Financial offer more than doubled
The U.K. press is reporting this morning that the Government has more than doubled its offer for a financial settlement with Brussels following Brexit. It is rumoured, although there has been no confirmation from Brussels of London that the UK, is now prepared to offer between forty and fifty-five billion Euros to settle its liabilities following its departure from the EU in March 2019.
If confirmed this will drive a rally for the pound which already risen following the rumour. Resistance is at 1.3390 and 0.8840 and should there be a confirmation and encouragement over the move to stage two those levels should be easily breached.
Brexit is affecting every aspect of U.K. life and will do for some time to come. The economic effect was illustrated perfectly by Bank of England Governor Mark Carney yesterday while describing the effect on banks of a “disorderly Brexit”. Unemployment would rise, GDP would collapse leading the UK. into recession yet interest rates would be forced higher due to inflation created by a pound which could reach parity versus the Euro and 1.10 against the dollar.
Kim Disregards warnings, launches another missile
Kim Jong-un, the despotic leader of North Korea authorised, and further missile launch yesterday in defiance of both Washington and Beijing. The missile which apparently flew higher and purer than previous launches fell harmlessly into the Sea of Japan, but the threat was clear.
In a statement Pyongyang said that it now has the capability to reach the entire United States, creating a clear and present danger to the world.
The “safe haven” currencies, the JPY and CHF so far have failed to react to the news possibly awaiting the response from Washington before treating this as just another episode of “sabre rattling”. Seoul and Tokyo share concerns over Kim’s intentions as their ability to defend themselves if weakened if the U.S. mainland is threatened. It remains to be seen how President Trump will react but the time for action is fast approaching.
The global economy has had a steady if uninspiring 2017 with growth reaching 3.5%. The recovery from the global slowdown following the financial crisis is almost complete as G7 economies continue to consider the withdrawal of additional measures but inflation remains benign globally. 2018 is likely to bring more of the same although Brexit could bring about some weakness in growth as the effects of the UK.’s withdrawal from Europe become clearer.
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Powell Approval to confirm rate hike
Jerome Powell is likely to be confirmed as Chairman of the Federal Reserve later today. In his remarks to Congress yesterday Powell said that he saw GDP at 2.5% this year in the U.S. and saw the economy growing by a similar amount in 2018. This is appreciably stronger that has been seen for several years and should lead to a steady rise in rates. However, Power is also concerned about the source and path of future inflation. He sees a reduction on the size of the Fed’s balance sheet going forward but acknowledges that that will also have a dampening effect on inflation.
Powell’s interview with Donald Trump prior to his nomination is sure to have touched on the normalization of monetary policy since Trump is keen to be the architect of an economic recovery.
Unemployment is likely to remain close to 4% which in the past has been considered lose to full employment meaning that those who want to be employed have jobs. Powell indirectly praised Janet Yellen for her patience in removing accommodation commenting that the patience had served the economy well and had laid the foundations for a strong and secure recovery
