Well if this is the Brexit disaster the establishment predicted, bring on the sequel!
Not to be too flippant, but the news just keeps getting worse if you expected Brexit to trigger an immediate catastrophe in Britain. That doesn’t mean invoking Article 50 won’t bring about the long-predicted calamity.
But today we have more evidence that life in the real economy has put politics behind it. The latest evidence is that UK manufacturing activity soared from 48.2 in July to 53.3 in August, according to the Markit/CIPS Purchasing Managers’ Index (PMI). It was a ten-month high after falling to a three-year low in July.
To put that in perspective – or to show why it’s a meaningful number – it was the largest month-over-month increase in the 25 years it’s been keeping track of the data. And it makes sense. In July, after the shell shock of the June vote, lots of investment and business decisions were put on hold. In August, everyone got back to work.
If this were a screenplay and Brexit were our hero, it would be that point in the story where the villain (the EU) was lying dead on the ground after a big fight scene. The dramatic tension would ease. You’d feel a palpable sense of relief that the hero had triumphed and the danger was over.
And then blammo!
The eyes of the dead villain would spring open. His cold, but not quite dead, hand would grab our hero by the throat. And a final coup de grace would be administered. Denouement. Roll credits.
But the EU is not a person. This is not a movie. This is the British economy. And I suspect you can’t give the “all clear signal” on Brexit until the next meaningful event happens. What event is that?
It could be the Fed raising rates. It could be the Bank of England lowering rates when it meets later this month. Maybe it’s Theresa May triggering Article 50. Or it could be the Italians making a break for it. Early indications on that could come in November when Italians go to the polls to vote on proposed constitutional changes to limit the power of the Italian Senate.
My point is you still can’t say for sure that the pound’s rise on the PMI data is a sign that the worse of the Brexit worries are behind us. You’re still in that honeymoon period after the divorce. The papers have been served. Britain’s out of the EU house and enjoying its new-found sense of freedom.
But there is the matter of alimony (paying for access to the common market), what happens to the kids (EU workers in the UK, UK workers in the EU), and sundry punitive demands (who gets the dog, the cars, the flat screen TV and Jacuzzi). In other words, the devil still lurks in the details.
In the meantime, though, the pound is up and European stocks are down. Nearly €86 billion has flowed out of European stocks in 2016 according to The Wall Street Journal. That was after inflows of €123 billion in 2015 on bullish bets that the European Central Bank (ECB) could kick-start a recovery. Europe’s benchmark index, the Stoxx 600, is down 3.4% year-to-date. The bank stock index is even worse, down 25%. At the moment, it certainly looks like Britain got the better end of Brexit.
What will you do when all the jobs are taken by software and robots?
Can anything stop deflation now? Remember we’ve been exploring the idea that deflation – the good kind where purchasing power increases because the prices of goods and services are driven down by technology and global production – is impossible to defeat with conventional monetary policy (lower interest rates). It will take a weapon of wealth-destroying power – rampant inflation – to reverse a trend that’s also being drive by demographics (ageing) and low energy costs (the end of oil).
Or it could be some external shock. For example, take the news overnight that Hanjin, the world’s seventh-largest shipping company by cargo volumes, has filed for bankruptcy and protection from creditors in a South Korean court. As a result, at least three of the company’s ships are now in limbo off the coast of major US ports. Containers ships laden with goods are being turned away from the dock.
That delay will sort itself out. But the longer-term problem for the company is overcapacity in the global shipping industry. The supply train for 21st century consumer capitalism is a triumph of logistics. But now there is too much supply for dwindling global demand. And don’t forget technology! See the fascinating story below, also from The Wall Street Journal:
Ship designers, their operators and regulators are gearing up for a future in which cargo vessels sail the oceans with minimal or even no crew. Advances in automation and ample bandwidth even far offshore could herald the biggest change in shipping since diesel engines replaced steam.
Ship operators believe more automation will enable them to optimize ship use, including cutting fuel consumption. “The benefit of automation is as an enabler of further efficiency across the 630 vessels we operate,” said Palle Laursen, head of Maersk Line Ship Management, a unit of cargo-ship giant A.P. Moeller-Maersk A/S.
British engine maker Rolls-Royce Holdings PLC is leading the Advanced Autonomous Waterborne Applications initiative involving other companies and universities. It foresees technologies long used to improve commercial airline operations migrating to ships. The group also is tapping know-how from those working on driverless cars to adapt for safe at- sea autonomous operations.
A future unmanned ship could resemble some of the most advanced combat drones. It would sport infrared detectors, high-resolution cameras and laser sensors to monitor its surroundings. The vast troves of data would be transmitted to command centres where staff do little more than monitor progress and ensure ships are operating at optimum speeds.
The consortium completed a study this year that concluded such vessels are feasible and offer savings.
Globalisation is really the extension of the division of labour – and all of its benefits – across the planet. It’s driven by free trade. But also by technology. And technology tends to make things cheaper. That includes goods, services, and – in a politically destabilising way – labour.
Category: Brexit