Tags: trump | brexit | gold | stocks

Uncertainties About Brexit, Trump Boost Gold, Hinder Stocks

Uncertainties About Brexit, Trump Boost Gold, Hinder Stocks

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Tuesday, 17 January 2017 07:07 AM Current | Bio | Archive


Today is the day that UK Prime Minister May formally delivers a speech that is already leaked to anyone who listens.

There is always the prospect of some slight surprise, but the simple wording that covers a lot, but that is certainly not well understood in full by many, “Brexit really means Brexit” is by now, and that’s a fact, well established.

May is expected to say that the United Kingdom (UK) does not want half membership of the European Union (EU) and that it will happily depart the single market and the customs union.

As a result and looking at the overall picture from the UK, the European Union will be cut off from the United Kingdom and reduced to an economic bloc of about 450 million people with a GDP of about 13.5 trillion dollars as we will have to reduce from the actual number the 2.85 trillion dollars that represents nominal GDP of the UK, who by the way still ranks 5th in the world as far as GDP is concerned and is after Germany the biggest economy in the EU today.

That said, the whole Brexit undertaking will hurt and cost as well to the UK as to the EU.

Things to look out for in Mrs. May speech today will be any comments on future corporation tax after Brexit as already German Chancellor Merkel has referred to the future business model of the UK as being the tax haven of Europe,  comments about EU nationals living in the UK, though that is not particularly likely and the probable splatters of rage the Scottish National party with associated threats of another independence referendum after they had already had their first on September 18, 2014 and that resulted in a no-vote.

By the way, the price of oil in sterling terms is these days 23 percent lower than when Scotland had its independence referendum in 2014.

The just released UK inflation data show that consumer prices hit 1.6 percent in December, which is the highest level in more than 2 years (July 2014) and that comes unsurprisingly on the back of the weakening sterling.

The weakening of sterling has had a much stronger impact on producer price inflation (PPI), which rose by 15.8 percent year-on-year.

Normally, companies don’t pass on currency moves, but the seismic shift of sterling has clearly been sufficiently permanent in appearance as to warrant the pass through seen in producer prices.

The consumer has experienced far less of this, at least so far. The UK consumer spends a higher proportion of their income online than any other developed economy consumer and the competition in the bricks and mortar retail space is also relatively fierce.

This does not mean that the UK consumer is entirely unaffected by pricing movements.

If companies have squeezed profit margins as a result of sterling weakness then jobs growth, wages and investment are likely to be more subdued over the median term.

For the U.S., the interesting news came from Anthony Scaramucci of Donald Trump’s economic advisory council who said at the World Economic Forum's annual meeting in Davos, Switzerland that U.S. policymakers must be “careful” about the rising dollar after the president-elect warned the currency was “too strong.”

Today, we’ll have also the Empire State manufacturing survey and with the tightness of the U.S. labor market now a regular topic of discussion, this is likely to be something that investors may give some time to, at least in the details.

So, for investors, the ongoing uncertainties about Brexit and Trump’s comments about a too strong dollar have stimulated gold as well as U.S. Treasury prices and have lowered the price of the dollar and equities.

Interesting moves, but surely not fully unexpected.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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HansParisis
So, for investors, the ongoing uncertainties about Brexit and Trump’s comments about a too strong dollar have stimulated gold as well as U.S. Treasury prices and have lowered the price of the dollar and equities.
trump, brexit, gold, stocks
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2017-07-17
Tuesday, 17 January 2017 07:07 AM
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