In a world where certain players are pushing protectionism, it is incumbent upon us to study its real world effects. Brexit offers us a present day analysis. 


From Bespoke’s morning message:

GDP
stats today showed consumption growth the lowest
since Q4 2014, and we see that slowing further.
There’s also been zero rebalancing of trade; since
GBP (the British Pound) peaked on a trade-weighted basis in mid-
2015, real imports are up more than real exports! In other words, from a trade perspective, the
weak pound hasn’t contributed anything to growth.
This negative supply shock story gets at the core of
why Brexit will so badly hurt the UK: it cuts the
country out of supply chains that business won’t be
able to re-enter simply due to lower sterling, while
households bear the adjustment by reducing
spending. Higher than expected investment and
government spending bailed out growth, but
business investment was a zero contributor after a
weak Q1. The weakening UK consumer is also backed
up by weak CBI retail sales volume data this morning. We continue to see GBP as overvalued.

Sadly, for the British citizen, this comes at a time when the rest of Europe is doing quite well:

In France, business confidence survey data came in
broadly stronger than expected, and continues to
trend towards improvement. We also note
that INSEE released its survey of French industry
capex (business expansion) plans today, and the expected capex
total for both broad industry and manufacturers has
been improving rapidly since first estimated in
October 2016. 

In Spain, economic growth was unrevised at +0.9%
QoQ or +3.5% QoQ SAAR (the terms US GDP are
typically quoted in) for the 11th straight quarter of
annualized growth faster than 2%, and 15th straight
quarter of growth. Those statistics all compare
favorably to US growth; the
Spanish economy has now expanded as fast or faster
than the US economy in each quarter since Q4 2014.
The guts of the report were also positive in that most
expenditure sectors grew close to the same pace as
the broader economy, and virtually every category
was up. 

Job openings in Sweden are up 12% YoY
per the Q2 data released today, more than 4x the
pace of employment growth. As a reminder: CPI is at
target, industrial production is accelerating, capacity
utilization is very high, the labor market is hot, and
SEK remains more than 20% undervalued on a
purchasing power parity basis (chart).

In Switzerland, quarterly industrial production data
was out and as in the rest of the regional economy
the data was good, rising as could be predicted by
recent PMI improvements.