Tag: finance

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

The Eastern Establishment fears and loathes Outsiders, and seeks to destroy them, usually via the mainstream media.

Political agnostics who are skeptical about Big Government "solutions," left or right, view the current hullabaloo about the Trump presidency with some detachment. What's remarkable to us is the extremism, not just of those bitter about Clinton's loss, but by insiders who are threatened by the possibility Trump may upset their insider skims and scams.

As an opening observation, I don't recall bitter Nixon supporters issuing death threats to performers at John Kennedy's inauguration in 1961–and the 1960 election was extremely close.

I also don't recall bitter Gore supporters issuing death threats to performers at G.W. Bush's inauguration in 2001–even though the 2000 election came down to a few hundred votes in Florida.

Trump is a lightning rod for a spectrum of people and organizations. Let's see if we can separate the spectrum into socio-political groups.

In times of turmoil, identifying a bogeyman/woman as the cause of the turmoil is a classic mechanism for shirking responsibility and agency. This is the psychological source of witch-hunts (it's all the witches' fault!), scapegoating, show trials, and so on: it isn't our fault things are falling apart, or the fault of our institutions–it's ther bogeyman/woman's fault.

This transference/projection concentrates the blame and responsibility on The Other–a scapegoated group, or even better, one individual or a small group. Those making the accusation reckon pointing the finger at some target lets them off the hook: I am blameless, it's all his/her fault.

Trump is tailor-made for the part of Bogeyman–ditto the Russians. Decades of films depicting the heroic Americans besting the low-down dirty Commies seem to have seeped into the American Id: when in doubt, blame the Russians. If they are temporarily unavailable for scapegoating, then blame an Asian bogeyman.

For Progressives, symbolism is more important than substance. Never mind that the incomes, wealth and opportunities of the bottom 95% have steadily eroded in the eight years of the Obama presidency, or that an American neocon-neoliberal foreign policy was running amok globally. To Progressives steeped in the mythology of political correctness, the symbolism of the speech acts being uttered mattered far more than the substance or the consequences.

President Obama did not just promise hope and change–he was a legal-eagle master of delivering the symbolic speech acts that Progressives longed to hear, because they confirmed the world-view of legalisms, "rights," and all the other high points of the mythology of political correctness.

In other words, we don't actually have to threaten the status quo by changing anything, all we have to do is utter the correct phrases, and the erosion of civil liberties, opportunity and wealth will all magically vanish in the warm and fuzzy phraseology of political correctness.

No wonder Trump is like a fingernail on a chalkboard to progressives lulled into somnambulance by eight years of symbolic speech acts. Politically correct speech acts are out the window, and this refusal to wear the robes of correct mythology is deeply upsetting to those seeking the reassurances of symbolic speech acts.

Even more interesting is the reaction of the Eastern Establishment–you know, Washington, D.C., Yale, Harvard, the entire Deep State of Eastern Establishment cronies.

In the long narrative of American history, presidents are either Insiders or Outsiders. Insiders go the Right Schools, meet the Right People, work in the Right Companies and serve in the Right Government Agencies. Outsiders grew up in The Outside World, and did not meet the Right People or work in the Right Companies or serve in the Right Government Agencies.

Franklin Roosevelt was a classic insider, Harry Truman, a classic outsider. John F. Kennedy was a classic insider, Richard Nixon, a classic outsider. G.W. Bush and Al Gore were both insiders. Jimmy Carter was a classic outsider.

The Clintons masterfully worked their way into the Insider Circle, despite starting on the Outside.

President Obama also worked his way into the Insider Circle via Harvard Law, etc.

Once you understand this narrative, you realize the party affiliation of the candidate is simply a matter of convenience; what really matters is their standing within the traditional Eastern Establishment. Will they faithfully carry water for the Establishment, i.e. be a loyal Insider, or do they pose a threat to the power and wealth of the Insiders, i.e. an Outsider?

The Eastern Establishment fears and loathes Outsiders, and seeks to destroy them, usually via the mainstream media. That the corporate media targeted Nixon is well-known. Though few discuss it now, it was equally true that the corporate media ceaselessly bashed and ridiculed Jimmy Carter, "peanut farmer," goofy grin, etc. After he was safely out of office and couldn't threaten the Eastern Establishment's power, skims and scams, Carter was quickly rehabilitated.

Though his wealth and New York base suggests Insider to many, Trump is a classic outsider–someone the Establishment fears and loathes because he might diminish their power, their skims and their scams. The Establishment's skims and scams are rentier skims and scams–wealth and income that is skimmed from the productive elements of the economy by virtue of the Establishment's power to impose the gatekeeper's toll on virtually every aspect of American life.

The Establishment's fear and loathing is laughably obvious. Why else drum up the hysterical, absurd narrative that Russia is responsible for Trump's election? The entire media blitz was a transparent attempt to discredit the results of American democracy because the Insider unexpectedly lost. Now the Establishment–from academia to the C.I.A.–is in full-blown panic, because all their precious skims and scams are for the first time in decades, at risk of being throttled or reduced.

Trump isn't just a lightning rod for delusional Progressives who were happy to see their real-world fortunes erode away as long as the Insiders in charge kept muttering the desired symbolic speech acts; he is also a lightning rod for Insiders fearful that their Insider apple cart is about to be upended, and they might actually have to work for a living, or actually compete in the real world–something they know they are ill-prepared to survive.

via http://ift.tt/2iDoRXF Tyler Durden

Delivering her first speech on monetary policy since September, closely watched Fed governor Lael Brainard, considered to be one of Janet Yellen’s most trusted peers, said monetary policy “could be affected for some time by uncertainty surrounding fiscal policy and its effects on the economy”, specifically the magnitude, timing and composition of these changes.

And while the Fed’s recent shift to incorporate the “Trump stimulus” in its forecasts has been duly noted, and according to some has made the Fed more hawkish as the central bank expects substantial stimulus even with employment near capacity (granted, ignoring the 95 million Americans out of the labor force), Brainard on Tuesday took a modest step back and acknowledged that while expansionary fiscal policy could prompt the central bank to undertake a faster pace of interest rate increases and begin shrinking its balance sheet sooner than expected, the details of the policy shifts under Donald Trump are still quite uncertain and could come at “significant costs.”

In other words, the Fed may bypass the near-term impact of the Trump stimulus, and focus on the longer-term, more adverse and deflationary implications by what the president-elect will unveil. Translation: no hikes even as inflation rises “transitorily.” This may be the Fed’s first admission that it could stay pat, and not hike even if Trump manages to push through his proposed $1 trillion stimulus.

Still, she conceded that fiscal stimulus that targets households and businesses that are likely to spend and invest rather than save will raise aggregate demand. That can speed recovery when the economy far from full employment and price stability, but at this point, it will “more likely result in inflationary pressures,” she said in remarks prepared for the Brookings Institution in Washington. That is because data shows full employment is “within reach” and there are “signs of gradual progress toward our inflation target.” 

At this point the discussion shifted to another topic near and dear to the Fed’s heart: what kind of fiscal stimulus will Trump unveil.

“Fiscal expansions that affect only aggregate demand and are enacted when the economy is near full employment and 2 percent inflation are relatively less likely to sustainably boost economic activity and relatively more likely to be accompanied by increases in interest rates.”

At the same time, she warned, because these policies do not affect the economy’s long-term growth potential “but do result in persistent fiscal deficits, they can lead to substantial increases in the debt-to-GDP ratio,” reducing “the space for fiscal policy to stabilize the economy in the event of future adverse shocks.” 

Yes, we also found it amusing that the Fed continues to warn about America’s rising debt load.

There is good news. If changes in fiscal policy raise productivity growth or induce greater labor force participation with higher levels of skill and education in the workforce could boost investment and consumption and the long-run neutral rate.

If “fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid than otherwise,” she said, “with the conditions the FOMC has set for a cessation of reinvestments of principal payments on existing securities holdings being met sooner than they otherwise would have been.

Another important dimension of fiscal policy shifts worth considering is the weak state of domestic demand in the rest of the world. Risks remain tiled to the downside, as interest rates in Japan and the euro
zone are still near zero, China faces capital outflow pressures and high levels of corporate debt, and the European banking sector remains fragile.

“If more expansionary fiscal policy here at home raises expectations of a growing divergence between the United States and other economies, upward pressure on the exchange rate will likely result, as we have seen recently with the renewed increase in the dollar.” 

The result could be a reduction in the effect on real economic activity at home and a drag on inflation as the dollar strengthens.

Another observation: the Fed is increasingly worried about the impact of the strong dollar on the US economy. A 20% rise in the dollar over 2014 and 2015 coincided with falling real exports and import prices, with net exports subtracting more than a half percentage point from GDP growth in both 2014 and 2015, Brainard cited.

“Against this uncertain backdrop, monetary policy will continue to be guided by actual and expected progress toward our goals, the level of the neutral rate, and the balance of risks,” she concluded. 

“A gradual approach will remain appropriate as long as inflationary pressures remain muted, the economy remains short of our objectives, the neutral rate remains low, and downside risks from abroad remain, although this will depend on the fiscal trajectory, as it evolves, and its uncertain effects on the economy and financial markets.”

In short: the Fed and Trump’s fiscal policies remain tied at the hip, with the Fed increasingly uncertain what the future may bring, which is to be expected, since even Trump overnight flip-flopped on what until recently, was expected to be one of the mainstays of his tax reform, namely the Border-Tax Adjustment. It is unclear how Congress will react to this snubbing by Trump, and whether it jeopardizes any or all of Trump’s proposed stimulus plans.

via http://ift.tt/2iJKw3Y Tyler Durden

Confirming rumors that leaked yesterday, GM has just announced plans to invest $1 billion in its U.S. manufacturing operations and add 7,000 jobs domestically, over the next “few years”.  Of course, the move follows similar announcements from Ford and Fiat-Chrysler over recent weeks in an apparent effort to appease the incoming Trump administration amid threats of a 35% import tariff and after years of outsourcing automotive manufacturing jobs to Mexico.  To add icing to the cake, GM notes that 450 of the new jobs will come from insourcing jobs previously moved to Mexico.  Per General Motors:

General Motors today announced that it will invest an additional $1 billion in U.S. manufacturing operations. These investments follow $2.9 billion announced in 2016 and more than $21 billion GM has invested in its U.S. operations since 2009.

 

The new investments cover multiple new vehicle, advanced technology and component projects. A combination of 1,500 new and retained jobs are tied to the new investments. Details of individual projects will be announced throughout the year.

 

The company also announced it will begin work on insourcing axle production for its next generation full-size pickup trucks, including work previously done in Mexico, to operations in Michigan, creating 450 U.S. jobs.

 

“As the U.S. manufacturing base increases its competitiveness, we are able to further increase our investment, resulting in more jobs for America and better results for our owners,”  said GM Chairman and CEO Mary Barra. “The U.S. is our home market and we are committed to growth that is good for our employees, dealers, and suppliers and supports our continued effort to drive shareholder value.”

 

“We will continue our commitment to driving a more efficient business,” said Barra, “as shown by our insourcing of more than 6,000 IT jobs that were formerly outside the U.S., streamlining our engineering operations from seven to three, with the core engineering center being in Warren, Michigan, and building on our momentum at GM Financial and in advanced technologies.  These moves, and others, are expected to result in more than 5,000 new jobs in the U.S. over the next few years.”

GM also highlighted their efforts to work with tier two suppliers to “insource” those manufacturing jobs as well. 

GM has also been facilitating its supplier base to do the same. The company has been executing a strategy to create supplier parks adjacent to its U.S. manufacturing sites (already accomplished at GM’s Fairfax Assembly Plant in Kansas, Spring Hill Assembly Plant in Tennessee, Fort Wayne Assembly Plant in Indiana, and Lordstown Assembly Plant in Ohio), and will continue to expand this effort. Supplier parks locating near assembly plants result in significant savings from reduced transportation costs, higher quality communications and continuous improvement activities as suppliers are located closer to the final assembly location.

 

In addition, GM is confirming that another supplier has committed to make components for GM’s next-generation full size pick-up trucks in Michigan, moving 100 supplier jobs from Mexico to the U.S.

And, or course, it didn’t take Trump long to declare victory on Twitter:

With all of the jobs I am bringing back into the U.S. (even before taking office), with all of the new auto plants coming back into our…..

— Donald J. Trump (@realDonaldTrump) January 17, 2017

country and with the massive cost reductions I have negotiated on military purchases and more, I believe the people are seeing “big stuff.”

— Donald J. Trump (@realDonaldTrump) January 17, 2017

* * *

For those who missed it, here is what we posted yesterday:

Not a week seems to pass without some an automaker, foreign or domestic, making an unexpected round of concessions when it comes to Trump’s ambitions to “Make it in the US.”

And so, days after first Ford, then Fiat Chrysler announced major expansion plans in the US (to the partial detriment of Mexico) the latest automaker to respond to Trump’s Twitter criticism is General Motors, which according to the WSJ, will announce this week plans to invest at least $1 billion across several U.S. factories “a move aimed at underlining its commitment to U.S. manufacturing jobs in the wake of President-elect Donald Trump’s criticism of the auto maker’s imports from Mexico.”

The company will also announce that it will create more than 1,000 new jobs stemming from the investment but doesn’t plan to specify which of its factories are in line for more work.

The move comes days after Mr. Trump publicly ratcheted up pressure on the nation’s largest auto maker. During his press conference last week, the president-elect thanked Ford Motor Co. and Fiat Chrysler Automobiles for recently announced U.S. investment plans that are expected to create a combined 2,700 jobs.

He then turned up the heat on GM to follow suit. “I hope that General Motors will be following. And I think they will be,” Mr. Trump said.

They did indeed, even if GM’s response was largely predictable. Recall that GM CEO Mary Barro was appointed to Trump’s Strategic and Policy Forum, which as a reminder “is composed of some of America’s most highly respected and successful business leaders, will be called upon to meet with the President frequently to share their specific experience and knowledge as the President implements his plan to bring back jobs and Make America Great Again.”

It would look confusing if one of Trump’s own economic policy advisors looked the other way when practicing what Trump is preaching.

On January 3, Trump launched the opening salvo in this brief but productive “negotiation”, when he tweeted that “General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!.”

General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!

— Donald J. Trump (@realDonaldTrump) January 3, 2017

GM picked the middle option: to invest money in the US, creating new jobs.

In keeping with the narrative proferred by other carmakers, in an interview with the WSJ, GM general counsel Craig Glidden declined to confirm specifics of the announcement but said any investment the company might disclose has been long planned and isn’t a response to pressure from Mr. Trump.

“This is something we’ve been undertaking for some period of time,” he said. “It’s really getting our story told in a way that is I think complete and fulsome.”

via http://ift.tt/2iCXX2i Tyler Durden

Trump Releases the Dollar Hounds (3 days)

via Vince Lanci and Marketslant. Last night the WSJ published an excerpt from its Friday interview with Donald Trump. The key market drivers were his dollar statements, and his dismissal of Paul Ryan’s BAT idea. Both weakened the USD and drove up Gold.  Note that until last night Trump was pro a strong dollar and gave indications he was pro the Border Adjustment Tax. On tap are 3 Fed speakers as George Gero reminds us, although so far their rhetoric has been muted on Gold.

Trump on the Strong Dollar

1. The dollar was too strong and hindering US companies from selling their goods overseas
2. China’s own currency debasement was in his view, part of the problem

The result, The Dollar sold off against most major currencies and Gold (itself a currency) rallied last night.

h/t Zerohedge

Gold Rallied

Silver More So

Interactive here

George Gero’s A.M. Notes

• Gold up about 6 pct this year in one month

• 3 FED speakers on tap today

•  Could see volatility but gold doing well in spite of recent headwinds due to asset allocators adding to positions for the new year.

• Ratios: Gold-silver at 71.30, Gold-plat at 209.70, plat-pall at 237.25.

• Look for London-NY arbs starting soon.

• Gold futures open interest at 459435, they were 404029 in 12/28/16 that tells the story of the price increase.
• Copper 254028, up from 228446 end of last year.
• Silver 169153, was 164142
• Options expire 1/26/due to short week, now 1,037892, were 925643.[seeing new OI in April so far-sk]
• Now with price over 1200 [in headlines- SK] which made news and [more-sk] asset allocators taking notice
• Brexit worries, election worries in Europe, France, Germany, inflation and currency worries in Turkey, Venezuela,India.
• Look for continued volatility and later higher prices after option expiration.

Courtesy:

A.George Gero

• Managing Director, RBC Wealth Management
• george.gero@rbc.com

Gold Captured? Not So Much

Soren Group contributor Vince Lanci had this to say on the USD in a recent interview.

“It will remain strong because Trump said so,” he said. “Gold floats around $1,100. It is captured. I don’t see any strong move.”

Well, it looks like Gold has escaped and Trump opened the cage to a weak dollar. 

To be fair, Vince also said this in the same interview:

“The key to gold now is the relentless U.S. dollar,” he said. However, according to Lanci, there are two ways the greenback could lose momentum, which would bode well for gold next year. For one, any type of surprise or black swan move by Donald Trump. “Complete policy reversal to make America great by weakening the dollar as part of manufacturing push,” he explained.

But it’s not a black swan if you foresee it now, is it Vince? Finally he said:

“Follow Trump on Twitter, trade accordingly.” 

Maybe he should have paid for that WSJ subscription instead?

[There is no large OI in options this expiry to pin us. Trump-ageddon is in 3 days, and the Feb/ April spread has been increasing in a rallying market. All of these are indications that the easiest path is higher for Gold given the proper policy nudge, Fed vagaries aside.-SK ]

Trump on the Border Adjustment Tax (BAT)

1. He’s outright against it as a “too complex” way to lower corporate taxes 
2. His preference for corporations is tax rate cuts.- Your real estate mill rates are about to go up- SK

He describes his problem with BAT rather lucidly

“Under the border adjustment concept, if somebody is making a motorcycle or a plane in our country, they’re getting a credit for the plane they make before they send it over to wherever it’s going,”..And you don’t need that plus lower taxes and everything else. And it’s too complicated. They get credit on some parts and not other parts. Where was the part made? I don’t want that. I just want it nice and simple.” –source

[That doesn’t mean the alternative will have any different effect on the US middle class consumer and worker. The paths are varied, but the end will be the same. The end game will be inflation to the US citizen- Soren K.]

But What is the BAT?

• It’s a key part of the GOP House corporate tax plan. BAT was their counter idea to Trump’s proposed import tariffs and a Paul Ryan baby.
• BAT puts forth that we should tax imports while exempting U.S. business revenues from corporate taxes
• Any industry that imports raw materials for manufacture of domestically sold finished goods does not like it

The BAT Problem

There is debate on BAT at many levels. The main macro criticism is that it would drive the USD even higher. Certain types of industries hate the idea, like energy refining which depends so much on imported oil. At the forefront of the criticism of BAT is Koch Industries which uses imported oil for the manufacture of refined products.  BAT would likely cause an increase in USD strength and at the same time encourage exports of finished goods for the tax break. Good for the selling company, bad for the American consumer. 

[ Any cost increase to companies like Koch will be passed on to the US consumer in the form of higher prices. That is, if they don’t just cut deals domestic oil sources. in which case, they will still raise prices citing the tax on imports anyway – Soren K ]

Winners and Losers with BAT

In a BAT scenario there are consequences for 3 participants

1. US Producers of finished goods are paid to sell them overseas
2. Foreign producers of the same goods are pressured to lower prices and/or seek protective import tariffs on US imports
3. US consumers get domestic inflation on 2 fronts: 
   1. Prices for finished goods made in America go up to offset the higher tax of selling domestically
   2. Prices of imported goods go up for various reasons like inflation of raw materials, trade barriers (tax on import cars), tariffs etc.

A broad example is when Argentina taxed farmers on sales of crops to keep domestic inflation down. So the farmers just started exporting their crops. Then, when the Argentine Government slapped a 40% tax on exported crops, the Farmers threatened to stopped growing and won.

[ Who do you think will bear the brunt of government interventions once corporations like Koch lobby, whine, and threaten to punish a “populist” president?- Soren K.] 

Good Luck

via http://ift.tt/2jvDa4D Vince Lanci

Until last night’s Trump statement that the US dollar is overvalued, it was smooth sailing for Wall Street’s momentum chasers, who happily piled into what until recently was Wall Street’s most crowded trade. How crowded?

For the latest answer, we go to the latest just released monthly Fund Managers Survey conducted by BofA’s Michael Hartnett who shows that according to Wall Streeters themselves, the dollar is the most crowded trade by orders of magnitude. In fact, in January the number of respondents who said the “Long USD” is the most crowded trade has risen from 35% in December to a whopping 47%, the highest response rate in the last few years of the survey. Far behind, in second and third place, are “short government bonds” and “long high quality/minimum vol” both at 11%.

What makes this observation paradoxical is how reflexive it is, because in the same report BofA writes that contrarians note “long US dollar seen as most crowded trade by a country mile”, and adds that the percentage of investors who think USD is overvalued is the highest in over a decade, or since Nov’06 (net 22%).

Still, they refuse to sell… until now. Because now that the president-elect has publicly taken the other side of the trade, we urge readers to take a second look at RCB’s warning that the “Pain Trade”, i.e. the inversion of Long-USD positions, has begun.

via http://ift.tt/2jFVJAV Tyler Durden

It appears The Donald is stronger than The Fed (for now). The president-elect’s comments that the dollar is “too strong” have accelerated the weakness from his press conference last week, and erased all the “well the dollar is up because the US economy is so strong” gains in the greenback since The Fed hiked interest rates for the second time in a decade…

The Dollar however has a long way to go yet…

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Following Friday’s plunge in bond and bullion prices, dollar weakness (on Trump’s comments), Brexit uncertainty, and looming inauguration appear to have sent a ripple of anxiety through capital markets sending Treasury yields tumbling (6-8bps lower across the curve), gold prices soaring (above $1215), and stocks tumbling (Small Caps back in the red for 2017)…

And stocks sinking once again…

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In the month leaded up to the election on November 8th, we repeatedly demonstrated how the mainstream media polls from the likes of ABC/Washington Post, CNN and Reuters repeatedly manipulated their poll samples to engineer their desired results, namely a large Hillary Clinton lead (see “New Podesta Email Exposes Playbook For Rigging Polls Through ‘Oversamples’” and “ABC/Wapo Effectively Admit To Poll Tampering As Hillary’s “Lead” Shrinks To 2-Points“).  In fact, just 16 days prior to the election an ABC/Wapo poll showed a 12-point lead for Hillary, a result that obviously turned out to be embarrassingly wrong for the pollsters.

But, proving they still got it, ABC/Washington Post and CNN are out with a pair of polls on Trump’s favorability this morning that sport some of the most egregious “oversamples” we’ve seen.  The ABC/Wapo poll showed an 8-point sampling margin for Democrats with only 23% of the results taken from Republicans…

…while the CNN poll showed a similar 8-point advantage for Democrats with only 24% of respondents identifying as Republicans.

“A total of 1,000 adults were interviewed by telephone nationwide by live interviewers calling both landline and cell phones. Among the entire sample, 32% described themselves as Democrats, 24% described themselves as Republicans, and 44% described themselves as independents or members of another party.

Of course, as we’ve repeatedly pointed out, these sampling mixes couldn’t be further from reality.

And while a quick 2 second review of the methodology of these polls immediately reveals their obvious bias, here are some of the results. 

ABC latched on to the conclusion that Trump is just being super mean to the media…

57% of Americans see Donald Trump’s treatment of the news media as unfair in new @ABC News/WaPo poll: https://t.co/EL88zg0105

— ABC News Politics (@ABCPolitics) January 17, 2017

Even though they found that the media is treating him “fairly.”

Meanwhile, ABC/Wapo found that President-elect Trump is the least popular candidate to take the White House in modern history, with a 40% approval rating. 

Moreover, his cabinet picks were equally disliked by ABC/Wapo respondents.

In conclusion:

The same people who did the phony election polls, and were so wrong, are now doing approval rating polls. They are rigged just like before.

— Donald J. Trump (@realDonaldTrump) January 17, 2017

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Ahead of Theresa May’s speech, which catalyzed the biggest jump in sterling since 2008, the signs were already there that the British currency is facing upward pressure when December U.K. inflation was reported to have accelerated to the fastest pace in more than two years, driven by the tumbling pound which drove a surge in import costs. Consumer-price growth increased to 1.6 percent, the highest since July 2014, from 1.2 percent in November, and above the 1.4% consensus estimte. A separate report showed the cost of imports soared at the fastest annual rate in more than five years according to Bloomberg.

On Monday, BOE’s Mark Carney warned on Monday that rapidly accelerating inflation will put the brakes on consumer spending this year following sterling’s 18 percent depreciation since the Brexit vote. The BOE, which will publish new projections next month, currently expects inflation to breach its 2 percent target soon. It sees the rate pushing close to 3 percent by the end of the year, while some forecasters see it even higher than that.  “This is very much the thin end of the wedge and there is plenty more upside to come over the coming months,” said Alan Clarke, an economist at Scotiabank. “We suspect that the bank will turn more hawkish.” It is unclear if that means that the BOE may consider hiking: according to Goldman, not only will the BOE not raise rates for the next two years, but will actually engage in further easing in the not too distant future.

Meanwhile, sterling’s weakness is affecting everything from groceries to technology. Case in point Apple, which overnight backed up last year’s 20% hike in laptop and computer prices with a sharp rise in app costs. As Sky News notes, the move will mean that for the first time there will be price parity between the dollar and the pound as an App Store product that used to cost 79p in the UK will now be 99p. US customers pay 99 cents.

Previously, the company revealed in October that its new MacBook Pro, Macbook Air and Mac Mini would rise in price by up to a quarter. Sterling’s slump was cited as the core reason at the time.

The price shift reflects the fall of up to 20% in the pound versus the dollar since the EU referendum and signals Apple was unwilling to earn less from an app purchased in the UK. The firm said: “Price tiers on the App Store are set internationally on the basis of several factors, including currency exchange rates, business practices, taxes, and the cost of doing business. These factors vary from region to region and over time.”

The price rises will take effect within a week unless a specific app developer actively chooses to move to a lower pricing structure.

Apple made the announcement almost two weeks after it revealed the App Store had generated more than $20bn (£16bn) in revenue for developers last year – up 40% on 2015. Pokemon Go was the big success story. 

Rising prices are set to become the norm for UK consumers over the coming months as everyday goods become more expensive amid pressure on retailers to pass on higher import costs. The scenario was reflected in the latest inflation figures which showed an impact from fuel and higher food and air fares while factory gate data suggested further price pressure is on the way with input costs growing almost 16% annually last month.

The car industry has been among the other voices warning of rising costs for UK consumers ahead, reflecting demands in their European supply chain despite benefits from a weaker pound which make their vehicles more competitive abroad.

The UK’s suddenly surging inflation means that, unless something drastically changes in the coming months, the BOE’s “reaction function” will be severely constrained, with increasingly more politicians, prodded by their angry constituency, demanding that Carney to halt the surging costs, in the process leading to even more selling across global rate products.

via http://ift.tt/2iCUaBY Tyler Durden