North Korea is a problem for China – if only the US would realise

North Korea now has nuclear warheads that it can attach to missiles, that can travel great distances – to Guam, almost certainly, the nearest offshore US territory, and, with a bit of practice perhaps heavily populated parts of the US mainland. It sounds scary, but then Russia, China and others have had this capability for … Continue reading “North Korea is a problem for China – if only the US would realise”

Economic effects of Hurricane Harvey

Hurricane Harvey was a tragedy. It also has the potential to have a considerable economic impact on both the economy of Texas and on the broader US economy. There are also material implications for both commodities and insurance markets. Economic Impact Early estimates put property damage at between $30bn and $100bn (0.2%-0.5% of GDP). For … Continue reading “Economic effects of Hurricane Harvey”

The US Fed must learn from mistakes of the crisis

A decade is a long time in central banking. Ten years ago Ben Bernanke used his speech at the Jackson Hole symposium for central bankers to explain the tumult that was rippling through financial markets at the time. He explained that while there were problems in the US housing market, the global financial system was … Continue reading “The US Fed must learn from mistakes of the crisis”

Broken-hearted again …

Having raised interest rates by 0.25 percentage points in June, the Federal Open Market Committee has indicated that it expected to hike rates once more this year and that it plans to begin its balance-sheet normalisation program (its plan to sell off the assets that it purchased under quantitative easing) “relatively soon”. In the UK, … Continue reading “Broken-hearted again …”

What’s wrong with low interest rates?

Interest rates are low, but is this a problem?  After all, in times gone by the worry was that rising interest rates killed off economic expansions. You know the story: inflation picks up as economic slack diminishes; central banks slam on the brakes; and recession follows. Since the global financial crisis, however, interest rates (and … Continue reading “What’s wrong with low interest rates?”

Fed leaves rates on hold and balance sheet reduction is coming soon

No surprises from the US Federal Reserve (Fed) with interest rates being left unchanged at the meeting last Wednesday. The statement contained some tweaks in wording with job gains now upgraded to “solid” and inflation is noted as “running below 2%”. Meanwhile, balance sheet reduction (the unwinding of quantitative easing) is now expected to take … Continue reading “Fed leaves rates on hold and balance sheet reduction is coming soon”

When smooth waters cause ripples

It is proving to be a healthy quarter of results for US banks and the outlook is fine, regardless of what might or might not happen about regulation. The banks have decent economic growth to thank for much of their own health. Higher interest rates have been good for bank lending and net interest margins … Continue reading “When smooth waters cause ripples”

The Republicans fall out and the dollar weakens

One of the surprises for markets this year has been the weakness of the dollar. Last year, investors built up large speculative positions expecting the dollar to go better. The US was beginning to increase its interest rates and would in due course reduce its stockpile of government bonds held by the Fed. As more … Continue reading “The Republicans fall out and the dollar weakens”

How far will inflation and interest rates rise?

In February the US inflation rate as measured by the CPI hit 2.7%. In the UK the rate reached 2.3%. The US dollar had strengthened over the previous year, whilst the pound had weakened. Both economies were affected by rising oil and other commodity prices. In the USA the arrival of higher inflation led to … Continue reading “How far will inflation and interest rates rise?”

The UK economy as pictured in the Budget

The UK budget will be remembered for the controversy over a proposed increase in National Insurance Contributions for the self-employed. This measure is designed to raise just £645m or less than 0.1% of total revenues in 2019-20.   Instead it was notable for the large movements of money brought about by changes in forecast. Where … Continue reading “The UK economy as pictured in the Budget”

Living with Mr Trump

Stock markets have been in love with Mr Trump the great reflator. They look forward to his promised tax cuts for individuals and companies. They want his increased spending on infrastructure. They also quite admire the way he persuades big corporations to put America first and invest more of their corporate cash. They do not … Continue reading “Living with Mr Trump”

US Presidential election takes centre stage

The imminent Presidential election continued to absorb much of the limelight in the US. On balance, investors appear to believe that Hillary Clinton will emerge victorious, although the House of Representatives is expected to remain in Republican hands, albeit with a lower majority. Nevertheless, in a close-run – and often bad-tempered – election campaign, investors … Continue reading “US Presidential election takes centre stage”

US election: uncertain predictions and market risks

What Brexit teaches us about trusting betting exchanges and polls in the run-up to the US election, and some of the market implications of the possible results. Betting exchanges vs polls We learned from the Scottish referendum that betting exchanges were a better predictor of a particular voting outcome than the official polls. The Brexit … Continue reading “US election: uncertain predictions and market risks”

The US Federal Reserve – Birds of a Feather

What do you get when you cross a hawk with a dove? A fair amount of confusion, if the US Federal Reserve (the Fed) is anything to go by. At this year’s Jackson Hole gathering of the world’s central bankers, Fed Chair Janet Yellen declared that ‘the case for an increase in the federal funds … Continue reading “The US Federal Reserve – Birds of a Feather”