Resurgent ‘Populism’ on the Increase in Europe, UK Inflation at Five Year High as Rates Set to Rise..

In a recent update I stated that because the IMF and the Bank for International Settlements were persisting with warnings about the dangers of ‘political uncertainty’ and ‘protectionism’, the narrative they have cultivated over the past 18 months would still have some distance to run and further expressions of ‘populism’ would be forthcoming.

Three days ago Austria’s Foreign Minister, Sebastian Kurz, gained the highest percentage of votes in the country’s general election. Kurz represents The People’s Party, who hold conservatism as its ideology. In second place was The Freedom Party, who are Euro-skeptic and widely perceived as being right wing populists. The World’s media are now pushing the probability of Kurz going into coalition with The Freedom Party to form a government, resulting in Austria taking on a conservative / right wing ‘populist’ identity.

We now wait to see what the finalised coalition looks like and the position it adopts relating to the European Union. Speaking of the EU, talk of reforming the union continues to gather pace this week, with President of the European Council Donald Tusk weighing in on the subject:

• We should proceed step by step. Some matters are ripe for decisions now, and should therefore be dealt with straightaway, with speed, ambition and determination, so as to ensure real progress. Other matters will need to be further prepared, before we can debate them.
• We should preserve the unity that we have managed to develop over the past year. We need this unity in order to solve the migration crisis, to tackle unfair aspects of globalisation, to deal with aggressive third countries, to limit the damage caused by Brexit as well as to preserve the rules-based international order in these difficult times. We can only confront today’s uncertainties if we act in unison, since individual countries are too small to cope with them on their own.

In the UK, inflation has reached 3% and has prompted the Bank of England to reiterate that a interest rate rise is coming this year (either in November or December). Before the Brexit vote inflation stood at just 0.4%. It has been on the rise ever since and is being used as a rationale for ‘normalising’ monetary policy. Retail sales have also declined again for the month of September, the forth drop this year. Raising interest rates in this environment, when record numbers of people are having to borrow to cover basic living costs, is no surprise when you examine the trend of the bank’s communications and the actions of the Federal Reserve in the U.S. (which are beginning to transpire globally).

Without Brexit, it is highly unlikely that the Bank of England would now be in a position where it was about to increase rates. The post Brexit drop in the value of the pound against the dollar and the euro, which has made imports more expensive, has also be connected to the rise in inflation. What it ultimately means is that the bank escapes direct culpability for its upcoming actions. Raising rates into a vacuum of no discernible political unrest would leave them exposed. Instead, minds are being concentrated on the day to day theatrics of the Brexit process, rather than the methodology of central banks.

---

EURACTIV: Tusk proposes two-year EU reform blitz, new working methods at summits

• EU President Donald Tusk on Tuesday (17 October) proposed an ambitious timeline of 13 summits over the next two years to reboot the European Union after the shock of Brexit and other setbacks.
• Tusk, who coordinates EU summit meetings, unveiled the schedule of talks just weeks after calls for deep EU reform by French President Emmanuel Macron, as well as by European Commission head Jean-Claude Juncker.

---

Sky News: Four million consumers falling behind with payments

• More than four million UK consumers have missed bill or loan payments in three or more of the last six months, according to a study by the City watchdog.
• The study by the Financial Conduct Authority (FCA) found that 8% were “in difficulty”, while a further 27% were said to be “just about surviving”.
• The study gave an insight into levels of financial vulnerability at a time when inflation is at a five-year high and interest rates look set to rise for the first time in a decade.

---

UK retail sales in sharp fall in September, ONS says

• Retail sales suffered an unexpectedly sharp fall of 0.8% in September, reversing a jump in August, according to the Office for National Statistics.
• It meant that third-quarter retail growth slowed to a year-on-year rate of 1.5%, its lowest since the second quarter of 2013.
• The figures come at the Bank of England contemplates its first interest rate rise in a decade.

---

Bloomberg: Carney Confirms Rate Hike Is Near as BOE Heads for ‘Tipping Point’

• Mark Carney reaffirmed that the Bank of England is close to its first interest-rate increase in over a decade, as inflation hit 3 percent and one of his colleagues said the economy is approaching a “tipping point.”
• The BOE has been in countdown to a rate increase since saying in September that such a move might be needed in the “coming months.” While economists and markets are largely expecting a hike in November, Carney — in line with earlier comments — declined to be that specific on Tuesday.
• MPC member Silvana Tenreyro said in her testimony that the BOE may soon need to act, though she stuck to the “coming months” line and emphasized that her decision will depend on how the economy evolves.
• “My view is that we are approaching a tipping point at which it would be necessary or justified to remove some of that stimulus,” she said. “If the data outturns are consistent with the picture I just described, of an output gap going toward zero, then I’d be minded to vote for a bank rate increase in the coming months.”

---

Sky News: UK inflation hits five-year high of 3% as food prices rise

• Inflation rose to 3% in September, its highest level in more than five years, the Office for National Statistics (ONS) said.
• The Consumer Prices Index (CPI) measure of inflation rose from 2.9% in August thanks partly to higher food prices – adding to the squeeze on households as pay growth lags behind.
• It is the first time CPI inflation has reached 3% since April 2012. The Bank of England targets inflation at 2%.
• The CPI figure – which was in line with expectations – should bolster expectations that the Bank will hike interest rates next month, though some have cautioned against such a move at a time of tepid economic growth.

---

BBC: Dow Jones index eases back from 23,000 milestone

• The Dow Jones Industrial Average rose above 23,000 points for the first time on Tuesday, but finished the day slightly below the milestone.
• The benchmark US share index closed at 22,997.44 – a rise of 0.2% – having earlier hit a new record of 23,002.20.
• The Dow Jones, which tracks 30 of the biggest US listed companies, has hit new records several times over the last month on expectations of strong company profits and hopes that President Trump will win backing for his tax cut plan.

---

CNBC: Goldman sees US-Iran tensions presenting long-term threat to global oil supply

• Goldman Sachs said Tuesday that while clashes in the Kurdistan region of Iraq posed a risk to oil output, intensifying geopolitical tensions between the U.S. and Iran remained a more formidable and longer-term threat to global oil supply.
• “In the case of Iran, there are likely no immediate impacts on oil flows and there remains high uncertainty on potential reintroduction of U.S. secondary sanctions. If they are, we expect that several hundred thousand barrels of Iranian exports would be immediately at risk,” analysts at Goldman Sachs said in a research note published Tuesday.

---

BBC: Financial regulator warns of growing debt among young people

• The chief executive of the Financial Conduct Authority has warned of a “pronounced” build up of debt among young people.
• In an interview with the BBC, Andrew Bailey said the young were having to borrow for basic living costs.
• The regulator also said he “did not like” some high-cost lending schemes.
• He said consumers, and institutions that lend to them, should be aware that interest rates may rise in the future and that credit should be “affordable”.

---

Bloomberg: Goldman Sachs and JPMorgan Say They’re Assuming a ‘Hard Brexit’

• Goldman Sachs Group Inc. and JPMorgan Chase & Co. are bracing for a “hard Brexit” as they seek to protect their access to the European Union once Britain leaves the bloc in 2019, according to top executives.
• “We are now assuming a hard Brexit with additional conservative assumptions,” Faryar Shirzad, Goldman Sachs’s co-head of government affairs, said Saturday in Washington. “Until we are told otherwise through tangible, meaningful, reliable declarations of some sort then we just have to keep moving forwards” with the most pessimistic contingency plans.
• Also speaking in the U.S. capital during the annual meetings of the International Monetary Fund was Daniel Pinto, head of JPMorgan’s investment bank. He too said he’s readying for a “no-deal” scenario that doesn’t allow banks to easily conduct business across the Continent from operations based in London.

---

CNBC: Fed’s Rosengren sees three to four rate hikes next year

• The Federal Reserve will probably need to raise interest rates in December and then three of four times “over the course of next year,” assuming the U.S. unemployment rate continues to fall and inflation rises, Boston Fed President Eric Rosengren said.
• If inflation reaches the Fed’s goal while the unemployment rate, now at a 16-year low of 4.2 percent, is below 4 percent that may be a signal that the economy could be overheating, Rosengren suggested in an interview.