All in all, this is an odd moment for an outburst of high spirits: not from me — I’m as phlegmatic as ever — but from commodity investors. The price of a barrel of oil has rallied from $27 to $40 after talks between Saudi Arabia and Russia about restricting supply; one pundit called that ‘meaningless theatre’ but others expect a climb back to $50. In a similar mood, copper prices have risen by almost a fifth — reflecting producer cutbacks combined with a belief that the Chinese downturn in demand might not be so severe as was first feared. Likewise iron ore, which surged so fast at the beginning of this week that one analyst called it ‘berserk’, while the biggest player in global steel, the Indian tycoon Lakshmi Mittal, declared that ‘things should continue to improve’. Shares in miners such as BHP Billiton and Rio Tinto have rallied in parallel.
Gold is an indicator of a different sort, since its ‘safe haven’ status means it often rises in response to bear sentiment elsewhere; but it too has joined the upbeat bandwagon, gaining more than $200 an ounce since January. What are we to make of all this? Arguably the ‘China slowdown’ story was well overegged; the US recovery, evidenced by jobs data, is still strong; supply and demand are coming back into balance and the real-world economy is not as out-of-kilter as markets were previously signalling. Well, maybe; I hope so. But there is speculative froth behind this commodity rally, and Goldman Sachs for one says it is ‘premature’ and ‘not sustainable’. Let’s call it a short-term opportunity for the bold, rather than a long-term shift in the right direction.
Not rocking the boat
What’s in next week’s budget? Not much, apparently. ‘Cabinet sources’ have been quoted saying that ‘George has been told not to rock the boat’ ahead of the Brexit referendum, and that’s why he backed away from a grab on pension relief for higher earners; likewise he may yield to pressure from his backbenchers not to treat cheap petrol as an opportunity to raise extra fuel duty from motorists. He’ll probably have to talk his way out of a downgrading of growth forecasts by the Office for Budget Responsibility (‘global headwinds’, naturally) and a modest overshoot against his own borrowing targets — but those are the most entertaining parts of Osborne’s speeches.
Expect tax-threshold tinkering to please aspiring middle-earners, and not much more in the way of cuts: as my reader survey last month indicated, the core Tory voters whom Osborne wants to secure for the ‘remain’ side see little or no gain from further public-sector shrinkage. What really matters is what the Chancellor does to boost the small and medium-sized businesses that have been the core of recovery and job-creation throughout this decade so far, which are confused and in some cases traumatised by the Brexit debate (many being members of the British Chambers of Commerce, whose chief has been defenestrated for speaking his mind), and which will shoulder the burden all over again if we head into another economic storm. The overdue review of business rates will be one measure of Osborne’s bona fides; another hike in the Employment Allowance (relief from employers’ National Insurance) would be welcome too.
I usually take a stern view of corporate pay packets that are out of line with profits and shareholder value, but I’m prepared to make an exception for Bob Dudley. The American-born chief executive of BP collected $19.6 million last year, up 20 per cent on his 2014 remuneration, while the embattled oil giant clocked up a record loss of $6.5 billion and shed thousands of jobs. But even in the rugged world of oil and gas, few men have survived tougher career challenges than Dudley, who in his previous role as head of the Russian joint venture TNK-BP was so threatened by hostile locals that he had to operate from an undisclosed location outside Russia. He went on to deal with the $55 billion consequences of the Gulf of Mexico oil spill that happened under his predecessor Tony Hayward, and to cope with a plunge of oil prices that has thrown the entire industry’s capital investment plans into chaos.
The share price is half what it was before the Gulf of Mexico incident six years ago, but it’s a minor miracle that BP is still an independent company — or even in business at all — after so many setbacks. Dudley deserves to be paid plenty, and no one can say he has been rewarded for failure.
An exception of a different kind is Michael Dobson, long-serving chief executive of fund management group Schroders, who has drawn City criticism for easing himself into the chairman’s office with the support of Schroder family shareholders — his firm having occasionally voted on principle against just such promotions in companies in which it invests. But that never made sense to me as a hard-and-fast rule of corporate correctness, and there’s reason for Dobson to stay if institutional clients value his steady hand. Nevertheless we might all wonder in passing why Dobson has to be paid almost twice as much as Schroders’ previous chairman, Andrew Beeson. And underlings who had hoped and perhaps even plotted to say farewell to this famously aloof operator (the FT once called him ‘inscrutable and immovable’) will find his continuing presence less than comfortable.
One letter left
I may have said this before, but the acronym ‘Bric’, coined 15 years ago by the Goldman Sachs economist (now a Treasury minister and a lord) Jim O’Neill to encapsulate Brazil, Russia, India and China as high-growth business destinations for the new century, must surely go down as one of the emptiest gimmicks of its era. Brazil has just slumped into a catastrophic recession; ill-governed, oligarch-ridden Russia has been deep-frozen by the oil slump, and China is teetering dangerously. That leaves I for India, Jim.