Stagflation; the elephant in the room
Mark Carney took time out from his “day job” as Bank of England Governor to make a speech as Chairman of the Financial Stability Committee.
Warning G20 that their job isn’t done yet may have come as a welcome relief.
Maybe it is the fact that stagflation; rising inflation at a time when economic growth is slowing, is so rare that no one takes too much notice. It is like the “monster under a child’s bed” it may not be real but it is scary nonetheless!
There has, so far, been little evidence of conversation along those lines but someone has to be first.
The conditions in which stagflation forms are certainly beginning to be prevalent in the U.K. Inflation is likely to break 3% this month and yesterday’s manufacturing data which is a good indicator of future activity fell. Real wages are falling and consumer spending is turning south.
Carney warns over complacency at G20
G20 meets this week in Hamburg Germany. There will be the usual demonstrations about globalization, climate change and poverty. There will be 20,000 guards on duty to ensure nothing gets out of hand.
Mark Carney in his role as Chairman of The Financial Stability Committee spoke yesterday of the need for continued vigilance over the global financial system. He echoed Janet Yellen’s words from last week saying that the causes of the 2007 financial meltdown had been eradicated but there will always be fresh concerns to deal with.
“G20 must guard against regulatory fatigue, where countries are reluctant to rely on each others systems and institutions.” This can lead to higher interest rates affecting the poorer countries. Given the current waves of cyber attacks confidence in each others online security may lead to some additional concern.
Carney wrote to G20 members outlining what he expects from them as monetary conditions become more normalized. Bank capital is less of a concern now but vigilance over the growing asset management industry is necessary.
MPC Dove outlines rate hike concerns
It is interesting that when rates are falling it is the hawks that get all the attention. Similarly, when rates hikes are being discussed, it is the doves.
Gertjan Vlieghe a member of the MPC tends to be dovish on his outlook for the U.K. economy. He was the first to call for a rate cut in the wake of the Brexit vote followed a month later by his colleagues.
That call is now questionable given the, relatively, robust economy and the rise in inflation.
Uncertain times indeed but that cut is now likely to be reversed much to Vlieghe’s chagrin.
He believes that what he calls a “premature rate hike” could be more damaging than a hike which is seen with hindsight as being a little later. Most analysts believe that with inflation about to break 3% “that ship has sailed”.
The next MPC meeting is on August 3rd so there will be another complete month’s data to mull over before any decision needs to be made.
U.S. Payrolls looming as U.S. celebrates
It’s July 4th. Independence Day. Am I the only one who thinks of Bill Pullman’s speech from the 1996 film? Perhaps it is the most telling indictment of the global lack of statesman that we rely on hollywood scriptwriters for inspiration.
This Friday we see the final U.S. employment report of H1 ‘17. The market will be looking for, if not expecting, a major revision to the May figure which despite disappointing was sufficient to prompt a rate hike.
Analysts have reverted to using the 6MMA as their best guess for this weeks number. Personally, I see closer to 200k but that is a based on sentiment rather than any concrete data
