More Millionaire Bankers and US Debt Concerns
+ some good economic surprises this week..
The Global Economics Weekly Brief
UK policymakers were probably sighing with relief at the sight of the latest batch of economic data. The rates of inflation, unemployment and wage growth all fell, giving the Monetary Policy Committee (MPC) and the Chancellor grounds to feel a little more comfortable about their current policies. On top of this, there is more evidence that the UK is rebalancing towards exports and that consumers are cutting back on imported goods too. So we can feel a little bit more secure this week. But as changes to taxes and benefits hit pay packets this month, and the first estimate of Q1 GDP is released next week, there are still uncertainties left to navigate. Like walking over the bridge of sighs, there remains a lot to be nervous about ahead. Until the UK government cuts penetrate from this week we will not see their impact until throughout the remained of 2011/14 . There will be no economic update next week due to the Easter holidays. I wish you all a happy break.
There was a surprise fall in the UK consumer inflation rate in March. CPI inflation fell to 4.0%y/y, from 4.4% in February. Price rises this time last year helped keep the rate down, but so did food prices, which fell 1.4%m/m. The retail price index (RPI), which includes housing costs, fell to 5.3%y/y from 5.5% in February. Unscrambling the effects of energy and taxes, UK inflation is lower than the headline figure suggests. Core inflation (excl. energy, food and tobacco) was 3.2%y/y in March, while CPIY (CPI excluding indirect taxes such as VAT) slowed to 2.5%y/y. The MPC will have been relieved to see some slowdown in price rises, a result of belt tightening, but high oil prices remain a challenge. Food and oil prices are rapidly rising and will continue to do so for a few years yet!
UK unemployment rate falls to 7.8%. The number of unemployed fell by 17,000 in the three months to February, bringing the rate back down to 7.8%. The Chancellor will have sighed with relief, although he will have been less impressed that the numbers claiming jobseekers allowance increased by 7,000. Growth in private sector employment (428,000) easily outpaced a fall in public sector jobs (138,000) in 2010. This needs to continue once the austerity measures bite, but with employment growth at a two year high of 143,000 in the three months to February, and 140,000 of these full time jobs, we can probably afford to be cautiously optimistic. The need is to look very closely at the breakdown of full-time jobs to part-time jobs!
Still no sign of a pickup in wage inflation. More sighs of relief at the Bank of England as average weekly earnings growth (including bonuses) fell to 2%y/y in the three months to February, which was much better than expected. Underlying earnings growth (excluding bonuses) came in at 2.2%y/y. Households will be unhappy at the squeeze on their real earnings, but continued weak wage growth gives the MPC comfort that high inflation is not becoming entrenched. Pay is still growing faster in the public sector than in the private sector, but with pay freezes ahead and no sign of any pick up in private sector wage growth, the MPC probably has more time to wait before changing interest rates. Only the bankers seem to be in the high bonus/high salary at any time! See below.
UK house prices are broadly stable, but London pulls away. The official measure of house prices used in the RPI shows prices increased by 0.3% in the UK in February (although this records prices agreed about three months earlier). Prices in London grew by 5.5%y/y. London’s outperformance is backed up by surveyors. Although 23% more of them thought prices in Great Britain fell in the last three months than increased, London bucked the trend, with 17% more surveyors thinking prices increased rather than fell. Supply is probably the key. The sales to stock ratio, which is a really good leading indicator of house price growth, has been higher in London and the South East than in other parts of Britain. There are a great number of houses in London being bought by foreign people who do not have their first home in the UK.
UK trade position improves as UK consumers tighten their belts. There was also good news on trade. The UK trade deficit narrowed by £1.5bn in March, reaching a 12 month low of £2.4bn. Exports, particularly of goods, jumped 2.7%m/m (excluding oil) over the month, while imports fell. Consumer goods imports shrank by a full 4.5%m/m in February, reflecting subdued demand from UK households. A continuation of rebalancing towards trade will do wonders for the UK recovery, given the dual headwinds of fiscal austerity and household deleveraging. Many people are not buying imported goods due to affordability/credit card restrictions/redundancy!
The US trade gap also shrank in February. The US trade deficit in goods and services narrowed in February to $45.8bn, down from $47bn in January. Even though exports fell by 1.4%m/m, reduced demand for cars, capital goods and industrial supplies meant imports fell more. This coincided with the first Chinese trade deficit in seven years in Q1 ($1bn). Although this is partly due to higher commodity prices and seasonal effects, import growth has outpaced export growth over the past two years. These trends will need to continue to achieve an orderly rebalancing in the global economy. More unemployment on the way!
Sell-off spreads to Asia after S&P downgrade report on US debt
A report that Standard and Poor’s has lowered its US credit outlook from “stable” to “negative” jolted the New York Stock Exchange and fuelled calls for Congress and the White House to come to terms on a solution to America’s soaring debt that continues to rise rapidly.
Stock markets fell across Asia on as investors took fright at ratings agency Standard & Poor's report `downgrade of the outlook on US debt`.
The Nikkei was down 1.25% at the close, 119 points lower at 9,437, while the MSCI index of Asia Pacific stocks fell 0.53%, or 2.6 points, to finish at 493.6.
"The overnight tumble of US shares further deepened investor worries about the pace of the US economic recovery," Simon Liu, a Taiwan-based investor, told Reuters.
Gold was also at a record high - with traders asking for $1,499 an ounce for the precious metal at one stage, just $1 away from breaking through $1,500.
S&P's warning that it could not see a way through the US's budgetary crisis given the political paralysis on the issue has spooked markets - with the Dow Jones falling 1.1% and the FTSE 100 falling 2.1% on Monday.
While maintaining its AAA rating on US debt, the rating agency added a cautionary note due to the nation’s “rising government indebtedness” – and the prospect that Congress and the White House will not deal with it. It’s a signal that if a political deal is not reached by 2013, the US credit rating could be downgraded, triggering higher interest rates and deepening the debt crisis.
More Millionaire Bankers each year
RBS paid average of £1.2 million to risk-taking staff each x 323!
Disclosures show RBS is paying top earners more than HSBC
The Royal Bank of Scotland paid out £375 million to its senior risk-taking staff in 2010, it has been revealed.
The bank, which is 83 per cent owned by the UK taxpayer, has disclosed that the total salaries of those in risk-sensitive roles, known as ‘code staff’ as part of its commitments under EU rules and the Project Merlin agreement with the government. There are 323 such staff, so the figure implies average pay for these workers of £1.2 million each.
The bank also confirmed that the five biggest earners below board level were paid £21 million between them, with two of them taking home £5.9 million each. Meanwhile, chief executive Stephen Hester is eligible for a reward package of £7.7 million for 2010, although the final amount he receives is subject to share performance and deferred compensation arrangements.
The figures show that RBS is paying less than competitor Barclays, which paid 231 code staff an average of £2.4 million each, but higher than HSBC, where 280 code staff earned £1 million on average. Lloyds Banking Group has yet to reveal its equivalent figures.
The disclosures have fuelled anger among those who feel that such high remuneration is inappropriate in a publicly-owned bank. Labour MP John Mann, who sits on the Treasury Select Committee, said that RBS was “sticking two fingers up to the British taxpayer,” while Lord Oakeshott, the Liberal Democrat peer who resigned from the government over Project Merlin, said that it proved “mediocre” people were being over-rewarded. “Why on earth do taxpayers need to pay hundreds of middle-ranker bankers over a million pounds at RBS?" he said.
RBS `losses` for 2010 were £1.6 billion.
Whatever happened to the UK government`s pledge to tackle these bonuses? Look at the connections these people have with UK government officers! No different in the USA and Europe. Do bankers have more power than governments?
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Millionaire Bankers and US Debt...