Issue 180: 2018 11 29: Lens on the Week

29 November 2018

Lens on the Week

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UK

TOUGH NUMBERS: Maths is back at the centre of the Brexit debate at three levels.  The first is the forecasts of how the various options will affect the economy.  Treasury figures point to an 8% shrinkage on a no deal exit, with house prices dropping 30% and 6.5% inflation, which would have to be contained by pushing interest rates up to 5.5%.  Before that is dismissed as part of “project fear” designed to ramp up support for Mrs May’s deal, it should be noted that, even if the deal goes through, the figures show a shrinkage of up to 3.1%, ballooning to 3.9% over a 15 year period if frictionless trade is not achieved.  We will see these figures bandied about over the next couple of weeks and goodness knows how reliable they are.  For the moment the message seems to be:-  Hard Brexit: severe.  Mrs May’s deal: worse than where we are, but not by much.

More exciting is the parliamentary arithmetic, with the figures showing a majority against approving the deal.  241 in favour against a required 320 according to the BBC, but that is on the assumption of only 15 Labour members voting with the government.  Another 80 sounds a tall order and would require a seismic shift in public sentiment.   That is where the third set of numbers comes in.  37% backing the deal as against 27% on November 15.  That sounds like encouraging news for Mrs May.  But then again a Survation poll shows that 50% would favour staying in against 40% backing the deal if that was the only choice offered.  Who knows where these numbers will end up after two weeks of campaigning but one thing is sure.  Party organisers and individual MPs are watching the polling results carefully, anxious not to be left flapping like injured gulls in the wake of public opinion.  Never have pollsters had so much power!

GLOBAL WARMING: The UN Intergovernmental Panel on Climate Change has warned in a report that action is required now if climate change is to be kept at 1.5%, 0.5% below the target set by the Paris Agreement.  The additional 0.5% would mean, inter alia:

  1. 10 cm higher sea levels by 2100;
  2. the population suffering extreme heatwaves at least once in every five years rising from 14% to 33%;
  3. ice free Arctic summers becoming ten times as likely;
  4. no corral reefs surviving; and
  5. habitats for pollinating insects halving.

The US has withdrawn from the Paris Agreement which would restrict growth in emissions to 2%.  It seems likely that the new government in Brazil will also walk away from the agreement and permit the destruction of rainforest in the Amazon basin in order to make money out of agriculture.

International

CRIMEA: Three Ukrainian naval ships – two gunboats and a tug – were fired upon and seized by the Russian navy as they passed through the Kerch Strait from the Black Sea to the Sea of Azov.  The 24 Ukrainian sailors captured were charged with illegally crossing Russia’s borders and remanded in custody for two months by a Russian court in Crimea.  Three of them were wounded during the encounter.  Kiev retaliated by imposing martial law in eastern Ukraine.

As well as separating the Black Sea and the Sea of Azov, the Kerch Strait separates Crimea from mainland Russia.  Russia and Ukraine agreed that the Kerch Strait and the Sea of Azov are shared territorial waters in a treaty they signed in 2003; since Russia’s annexation of Crimea in 2014 and the building of the bridge which joins Crimea to mainland Russia, however, Russia has been claiming the waters as its exclusive territory.  This excludes Ukrainian shipping from the Ukrainian shoreline on the Sea of Azov, where it has two major ports.

Is this an isolated incident, or is it – as some commentators fear – a sign that Russia is now prepared to move forwards from covert conflict (cyber-attacks, assassination, backing separatists in east Ukraine, etc) to overt armed conflict?

The EU’s treaty with Ukraine which helped to kick the whole business off is a trade and security treaty.  Is that why Macron and others are proposing an EU army?  Are they really willing to have a go at Russia?  Perish the thought, but there might not be much of Ukraine left to defend by the time they get round to it.

FRANCE: The ‘gilets jaunes’ movement against new fuel taxes escalated in violence in the centre of Paris at the weekend, with protesters in the Champs Élysées setting vehicles on fire, attacking police officers, breaking windows and erecting barricades.  Over 100 people were arrested and over 20 people injured (including 5 police officers).  Elsewhere, thousands of demonstrators blocked motorways and roads across the country.  The protests are now in their second week.  Two people have been killed and more than 600 injured since they began.

The ‘yellow vests’ is apparently a grass-roots movement spreading organically via social media rather than a political campaign or a trades union initiative.  This absence of centralised leadership or organisation makes it very difficult for Macron and his government to engage with it.  However, eight ‘communicators’ have been designated via Facebook to negotiate with the government on behalf of the movement.

An added complication is that the movement appears to have been infiltrated by a number of known far-right groups, which have been blamed for the violence in the Champs Élysées.

RUSSIAN MILITARY INTELLIGENCE: General Igor Korobov, the head of the GRU and the boss of the two men accused of the Salisbury novichok attacks, has died in Moscow.  The cause of his death has not been detailed.  He was 62 years old.  His predecessor, Igor Sergun, died two years ago – he was 58 years old.  General Korobov’s deputy, vice-admiral Igor Kostyukov, has been appointed acting head of the GRU.  He is likely to be appointed as its permanent chief.  He is 57 years old.

Financial

TASTY RESULTS:  Much of the retail food business may be suffering, but not so Greggs, the bakery and fast food chain which has grown far from its Tyneside roots over fifty years.  Once again the business reports increasing like for like performance, with forecasts for 2018 that profits will be around £85m, about 5% up on last year.  The outlook is for more, with the latest quarter showing around 8% increased takings.  Gregg’s secret seems to be strong value for money in traditional take away food – pasties, sausage rolls, and cream cakes, in simple shops.  Greggs says it is careful about where it locates its outlets, but still sees room for expansion.  Airports and railway stations are the latest targets for new openings.  The investors like the taste of this; the shares were up 12% after the announcement earlier this week.

LEFT ON THE LINE: More trouble with trains; this time it is not the East Coast mainline operator that is struggling, but the franchisee of the network further to the east of that – Greater Anglia.  The operator of the mainline to Norwich, and many busy London commuter branches (and a whole network of rural lines) is running out of money for the third time, and once again will be getting a capital injection in early 2019, following closely on £80m put in a couple of months ago.  The problem is similar to that of several operators – paying too much for the franchise, based on optimistic projections of passenger traffic in the south east.  This was computed by reference to growth in employment – which has indeed happened, but it has not translated into extra travel, due to commuters tending to work more from home or travelling off-peak on staggered hours.  Greater Anglia’s parent, fortunately for it, is the state Dutch railway company Nederlandse Spoorwegen which has had to go to the Dutch Ministry of Finance for the funding.  So long distance commuters may have some satisfaction in knowing that their travel is being subsidised by the government – the Dutch government.

GONE AWAY: Travel trouble abroad as well. Thomas Cook investors were said to be shocked by a third profit warning this year (though, given the problems of the rest of the flight and travel business, they might have been expecting it). Cook blamed various factors for having to downwardly adjust its forecasts for the year, including rising fuel costs, intense competition which has slashed margins, and the hot summer.  The latter meant that the late and last minute bookings which it would have expected did not come through – and they often are at better margins than the value seeking early bird bookers earlier in the season. It’s not all bad news – turnover was actually up, by 6%, and the demise of several airline competitors has pushed loadings and revenue up in the air division – indeed that is likely to be the top performer by the end of the year.  Cook is now hoping for a strong winter sports based performance to keep the cash coming in.

GOOD NEWS FOR SOME:  You may not have noticed at the pumps, but the oil price has been declining for several months, and now seems to have settled into a trading pattern around US$60 per barrel.  That is good news for western manufacturing – indeed for all big energy users, and may account for some of the resilience of European stock markets.  OPEC and Russia have provisionally agreed to cut production in the hope of getting the price back up, but world oil use continues to decline – because so many of us are now using increasingly efficient renewables.

 

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