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Wednesday, 13 December 2017

Much ado about a nothing jobs report; A Darling take on Mervyn

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Anthony Peters, Swiss Invest Strategist

Anthony Peters, Swiss Invest Strategist

I wrote on Friday that I thought the US Labor Department report would pass without too much ado, given the overall state of hate which is currently so pervasive in global markets. I’d better eat my words. The figures were weaker than forecast – albeit not by much – as little had been expected. That little turned out to be nothing at all.

Non-farm Payrolls were predicted to come in reporting a creation of 68k jobs but ended up at zero. I have seen less fierce market responses to much larger divergences from the forecasts and I would have expected most players to have cautiously positioned for something of a disappointment. Not so. Equities went into full-blown retreat, giving back many but by far not all of the gains since the mid-August lows. On August 9th, the S&P traded down to 1,101 pts but it closed on Friday at 1,174. That has us still trading well over 6% higher than the worst of the summer levels.

We will have to wait for validation of the market levels as the US is off on its Labor Day week-end. Asian markets showed no sign of wanting to disagree with the Wall Street sentiment which, with a few not particularly notable exceptions are opening the week on a soft note. At time of writing, Europe is still closed but with the CAC, the Dax and EuroStoxx all down around 3 1/2% on Friday (which is a full percentage point more than US markets), they might decide to adjust to the upside. Still, I would barely expect them to take the lead in anything; they never do.

Darling, about Mervyn…

Meanwhile, here in the UK, there has been a lot of fun to be had from following the imminent publication of the memoirs of Alistair Darling, Chancellor of the Exchequer to the invisible Scotsman who abolished the boom and bust cycle and saved the world. The frequently repeated opinion that the latter was an irascible control freak is not new and the repeat of that suggestion should, as such, surprise no one. But to hear Darling round on his fellow Scot with such vitriol even has seasoned Westminster wags speechless. However, there is a point which I find far more interesting in this, and one which just confirms my prejudices against the political classes. A fair proportion of the sneak previews we have had – or not so sneaky, if you readily consider the serialisation in the Sunday Times – concerns the performance of Sir Mervyn King, the Governor of the Bank of England.

King is most certainly not universally liked, even within the Bank, and has often been accused of being aloof and strapped into his ivory tower of economic academia. The BofE, more maybe than most central banks, maintains rigorous academic and intellectual discipline for the work performed internally; hence the outstanding reputation of its publications. The Bank’s DNA does not include performing u-turns and shooting from the hip.

The Bank is also bound by the remit which it has been handed by the government. Strict targeting of inflation as the central pillar of monetary policy was not the choice of the Bank although I sincerely doubt that it would have objected too strongly when it was given that particular brief. The government of the day – the one run by the Scottish Labour mafia – had no overarching interest in the long term health of the economy as the housing boom brought a heart-warming wealth effect to the voting public and bucket loads of income tax, VAT and stamp duty revenue to the Treasury; that’s what wins elections, not sensible fiscal and macroeconomic realpolitik.

Mr. Darling confirms that he and that other unmentionable chap from Number 10 would have loved to have fired Mervyn King; I wonder whether they were getting fed up with him warning of the profligacy of their spending policies and whether that might why they thought of him as being close to the Tories? Supposedly they couldn’t find a sensible replacement. I suppose Paul Tucker was still a bit too young at the time but he does look like a pretty strong candidate for the succession. Keep an eye on that one.

Alas, once again we have a politician blaming somebody else for their own collective failures. It was not the Bank of England which wrote its monetary policy brief. It was not the Bank of England which devised the leaky tripartite regulatory frame work. It was not the Bank of England which collected tens of billions of tax revenues from the City and spent them creating paper jobs and buying votes in the provinces. I also don’t think it was a member of the Bank of England who opened Lehman Brothers’ new offices and declared that this was a company which should serve as an example to all. Those were the days!

A propos, political memoirs. I successfully completed my exercise as second hand book salesman  – more fun than being a second had bond salesman – at the Chadlington Village Fayre yesterday. Someone had niftily slipped the weighty tome which is Margaret Thatcher’s autobiography into my stock of books. I couldn’t even give the darned thing away. However, I had no examples of Tony Blair’s memoirs on offer – probably because nobody ever bought them in the first place.                                      

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