Matthew: Hello again, everybody, and welcome to another edition of Under the Macroscope. Thank you to all of you who’ve supported the podcast so generously and spread the word. Our stats tell us that we’re heading into the top 10% of podcasts in the world. So, very happy with that and hope to continue climbing the charts. As always, I’m joined by Jabir Sardharwalla, Chief Strategist for the Skybound Capital Group based in the company’s London office. We take a look at some of the factors affecting economies around the world. First up, Jabir, this week, a lot of fresh economic data up this week, which caught your attention.
Jabir: Hi Matt. That’s right. Around about the third week of every month, we release what they call the flash MI estimates. They’re just the heads up on the big numbers to come. It concentrates on the larger countries around the globe, and it’s dependent on at least 80% of countries that have reported. Frankly, the numbers are looking quite good. For instance, if you start with the U.K. as an example. We’ve got manufacturing in the U.K. rising to 57.9. The month before, it was 55.1. Now, bear in mind, we’re not even a manufacturing-oriented nation. Manufacturing makes up something like 10%, give or take, of our total GDP. We’re very services driven. For all the slating that the U.K. gets from different economists that they’ve got the worst to come to yet, these numbers have continuously gone up and up and up. Any figure in excess of 50 implies expansion. So at 57.9, that’s a very impressive number, and I think it’s confounded a few economists.
It also gets impressive when you look at services, which our economy is dependent on. That came in at 56.8. That’s a big jump on last month when it was 49.5. So what it’s saying is despite the renewed lockdown somehow or other, we’re still finding ways to get on with drumming up the economy, including on a manufacturing front.
Now, if you look around the globe, for instance, the E.U., we’ve had flush numbers that have come in there as well. Manufacturing there has soared. It went through the roof. It’s now hit 62.4. Now the month before, it was 57.9. Even the month before was impressive. That’s very much on the back of exports. You’ve heard me say before that the thing with the E.U. is that they do rely on exports for their GDP. They’re not just a consumer dependent nation. Exports play a big part. I think that explains why their numbers are so good. Their factories are humming. Within that, if you look at German manufacturing, this is where it’s so distorted because, in Germany’s case, manufacturing stands at 66.6. So you can see what the big driver is there. They’re not alone. Also, in France, they’ve reached 58.8.
When you look at their services, it’s a bit of a different picture because it’s standing at 48.8, which is still in contraction territory, even though it’s up on last month. When you break that down into Germany and France, it’s a very similar story. You’ve got Europe on the consumer front very subdued, but it is enjoying some boom on the manufacturing front.
Last but not least, the U.S. You can’t go without commenting on the U.S. Their manufacturing PMI increased to 59. Now they too are not that heavily dependent on manufacturing for their GDP, but 59 is a good number, and that’s just up a nudge on last month. Their services data showed it reaching 60. So can you imagine when these stimulus checks start to hit the appropriate people? Think what that’s going to do in terms of spending power together with a fascinating vaccination program.
Matthew: You said last week on the podcast some pretty staggering growth forecasts had been revised upward across some of the globes larger economies for this year, but these numbers tend to suggest that they’re on track.
Jabir: Absolutely. That’s exactly right. I think it’s also showing that companies have done a remarkably good job adapting to the Covid environment. That’s the one thing no one can ever underestimate, human nature when push comes to shove. They have found a way of adapting. They’ve kept it alive, and if we do find ourselves in a renewed lockdown, for whatever reason, I take comfort from the fact that it’s not going to be a complete disaster that we saw with the very first lockdown last year.
Matthew: Still to come on this week’s edition of Under the Macroscope, we’re going to be getting some thoughts from Jabir on the comments from Andy Haldane, chief economist of the Bank of England and some of the items that he is putting out into the market, an ECB blockchain trail, and a quick vaccine update as well. First, a brief comment, Jabir, on elections in Israel and their ramifications.
Jabir: This was a real surprise, and I’m sure it is to Netanyahu as well, who has come through with yet another indecisive result. These are projections, but the rightwing block that he heads up, they think he’ll end up with 52 seats, which is 9 short of the majority that he needs. Now contrast that with the opposition. They are on course to win about 57 seats. Now, remember their vaccine program, which was has been the darling of the world. They started earlier, and they’ve gone through it with remarkable efficiency. They’ve vaccinated something like 60% of their population, just with the first dose. I’m not even counting the second dose. I’m sure part of the strategy was that we’re going to secure an outright majority here with that. This hasn’t gone to plan at all. If that was the plan, well, that bit of it has not worked one bit.
Interestingly, in a rather surprising development, an Arab party is projected to get four seats and surprise, surprise, they could end up with the balance of power. As far as I’m aware, I think that would be a first. So yet again, Israeli politics get into the murky world of how they will battle through this one. I’m surprised; I have to admit.
Matthew: It’s certainly one to keep an eye on. I mentioned Andy Haldane earlier, Jabir. I know you have been impressed with some of the commentary coming out from the chief economist of the Bank of England.
Jabir: I am. This is a natural bias that I have when I’m looking at everything that analysts and particularly economists have to say because, for the most part, unfortunately, and meaning no disrespect to economists, but they tend to be by the book. They tend to dwell on their models. I think they mostly all acknowledge that the models can be efficient. What I’ve noticed with Andy Haldane and the various comments that he’s come out with since he’s taken up this role is that he tends to apply a bit of a consumer behavioural sentiment to his thinking, which gives it a bit more of a reality. His latest comment was in an interview with Robert Peston, a leading journalist here on the ITV channel. It was specifically regarding U.K. consumers and the amount of money, £150 billion, that has found its way into savings because of Covid last year. Andy’s suggestion was that can you imagine even if only a tiny percentage of that finds its way into the economy through spending. He says, “When it comes”, i.e., he’s referring to the spending and the impact on growth, “When it comes, it will come fast, and it will be large.” I think that’s a very telling comment. You have to sort of think about the potential implications of inflation.
Matthew: Another thing that you said that caught your eye was a blockchain trial from the European central bank with the prospect of trialling a digital euro. What’s that all about.
Jabir: The concept of it is not new. I think it has its roots in how seriously people are taking crypto. If there’s one great thing to come out of crypto, it is precisely that. How do we now move towards that whole digital society? To my mind, crypto can definitely take the credit for that.
What’s happened here is that authorities have developed a technology allowing investors to buy and sell securities on the blockchain in return for central bank money. This is in Germany. The Bonus bank, their central bank, in partnership with Deutsche boss, their big stock exchange, and Germany’s leading debt agency have claimed that their solution was the first to allow securities sold to have the proceeds received on account the central bank. Now that’s a very interesting comment there because if you think back to our debate around crypto and particularly Bitcoin, whenever that was a few weeks ago, one of the things, if you recall, I said is that it’s all about regulation. Now notice how in that little trio there you’ve got the Bonus bank, i.e., the central bank, you’ve got the Deutsche boss, the regulator, basically the financial services. Then you’ve got the debt agency and the central bank collecting the monies. It’s all nicely regulated. Full marks to them. What they’ve done is conducted a test in which a 10-year bond was issued on blockchain, and six banks traded it. Big names like Barkley’s and City and Commerce and Dresner and Goldman-Sacks and Soc Gen. The ECB is exploring creating a digital euro, possibly on blockchain, to complement cash in the next five years. This is the beginning of the end of cash.
Suppose you think about the implications here. I once did a back of the envelope calculation many years ago. This is going back to 2011 when the whole Greece saga was going on. Opponents of Greece said, “Why don’t you fix your economy? For a start, pay your taxes”, given the extent of the black economy. I just did a rough calculation on the U.K. economy based on some research that had come out at the time. On the assumption that let’s say 10% of the U.K. economy works in the black market and given the size of the U.K. economy, we’re talking tens and tens of billions that go uncollected in tax because it’s the cash economy. How many times have you walked into a shop and said, “Sorry, we don’t accept checks” and all this kind of stuff? It happens every day. We know it. I think this is one step in revolutionising tax collection.
Matthew: I’ll tell you another thing, just from personal experience, just another consequence of the Covid effect. I hardly carry cash ever. It’s just happened naturally. This sort of tap and go has become the norm. Just as we’ve said on a previous podcast, we were really scared of internet banking when it first, but it’s become second nature. Interesting to see how that plays out.
Just finally, as we have done in recent weeks, and it’s always relevant, just a quick update on vaccination programs. Certainly, where you reside, things continue at pace, notwithstanding some of the barriers being placed in its path.
Jabir: Honestly, it seems to be going very well indeed. When you look at the latest numbers, just ranking them in terms of people who have been given the first dose, let alone the second dose, which constitutes a complete vaccination. We’ve got some great numbers here. In Israel, we just spoke about that; 57.5% have now received the first dose. The fully vaccinated as well then takes it up well over that. The U.K. is now 43.4%. This is based on the Bloomberg vaccine tracker. 43.4%, first dose. Remarkable progress there. If you throw the second dose into the mix, you’re looking at around 47–48% of the population. The U.S., obviously because given the importance of the economy, over a quarter of the population having received the first dose. Biden has made it clear that after 100 days in office, he wants 200 million Americans to have received that vaccine dose. So it does seem to be going well. I think it’s going to be that lightbulb moment when we cross that all-important point, and suddenly we’re now ready to start thinking about how we go back to travelling, how we go back to international air travel. All this talk about Covid passports. Like it or not, I think if you want to go into various stores and shops, you’re going to have to need a Covid passport. That’s just the reality of it.
Matthew: Well, we’ll keep an eye on that as always. My last item, Jabir, because I know you love your rugby. It has been one of the big pieces of news in South Africa this week, and indeed in the U.K., the British and Irish alliance toured to South Africa in the initially specified window, so July, August. Still, a lot of work to be done and still a lot of detail around whether there’ll be crowds in stadiums and all those kind of things, but at least there’s a line in the sand, and we can look forward to the world champions against the British and Irish alliance. I repeat, Jabir, the world champions.
Jabir: Okay. I have no comment on that one.
Matthew: You last played on the 2nd of November 2019 in Yokohama. I’ll leave you there and look forward to our next chat. We’ll be doing a bit of a Q1 review in our next Under the Macroscope podcast. Don’t forget that it’s available on Apple, Spotify, and the Google podcast platform for Android if you would like to subscribe. For those of you who are taking some time off over the Easter period, we hope you are safe and come back refreshed. Until next time on Under the Macroscope, goodbye everyone.