Macro

Brief Macro: The Nascent Democratic Primary: ‘How Best to Beat Trump?’ and more

In this briefing:

  1. The Nascent Democratic Primary: ‘How Best to Beat Trump?’
  2. BoE: Extracting the Policy Option Value of Delays
  3. China’s Nominal Vs. Real GDP – Accelerated Growth
  4. FLASH: UK GDP Shrinkage Shock in Dec-18

1. The Nascent Democratic Primary: ‘How Best to Beat Trump?’

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Campaigning is underway in the Democratic Party’s lengthy ‘primary’ process for determining a 2020 presidential nominee.  Polls suggest that ousting President Donald Trump is the foremost priority for most supporters of the party.  Relative to past elections, the party boasts an extraordinarily diverse and energetic field of declared and potential contenders.  Meanwhile, the president is clearly vulnerable. 

Much depends, however, on whether the eventual challenger combines relatively centrist economic views with a persona that can bridge America’s yawning cultural divide.  Because of the country’s anachronistic electoral‑college system, a nominee remote from the mainstream could alienate independents in ‘swing states’ and inadvertently aid Trump.  Attention is therefore focusing on the questions of who can beat Trump – and how. 

2. BoE: Extracting the Policy Option Value of Delays

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  • The BoE MPC was unanimous in voting for no policy changes in Feb-19, as widely expected. Hawkish pressures remain in the Bank’s forecast, but the policy option value of a delay is high enough to tolerate them until after EU withdrawal.
  • Downgrades to the Bank’s demand forecasts were surprisingly significant given the PMIs bias to overreact to uncertainty. Allaying those concerns is likely to be too difficult to do in time for a May-19 rate hike.
  • I now expect the BoE to hike Bank rate to 1.0% in Aug-19, assuming a smooth exit from the EU in the interim. The data should seem better than the Bank fears by then, to the extent that the disinflationary effect of GBP appreciation is offset.

3. China’s Nominal Vs. Real GDP – Accelerated Growth

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When China’s fourth quarter GDP numbers were released in January, predictably, Bloomberg led with “China posts weakest growth since 2009” headline. The fact that the number was still 6.4% YoY, good by almost all standards, was given little attention. Being fickle, we immediately turned to the nominal GDP series – which the media continue to ignore completely – only to find that, on a quarterly annualised basis, the fourth quarter marked an acceleration in growth, from 8.5% annualised in 3Q18 to 9.3% annualised in 4Q18 (YoY it dipped to 9.2% from 9.5% in the third quarter).

4. FLASH: UK GDP Shrinkage Shock in Dec-18

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  • UK monthly GDP disappointed all expectations by falling 0.4% m-o-m in Dec-18, which trimmed 4Q18 to 0.2% q-o-q. IP weighed most, mainly owing to ongoing car manufacturing issues, but was not the source of surprise.
  • Services remained resilient overall in the PMI-comparable areas with 0.55% q-o-q growth. Government and non-retail distributive trades were weaker, though.
  • Construction’s 2.8% contraction caused most of the surprise. Repairs and new private housing were weakest, and both are prone to positive payback. However, 1Q18 GDP growth is now tracking a low 0.3% q-o-q, in my view.

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