. The Japanese trade balance on November the 20th, the Japanese CPI for October on November the 22nd and the German Consumer Confidence index on November the 21st  

What to expect this week – 11 November – 17 November 2019

Highlights

> —GDP growth for the third quarter in Germany (Nov.14) and the ZEW survey for November (Nov.12)
The industrial contraction during the third quarter and the fragility seen on the services sector during the third quarter will probably lead to a negative growth rate in the third quarter. Will this technical recession be sufficient to force a more accommodative fiscal policy ? —

> The Eurozone GDP and Employment for the third quarter (Nov.14) and industrial production for September (Nov.15)
The flash estimate for the GDP was at 0.2%, it will be confirmed. The question is on the employment dynamics. Since the beginning of 2018, its quarterly growth has been close to the GDP growth leading to a flat trend in productivity. This is not a positive news. —

> The UK GDP for the third quarter (Nov.11) and Employment for August (Nov.12)
The main concern for the UK is its low productivity growth. Since the beginning of the current recovery, it has grown by only 1%. The change may come in coming months with a downside adjustment on the labor market. —

> GDP growth for the third quarter in Japan (Nov.14)
The figure will take into account the jump in households’ retail sales in September. Their expenditures were increasing to compensate the increase in the VAT rate in October. This is the same phenomena that the one seen in April 2014 with the last TVA rate change. —

> Industrial production index in the US for October (Nov. 15) NY Fed manufacturing survey for November (Nov.15)
The industrial momentum is low in the US as it can be seen with the ISM manufacturing index below the 50 threshold for the last 3 months to October. This will probably push the industrial production index on the downside. —

> Chinese industrial production, retail sales and investment for October (Nov.14)
The momentum is lower in China. It reflects negative external shocks (exports growth is close to zero in recent months) and of an strong internal adjustment (negative growth for imports)

> —Retail sales in the US (Nov.15) and in the UK (Nov.14)
The US sales will continue to be robust as the labor market is still supportive and households are optimistic
In the UK, the perception is weaker as the labor market dynamics has turned negative recently.

> —Inflation in the UK and in the US for October
Will be lower than in September as the energy contribution will be more negative in October. —

> Inflation rates in the Euro Area (15), France (14), Germany(13), Italy(15) and Spain (14)
Confirmation of the flash estimates released at the beginning of the month. The Euro Area inflation rate in October was first estimated at 0.7%

Brexit after the deal

The Brexit deal takes all its flavor by looking at the situation in Northern Ireland. It will be in the United Kingdom and the single market. The UK will therefore have a border with one of its provinces and Northern Ireland will be in a customs union with the EU. Let’s not doubt that UK products or products going through the UK will not find it very difficult to end up in the single market.

Once again the British get what they want and have an exorbitant power over the European law. The Europeans accept this situation with a smile. Since 1973, discussions and negotiations between the EU and the the UK are usually in favor of the UK. With this deal this also the case. What a scandal. How, under these conditions, can we, one day, imagine a political Europe that does not disintegrate when the pressure is rising?

The deal must now go before the British Parliament. The Conservatives do not have the majority, as this balance of strength of Parliament shows.

Referendum is the ultimate weapon for the UK

The UK House of Commons does not want Brexit, and on three occasions, it voted down the deal that Theresa May’s government negotiated with the European Union, which would have eased the country out of the bloc gently. However, MPs do not want a hasty no-deal exit either, and have also rejected Boris Johnson’s plans for leaving the European Union on October 31 do or die. 

However, MPs feel that there is not enough time left now before this date to come to a fresh exit agreement, different from Theresa May’s deal. So the deadline for leaving the European Union could now be pushed back to January 30, 2020, which according to Parliament, would be a better date for the UK to exit the EU with the agreement of the remaining 27.

It is worth raising several points on this issue:
1 – What has happened since the initial March 29 exit date to put MPs in this hasty situation less than two months from the new deadline? 
The quest for political balance right throughout the lengthy process to appoint a new prime minister ground all new initiatives to a halt and dwindled the chances of considering new options. The two months between Theresa May’s resignation on May 24 and BoJo’s appointment on July 24 were wasted time and took up a huge chunk of the extension granted by the EU.
2 – An extension beyond October 31 is only possible if the EU agrees. EU countrieswill be meeting on October 17 and 18 to discuss Brexit. Dissenters have already made their views known, with the French president, Spain and some others already expressing their frustration at the extension to October 31. As recently as September 5, Amélie de Montchalin, French Secretary of State for European affairs, again referred to a likely no-deal Brexit on October 31, soEurope could well take the wind out of British MPs’ sails. 
3 – At the European summit on April 10, the different countries did not seem to be united on the issue of the extension. So it would be preferable for the next summit in October to be able to set aside this issue, as the various member countries need to show a united front on October 17 and 18.
4 – It may be in Europe’s best interests to swiftly cut ties. The Brexit issue is at the forefront of everyone’s minds, it creates uncertainty and delays the potential economic impacts that could be felt depending on the final exit scenario. Europe needs to get this matter cleared up quickly. 
5 – The British economy is also hampered by this situation. The country’s growth is now much lower than the pace across the other G7 countries and corporate investment is 11% lower than it could have been without a referendum, so the price is high. 
6 – Boris Johnson has lost and his coup has failed. Parliament will not support him and in an ultimate humiliation, he cannot call an early election for October 15 just ahead of the crucial end-October deadline either (he will ask Parliament to call an election during the next sitting on Monday 9, but he will not win a two-thirds majority if the election date is too soon). From a London perspective, there can be no Brexit on October 31, whatever happens. 
BoJo no longer has a parliamentary majority after Phillip Lee’s defection and the 21 Conservative rebels had the whip withdrawn, so the whole system is now in deadlock.

It looks like there is no possible outcome for this political chaos. BoJo’s resignation may look like a potential solution, but there is the question of his successor and the time required to appoint him or her, so this would be a risky move given the state of the party and its shaky situation in the House of Commons. 
The whole situation needs a fresh start and this will probably involve a general election at a date beyond October 15 (the next general election in the UK must take place by May 5, 2022). 
However there is a risk that no party will win a majority: thiswill call to mind the latest election that Theresa May called on June 8, 2017, when she only managed to scrape together a majority with the support of a small group of MPs from the Northern Irish Democratic Unionist Party.
Achieving a clear majority looks like mission impossible in light of the sea change in British right-wing politics after recent events – both within the Conservative party and as a result of competition from Nigel Farage – as well as the rising influence of the Lib Dems, and wariness of Labour leader Corbyn, who wants to nationalize at any cost. The swift election that Johnson wanted would have forced each candidate to clearly state their remain or leave position. This would admittedly make the whole situation much easier for any new prime minister, but this majority would be Brexit-based and would only last a short time. Any elections taking place well after the October 31 date would raise different questions, although this would not make it any easier to establish a clear majority and choose a prime minister. The fundamental questions raised during the June 2016 referendum will not just fade away into the political background.
Against this backdrop and with no decisive majority to make a clear decision, it is in Europe’s interests to put paid to any further extension. In other words, political chaos would not be resolved by a general election, but rather a hard Brexit scenario would then be on the cards.

To eliminate all doubt, and in light of the government’s and MPs’ inability to come to an agreement that no-one wants anyway, a fresh referendum is needed. This time no-one can say they were unaware after the first vote on June 23, 2016. At the time, the UK voted 51.89% to leave the European Union. Now it is up to them to confirm their decision …or not. They must now take their future into their own hands, because the government and Parliament have failed to do so. 

Posted in French: 5 September 2019

BoJo and the general elections

This is a spectacular moment. BoJo has lost tonight and the final decision will be taken tomorrow as the Parliament will vote  for the possibility for it to take the lead in the negotiation in order to avoid a no deal Brexit. 
Then BoJo will convene general elections. 
Then we may have what everybody asks since the first referendum: a confirmation of the Brexit or not. 
That’s may be the best move to clarify the political situation as the vote at the general election will again be remain vs brexit. No one will no longer be able to say “we didn’t know”. 
The result is still random even if polls bend on Johnson’s side. 
The general elections results will definitely give the answer. Will the UK remain in the EU or will they exit. An exit vote would probably mean a no deal brexit. 
Therefore the pound will improve in coming hours but will follow polls’ results after BoJo convenes general elections. A poll in favor of Brexit will probably weaken the pound and conversely a stronger pound when polls are in favor of the remain side. The equity market will follow the same momentum. The point is that everyone will know that these elections will definitely close the referendum file. The huge uncertainty will be on the side the coin will fall. We can expect huge uncertainty and volatility if polls have the same volatility than before the referendum. Because investors know that this is the second chance. 
 This can be a source of a kind of sudden stop on the economic activity as no one will take strong bets on the future. 

British procrastination – a postponement will not guarantee an agreement

Theresa May is in Berlin and Paris to request a new deadline. It’s a safe bet that she will get some time. The date discussed is December 31, 2019. It is a little less than what Donald Tusk was talking about, who was ready to go up to a year.

As no one knows the possible consequences of a lack of agreement, no leader will take the risk of being the one who could trigger the possible apocalypse.

Business leaders are making arrangements to manage the possibility of a Brexit but none wants a disruption that would have a negative impact on their business.

This procrastination has a cost. This is true for the English who, if they had not stored heavily, would have been in a recession for the last two quarters. This is the case of the European Union too. Any meeting with employees, clients, bankers or industrialists gives pride of place to the concerns about Brexit. Let’s not doubt that this uncertainty affects behavior and also penalizes the growth of the EU. We are thus in a war of attrition, looking for who will exit first. This may be the worst solution because costs will accumulate on both sides of the Channel.

Because, let us be clear, an additional period does not mean an agreement on the British side on the scheduled date. British are in the EU for an extended period.