Year of The Rabbit Sees Former Chancellor Dazzled in The Headlights

Minister Without Portfolio?

The former chancellor and current Minister Without Portfolio is getting into increasingly hot water for appearing to have been a Minister-without-much-of-a-portfolio when it came to his taxes. Nadhim Zahawi is facing allegations that he attempted to avoid paying taxes during his time at YouGov, a market research firm which he cofounded. While serving as Chancellor, it is understood that Zahawi repaid the taxes that he owed which amounted close to ￡5m, though the exact amount is the subject of much question. While it remains unclear whether Zahawi paid a fine, according to the Guardian he paid a 30% penalty, with the combined amount totalling ￡4.8m.

According to Zahawi, the error was “careless and not deliberate”, though pressure is now mounting on the need for greater transparency about the whole affair. Not least is the question of whether Zawawi reached the settlement with HMRC while he was the chancellor, and thus the man in charge of HMRC itself.

Given that Friday saw Sunak issued with his second fixed penalty notice since moving into Downing Street, the weekend’s latest scandal within the top levels of the British political establishment required the Conservatives to act cleverly. Hence, yesterday Cleverly appeared on Kuenssberg’s breakfast show but merely voiced that he believed it was up to Zahawi to decide what should be made public about the recent allegations. As such, members from all sides of the political spectrum have called for greater transparency around the minister, and his portfolio.

This week in focus:

Today is a little light on tier one data, though markets will be paying close attention to EU consumer confidence out at 15:00 particularly as it follows the UK’s worse-than-expected reading on Friday which saw it come within touching distance of September’s all-time lows. The general market consensus is expecting a print of -22.5 pts, a marginal contraction from last month’s -22.2 as European consumers grapples with the loss – or prospect of the loss – of some of their energy support assistance at a time when their real wages continue to fall while mortgages rise. ???

Global PMI Figures

Tuesday’s primary focus will be on global PMI data which generally came in softer-than-expected last month and thus broadly speaking markets are expecting to see slight contractions for most western economies. Expectations of contractions includes that of the US, where the market is forecasting a services and manufacturing print of 49.9 and 45pts, respectively.

Australian Inflation and BoC’s Interest Rate Decision

Wednesday’s chief event’s will include the Australian CPI print (expected to come in at 1.6% for a quarter-on-quarter basis for Q4, which if realised would be a slight easing from Q3’s print of 1.8%), as well as the BoC’s interest rate decision. Here, the general market consensus is predicting a more modest 25bpts hike from their current 4.25%. Presently, annualised headline inflation is running at 6.3% which though still well above the BoC’s 2% target rate is nonetheless at its lowest levels since February. Indeed, given that a month-on-month basis inflation is currently at -0.6% (representing the greatest fall in prices since April 2020), and hence since the BoC remain fearful of a recession it is likely that they will opt for a more modest hike on Wednesday. Despite some deflationary signs, inflation is expected to remain north of the BoC’s target until at least Q3 2024 and many within the markets are considering whether the central bank will now hit a terminal rate of 4.75%, below some previous predictions. ?

US Q4 GDP and Consumer Confidence

The back end of the week will see attention turn to the States with Thursday’s release of the first estimate of Q4 GDP (forecast to come in at 2.8% on an annualised basis). This comes ahead of Michigan Consumer Sentiment Index on Friday, where all eyes will turn to whether an easing of wage price increases (seen over the course of December) and concerns on Capitol Hill regarding the nation’s finances will manifest itself in falling confidence. ??

As such this week promises to be another interesting one, not least because markets and policy makers will be hotly scrutinising the macroeconomic landscape ahead of a string of central bank interest rate decisions next week which includes that of the Fed, BoE and ECB.?