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Nostalgia isn’t what it used to be. Last year to mark its centenary, Ladybird Books released a series for ‘Grown-Ups’ using the original Ladybird style artwork alongside tongue-in-cheek text. The first set of ten titles included The Hangover, Dating, The Husband and The Mid-Life Crisis. Since their re-launch in October 2015 the series has sold more than 2 million copies. Topping the best-sellers charts have helped authors Jason Hazeley and Joel Morris join the ranks of JK Rowling, Dan Brown and EL James in reaching this landmark sales figure within 12 months of launch.
2015 was also a notable year for the UK book industry, reporting its first sales rise in four years as eBooks suffered their first decline. Those announcing the death of the paperback, appear somewhat premature.
Those Ladybird books that I remember from childhood were really good at presenting complex subjects in an easy way for us to understand. We could do with such a guide today to understand the uncertainty that Brexit brings to the economy at present. Nine more titles will be released later this year including, The People Next Door, The Zombie Apocalypse and, particularly helpful for all office workers, The Sickie.
What have we been watching?
Investors continued to look for any clues from companies about the possible impact of Brexit, whilst keeping a wary eye on the European banking sector where a profit warning from German Commerzbank and the suspension of trading in Italy’s UniCredit didn’t help sentiment. Elsewhere, the oil price consolidated in ‘bear’ market territory having fallen by over 20% from its recent peak. Last week, most UK fund managers were waiting for the BoE meeting and hedge funds had taken a record ‘short’ position in Sterling in anticipation of an interest rate cut.
In the UK, manufacturing activity contracted at its fastest pace for three years in July. The Construction Purchasing Managers Index suffered its sharpest downturn in seven months during July remaining in contraction territory of under 50 with a reading of 45.9. This was followed by a reading for the Services sector in July to 47.4 with the sharpest fall in seven years. Whilst the Brexit vote hasn’t started the economic Armageddon that some predicted clearly these early warning indicators suggested that the BoE needed to take action.
Not surprisingly following this data the BoE unanimously voted to cut interest rates by 25bps to 0.25%, extended the QE programme by £60bn and introduced a new Term Funding Scheme to provide support to the banks. The BoE stated that most members of the monetary policy committee expected rates to be cut to near zero later this year.
However, negative interest rates appear to be off the table according to the press briefing after the interest rate announcement. The BoE action buys some breathing space before there is a fiscal response in the autumn. This is in combination with strong US jobs numbers from Friday. Sterling finished the week below $1.31. UK equities responded positively to developments to finish the week at a 12 month high.
New Chancellor Philip Hammond said, at the same time as the BoE announcement, that he was prepared to take the steps needed to support the economy’. In the months ahead far closer co-operation between the Government and BoE will be necessary and the fiscal response will be the main determinant in cushioning the growth shock in 2017. Economists are suggesting possible fiscal stimulus measures such as more infrastructure spending. further Help-to-Buy for housing, a cut in VAT and lower corporation tax rates.
In Europe, manufacturing activity remained in expansion mode but there was stark divergence between the two largest economies. Germany topped the activity table but France remained at the bottom in contraction territory. However, one encouraging sign for the ECB is that producer inflation edged up in June to 0.7%, although this was partly due to higher energy prices, the oil price has subsequently fallen.
In the USA, manufacturing activity remained in expansion mode in July but was weaker than expected. US consumer spending increased by 4% in June. Core PCE inflation, the Fed’s favoured measurement of inflation, in June was 1.6%, still below its target of 2% suggesting no immediate need to move interest rates up.
In Japan, PM Shinzo Abe’s cabinet approved a 28trillion yen stimulus package which it expects to boost GDP by about 1.3%. The market was underwhelmed however with some suggesting that the actual boost to final demand would be only 2trillion yen in 2017.
Oil remained weak with Brent dipping below $42 with Libya reported to be re-opening three oil ports and stories that Saudi Arabia had cut its export prices into Asia.
Finally, according to CNN, US Presidential hopeful Donald Trump confirmed that he has sold out of equities and that there are ‘very scary scenarios’ ahead for investors. Presumably him becoming US President could be one? Also, when asked about the US stance on its nuclear weapons he responded ‘If we have them, why can’t we use them?’ Scary indeed! Perhaps there is a Ladybird book pending on that subject?
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