Iran = World War 3 – NOT! Or At Least, NOT YET!

We all know that the Middle East is a Tinderbox – though I wonder just how many people today would recognise such a thing if it hit them on the forehead?

Tinderbox, from oldandinteresting.com

So once you come round, now you can identify with what you have just been bludgeoned!

How will last night’s reprisals work out? Well it is fair to say that Tehran had to be seen to be doing something, to show the domestic audience and local acolytes that the leaders aren’t cowed by the US gorilla (yep, I mean you-know-who). But their target selection was fairly low level, and the results not even a pin-prick.

Will Trump reply, or just laugh at them? A big man would stand and smile benignly at the small child who is having a paddy. But this is Trump we are talking about. Oh dear!!

Our feel is that he will wait to see if the Iranians try again. If they do something of real economic consequence, then one can expect a hard strike at Tehran. I hope the ayatollahs have a good bunker.

There is some risk to global oil supplies, and successful attacks on Saudi refineries or shipping would provoke a very sharp response from the US. It would be a short erasing of any Iranian production capacity. However, we do not feel that it would lead to a sustained rise in oil prices. Pipelines can be repaired, and US Shalegas drilling is is very elastic to price rises.

Meanwhile, the markets are calm, down by less than 0.5%. We think that is right. The worst thing for Trump right now would be to appear weak to his electorate, or to blink. Our feel is that Tehran is drinking in the last chance saloon, and just ordered another round…….. There is clearly a point at which Trump will be keen to demonstrate to the world that the US economy and US lives are sacrosanct. If the bullets (or missiles) start to fly, then the markets will fall by less than 20% – because everyone, us included, will see very limited global economic consequences, and any falls representing a buying opportunity.

Why did we say “NOT YET”? Where is the real risk here then? If the Russians or the Chinese see an angle for stepping in to control the Middle East, then suddenly it becomes a geo-political play, and then we really are worried!

Have a nice day now!

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A Bleak-Midwinter Brexit Recession By Christmas

Oo-er, suddenly the UK economy ain’t looking so good!

The news media are full of speculation about Brexit, and not many of the stories are looking forward to how wonderful the country will be once/if Brexit happens. We can expect more of the same for the next twelve weeks until Halloween.

Are we heading for No-Deal?

At the moment, both sides are digging in, trying to create a tough stance for the benefit of their populations (I hesitate to use the word electors when we are discussing the EU, but you know what I mean). Behind the scenes, it can be assumed that the diplomats and civil servants will see themselves as the grown-ups in the room, and thus be at least looking for common ground.

However, it seems unlikely that a comprehensive new Withdrawal Agreement will be crafted by October. But we can expect enough co-operation to keep the world turning.

So what’s the problem?

The problem is that investment is collapsing. The worst thing for businesses in uncertainty. Life has enough risks when it comes to business investment, without an unseeable future being only 12 weeks away. Similarly, house-buying and car buying are likely to miss out on their usual autumn surges this year.

And after Brexit day, will there suddenly be clarity and light? Nope. There will be hysteria in the media for a few weeks as every little shortage and business malady is blamed on you-know-what. And the effect of this – more hand-sitting and less spending.

What else is happening?

Leader of the Free World

The US is starting to suffer from Mr Trump’s tariffs, to the extent that Jerome Powell has cut interest rates despite full employment. Meanwhile, China is suffering a marked slowdown from the trade war. This has now spread to Europe, which is also teetering on the edge of recession.

Conclusion

The UK is heading for recession – and it is difficult to see when it could end. Domestically, we’ll probably pull out next spring…. but that depends on what the rest of the global economy does. If things keep softening elsewhere, it could be a big one!

PS. The slowdown in Q2 announced today was no surprise, given the stockpiling in Q1 for the original Brexit day, and the factory shutdowns brought forward to April in case of Brexit delays.

Theresa the Timid

PPS. The coming recession will be a direct result of Mrs May’s and Parliament’s timidity over Brexit. If they had gone ahead on 29 March, we’d be pulling out of it by now. The delay to October has just increased the uncertainty and halted the economy for 7 months, tipping us into a recession we need never have had.

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FTSE100 Still Going Higher Despite Brexit Chaos

It is time for another 6 month forecast for FTSE100. We continue to see a much stronger stock market in London.

In January, when shares were at 6855, we stuck our necks out (a very long way given present uncertainty) and forecast FTSE at 8050 by 15 July.

See http://londonmarketcomment.co.uk/uk-equities/uk-equities-ftse100-up-to-8050-in-6-months/

As of last night, the index was at 7129. So I guess that is so far so good – though it is way too soon to start crowing about our success. Who do you think I am, Donald J Trump? He rather unwisely took the credit last spring when the Dow was flying. He’s been untypically silent on the subject since it retraced!

Over the month since our last forecast, well pretty much nothing has changed. Brexit is still the same. Unsurprisingly, UK growth was slightly softer in December. The US economy had good employment numbers, the EU economy was totally flat, who knows about China? Inflation was falling in general.

So we still see small upticks as Brexit nears the Fig-Leaf-Deal that we continue to expect. It was pleasing that Andrea Leadsom on Radio 4 described such an outcome today – though she didn’t give it our slightly derogative name.

Once the Brexit risk is settled, we see a relief rally in the late spring – and then sideways over the summer. Thus our forecast for August is the same as we called for on 15 July.

We see FTSE on 15 August at 8050.

It’s not very headline-worthy saying that we think the same as we did last month is it? Oh well, if you want excitement, I suggest that instead of market-watching, you take up kite-surfing instead.

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