Global forces (and Brexit)

Posted by: Paul Donovan

18 Oct 2019
  • There are mixed signals on the global economy. US industrial production was weak yesterday. That weakness was narrowly focused. Mining was affected by lower energy prices. The auto sector was affected by a strike. (Of course, as the Germans can explain, it is never wise to completely ignore the auto sector).
  • Chinese third quarter GDP was slightly lower than expected, on the back of weaker investment spending. Investment is behind the weakness in global economic growth. Investment is import intensive, so taxing trade taxes investment. Uncertainty about trade also gives companies reason to pause in their investment. However, it is reasonable to suggest that – as long as there are no more trade taxes – the worst of the investment slowdown may be behind us.
  • Chinese industrial production was stronger than expected, led by electronics. Japanese consumer price inflation was unexciting, because it is Japanese consumer price inflation.
  • The interminably tedious EU-UK divorce will now ruin economists' weekend. Prime Minister Johnson's EU deal (ex-PM May's EU deal in a cunning disguise) will be voted in the House of Commons tomorrow. Prime Minister Johnson has lost eight Commons votes. The vote will be close. Foreign exchange dealers are getting very excited trying to forecast the unforecastable.