- U.K. Economy Dismisses Brexit Threat
The U.K. economy grew faster than economists forecast in the fourth quarter, continuing to defy expectations that the Brexit vote would derail the expansion.
The 0.6 percent gain beat the 0.5 percent median forecast of economists in a survey and marked a 16th straight quarter of growth. It was driven entirely by services, helped by consumer spending, with zero support from production and construction, the Office for National Statistics said on Thursday.
The economy has performed better than predicted since the vote to leave the European Union in June, though the latest data show that it remains overly reliant on one sector. The support from consumers could weaken this year as the pound’s decline pushes up inflation, squeezing real incomes.
“The economy’s brisk growth at the end of 2016 has all the hallmarks of being driven by an unsustainable consumer spending spree,” said Samuel Tombs, an economist at Capital Economics in London. “We continue to expect slowdowns in business investment and consumer spending to cause GDP growth to slow to an average quarter-on-quarter rate of just 0.2 percent or so in 2017.”
Companies from airline EasyJet Plc to telecommunications firm BT Group Plc have this month cited Brexit-linked problems such as a weaker pound and loss of business as they offered investors a forbidding outlook for this year. The U.K. currency has dropped 15 percent since the referendum in June. It weakened following the GDP data and was at $1.2608 as of 10:52 a.m. London time, down 0.2 percent on the day.
The fourth-quarter estimate, based on 44 percent of the data that will ultimately be available, showed that services surged 0.8 percent, offsetting stagnation in industrial production. Manufacturing rose 0.7 percent. The growth meant the economy expanded 2 percent in 2016, though that’s down from 2.2 percent the previous year and marked the weakest since 2013. Economists forecast a further slowdown this year, to 1.2 percent.
Prime Minister Theresa May plans to start formal talks on leaving the EU by the end of March. She has indicated that she wants to withdraw from the bloc’s single market for goods and services, an outcome that economists say will hurt trade.
For now, the near term is looking brighter than anticipated, a fact acknowledged by Bank of England Governor Mark Carney this month. While he expects growth to cool in 2017, he’s indicated the BOE may raise its forecasts in February at its next policy decision.
Carney was among the economists who warned before the referendum that the U.K. might have faced a recession if Britons voted Leave. Pro-Brexit campaigners have pointed to the economy’s resilience as evidence that leaving the EU won’t make the country worse off.
On an annualized basis, the U.K. economy grew 2.4 percent in the fourth quarter. The U.S. is forecast to have expanded 2.2 percent in the period, down from 3.5 percent in the three months through September.
U.K. GDP per capita grew 1.3 percent in 2016, down from 1.4 percent the previous year. It’s now 1.9 percent above its level in the first quarter of 2008, the pre-crisis peak for GDP.
Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies
Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies
Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.
According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.
The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.
It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.
“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”
Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.
Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension
Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension
Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.
OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.
In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.
Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.
Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.
“While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
“The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.”
Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.
Gold Dips by 2 Percent on Better Than Expected Job Report
- Gold Dips by 2 Percent on Better Than Expected Job Report
Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.
The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.
The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.
“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.
Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.
Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.
The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.
Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.
Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.
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