Spending plans highly expansive

Just before the election was called, the Government announced the end of the period of austerity that has been in place since the Conservatives returned to power in 2010. At the time this was labelled a blatant piece of electioneering.

No one was fooled into believing that the Conservatives truly felt that the time had come to be more expansive and, had Theresa May gained a significant majority in 2017, nothing would have changed in that direction in the current Parliament.

As both main Parties provide detail on their plans they are mostly concentrating on spending. The National Health Service is set to be the big winner with massive investment announced by Labour as well as the Conservatives with education not far behind. The Government had already announced a programme of new hospitals.

Even at this early stage in the campaign, the importance of this election cannot be overstated. Labour leader Jeremy Corbyn has labelled in a “once in a generation opportunity” while Boris Johnson has adopted the slogan “Get Brexit done”.

Jo Swinson, the leader of the third major Party, the Liberal Democrats has called it “an opportunity for “seismic change” in British politics. It may be that this is the case as the “two party system creaks under the weight of public apathy. A fairer system than “first past the post” would provide a more representative Parliament but MPs simply will not vote themselves out of a job.

Once Brexit does “get done”, there will be a lot of work needed to reunite the country with neither of the two main Parties able to claim that they represent more than 50% of the population, while each claims that the other disregards the close to 60% who don’t vote for them.

On the economics front, growth just about exists in the UK economy as Brexit drags on. Today’s meeting of the MPC will lean towards a rate cut but more than anecdotal evidence of a significant slowdown will be needed before action is taken to add stimulus.

The pound remains rangebound with traders loath to add to positions that already exist and with year-end approaching they will want to protect what they have already made in what has been a difficult year. It fell marginally to a low of 1.2842 versus a stronger dollar, closing at 1.2850.

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Can there be a winner and loser in trade talks

The rumours of an approaching breakthrough in trade talks between Washington and Beijing are becoming stronger day by day. What started a President Trump attempting to punish China for its trade practices has developed into a major struggle for domination of the relationship between the world’s largest exporter and largest importer.

In such a relationship, especially given the level of suspicion each has for the other it is impossible for them to trade on what each will see as “equal terms”. There will always be confrontation between the two as issues like the accusation that Huawei is more than simply a tech firm illustrate.

Both sides in the talks haven’t been shy of dropping hints that are to their advantage about the “state of play” in the negotiations and it has been difficult at times to decide just how close a conclusion really is.

As it is China who stands to gain most from retaining the status quo, it is feasible that they will give just enough to “keep the pot boiling” while they continue to keep the U.S at arm’s length and concessions to an absolute minimum.

Since last week’s FOMC meeting and interesting NFP data, this has been a slow week for data from the U.S. with traders left to make up their own minds about the state of the economy. They were relatively encouraged by the news that the Fed is pausing the current rate-cut cycle since it shows that there is no panic and the Bank’s independence remains despite clear pressure from the President and his Administration.

This week’s theme has been a strengthening dollar with the index’s correction ending at a low of 97.20. Yesterday, it reached a high of 97.98 and closed at 97.96. For now, there appears to be interest to take profit above 98 but that is likely to be short-lived.

Data shows signs of economic improvement

Data for German factory orders released yesterday seemed to confirm the recent perception that finally, the economy is forming a base. At the risk of sounding like “eternal optimist” Mario Draghi, it does seem possible that the worst could be past although the inflation that Draghi always said would precede any upturn is not yet present.

This weeks’ data has been mixed with activity still weak although any improvement or even output that isn’t weaker is seen as a sign of improvement.

It will probably take either the announcement of a further suspension of the threat of tariffs from Washington of imports of vehicles manufactured in the EU or a real breakthrough in trade talks between the U.S. and China for the economy to really start to improve.

While generally encouraging this week’s data will need to be backed up by significant action on the fiscal front to back the ECB’s efforts to add stimulus if any recovery is not to “wither on the vine”.

With no meeting of the ECB until 12th December, Christine Lagarde will have time to canvass her colleagues from around Europe to ensure they both present a united front and come up with support for a closer fiscal relationship despite reservations.

While there is clearly the political will for the European Union to continue, the question remains about just how committed certain members are to have their budgets decided centrally. Until they can see a real benefit and put jingoism to one it may be a difficult period at the top of the EU’s major institutions.

If the economy is to continue to improve, it is important that the currency remains weak. As the dollar improves, the euro needs to stay close to the 1.12 level where, for now there appears to be selling interest.

Yesterday, the stronger dollar pushed the single currency to a low of 1.1064 and it closed at 1.1069,