Ireland has come out in support of British Prime Minister May’s plan to sidestep a hard border cutting through the island of Ireland. Ireland want to avoid needing to enforce customs in €65bln in trade with Britain each year, and May is fighting to avoid the same between NI and Britain (hopefully bringing the DUP back on side) and of course any outcome better than a no-deal Brexit.
It’s a quiet day in markets with US Core CPI a non-event coming in bang on forecast at 2.3% yoy. Headlines were focused on Trump’s travels and the latest NATO Summit where a “very happy” Trump held a press conference confirming he can now “believe in NATO” whose members have committed to “up spending [by] $33bn” with a commitment from a “very unified and much stronger” Alliance to swiftly meet the NATO 2% of GDP spending target. Agreeableness does not a dealmaker make.
It seems this week there have been a number of reminders for politicians and businesses that they can’t have their cake and eat it too:
First, senior officials at the EU were reportedly rubbishing the Shadow Brexit team’s ‘commitment’ to retaining single market benefits whilst demanding restrictions on the free movement of people. One member of the European Commission dismissed Labour’s plan as ‘cakeism’.
The month of May looks to be somewhat challenging for Prime Minister Theresa May. Although she recently polled more popular (or more accurately less unpopular) than Jeremy Corbyn for the first time in a year - she now faces a new Brexit ‘ultimatum’ from MPs within, further dogged Brexit pessimism from various EU officials without, and following tomorrow may be answerable if any disappointment and losses across local council elections transpire.
UK’s Industrial Production for November 2017 came in this morning as forecasted at 0.4% mom: the 8th consecutive rise. Last time this happened was over 23 years ago in May 1994. Moreover, because of revisions to prior months’ data the yoy Industrial Production growth read 2.5%, beating forecasts of 1.8%. And although we are a nation built more upon the service industry, such an improvement should at least help the 2017 GDP figure reach its 1.5% target, which was notoriously revised downwards over the course of last year, as stalled Brexit negotiations took their toll.
The UK has finally caved to the EU’s disaggregated approach to Brexit negotiations: agreeing in principle to give around €55bn (as part of the eventual package deal) to compensate for retracting from future funding of the EU budget. The argument that such a stance was illogical (as they certainly wouldn’t enforce a leaving subsidised-member to continue receiving payments or impose a leaving-bonus) gained no traction after many precious months; neither did the previous €20bn and €40bn offers by Prime Minister Theresa May. Given that early talks of what the UK ‘owed’ were in the range of €60bn it seems that already in the first few items the UK as conceded much, and the EU precious little.
This Friday Prime Minister Theresa May will deliver a Brexit speech at the annual Pontignano Conference near Florence, Italy. It seems that Tuscany was the best platform for what will be May’s third update on Brexit plans (after the Lancaster House speech in January and the letter triggering Article 50 back in March), avoiding France and Germany where focus this weekend will instead be on the major labour reform demonstrations and federal elections respectively.
There are certainly reasons to be appreciative of being British today; from those on Portsmouth dockside welcoming home the HMS Queen Elizabeth Carrier to those wading through the latest data from the ONS showing, for instance, that employment rate (75.1%) has hit its highest on record and unemployment (4.4%) is at its lowest in 42 years. But less so in regards to the first in a series of detailed Brexit position papers setting out the ‘Government’s vision… to build a new, deep and special partnership with the European Union’. Guy Verhofstadt, former Belgian MP, current MEP, EU Brexit negotiator and author of ‘Europe's Last Chance’, sums up the central stance of the papers as ‘a fantasy’.
‘Our friends are concerned - and less friendly countries are bemused and astonished - that the great British machine, which is famous for efficiency, now seemed to be all over the place’ said Charles Grant, director of the Centre for European Reform, over the weekend. He was of course talking about the UK government Brexit negotiations where ministers are openly disagreeing about objectives and tactics. What he went on to say was even more critical, adding ‘Britain’s name has never been held in lower regard than now in terms of its competence, its ability to organise, its ability to be strategic and influence anything’.
Finally, almost a year after the UK voted to go its separate way from the EU, Brexit talks are due to begin this morning. However the backdrop of uncertainty on both Theresa May’s future as Prime Minister and what the UK government actually wants from the negotiations is higher now than at any time. Indeed, we seem to have come a long way from the 'no deal is better than a bad deal' rhetoric that May was so fond of, with Philip Hammond, the Chancellor of the Exchequer, now telling us that leaving the EU without a deal would be a ‘very, very bad outcome for Britain’. He added, ‘I believe the view of the majority of people in Britain, is that we should prioritise protecting jobs, protecting economic growth, protecting prosperity as we enter those negotiations and take them forward.’
Today, after 9 months of waiting, the Brexit referendum has finally given birth to Article 50. In a sign of the times, the President of the European Council Donald Tusk notified the world of his receipt of the official letter via twitter a few minutes before 12:30 GMT. Prime Minister Theresa May then addressed the House of Commons calling the occasion a ‘great turning points in Britain’s history’; meanwhile Tusk opened his address stating ‘There is no reason to pretend this is a happy day, neither in Brussels nor in London,’ and concluded with ‘we already miss you’.
Just one week until Britain is expected to trigger Article 50, sterling at a three week high, UK inflation highest since 2013, leaked EU documents suggesting Britain could be kicked out EU and fined £50bn, Bank of England (BoE) Chief Economist Andy Haldane postulating a base rate rise to 4.25% that could wipe out 1.5 million jobs but boost productivity in the long run, Scotland pushing harder for another independence vote, and the BoE predicting a further retail slowdown: all in all perhaps enough commotion to burrow yesterday’s embarrassing infighting of the Labour Party. Or perhaps not.
As expected, Philip Hammond’s first and last Summer Budget delivered numerous but all modest adjustments to overall government spending. This has been reflected in markets with both sterling and Gilts little changed from before his speech. Beyond the peppered insults towards the leader of the opposition, the most notable mentions were the changes to the OBR’s forecasts.
With the first post-Brexit budget to be delivered tomorrow, the Chancellor of the Exchequer, Philip Hammond, clearly has a lot of priorities to juggle as well as numerous unknowns to try and accommodate for. Preparing a ‘war chest’ for Brexit alongside supporting ailing public sectors (like the prisons and NHS which have received lots of negative press recently) will be challenging enough. Achieving this whilst, ‘making steady progress in eliminating the deficit’ will be significantly more challenging. Yet this is what The Chancellor has promised, also warning that ‘there are still some voices calling for massive borrowing to fund huge spending sprees.
Since the Brexit vote most financial commentators have been surprised by the strength of the British economy, with the economic figures constantly outperforming expectations. However, this morning figures show that consumer spending may be starting to slow. In February the UK Services Purchasing Managers' Index (PMI) was below the market consensus of 54.1 at 53.3, down from 54.5 in January. This will be food for thought for the Chancellor of the Exchequer Philip Hammond as he prepares for both his and the UK’s first post Brexit budget.
19 years today President Bill Clinton announced: ‘I want to say one thing to the American people; I did not have sexual relations with that woman, Miss Lewinsky’. And, this morning, half of the world woke up to hear that President Donald Trump yesterday signed an order specifying that his much talked about ‘wall’ must be ‘a contiguous, physical wall or other secure, contiguous and impassable physical barrier; let’s hope this figurative and literal act will not be as well reminisced as Clinton’s ‘endeavours’.
A new ‘truly Global Britain’ - that was the dream outlined in a carefully scripted Brexit speech from UK Prime Minister Theresa May, along with 12 points of much needed clarification that make that dream seem so orderly and achievable. Perhaps such simple optimism gave case for the pound’s largest one-day rally since the global financial crisis. More likely the main reason for the spike in sterling was the fact that it had already dropped over the days prior due to a leak of ‘hard Brexit’ proposals and that there was little further in the way of surprise in the speech. Indeed the most notable development was the favourable confirmation that parliament will get to vote on the Brexit deal - but only once, ‘we know what that deal is.’
May Day! May Day! Markets this morning braced themselves ahead of what has so far been the most important speech of UK PM Theresa May’s career, where today she shed some light on the highly anticipated Brexit strategy.
UK markets awoke with an acute risk-off tone which saw the yield on 10-year Gilts fall ~5bps to 1.248%, and the FTSE Index plummet ~0.45%; within the first 15-20 minutes of opening. The FTSE continued to track lower after Theresa May stated that the UK ‘cannot possibly’ remain in the European single market while the yield on the benchmark gilt spiked to an intraday high 1.32%.
President-elect Donald Trump says he will offer the UK a quick and fair trade deal after he takes office this coming Friday. Although the UK will not be able to sign any new trade deals until it has formally withdrawn from the European Union, it is free to begin laying the groundwork for possible agreements before then. Trump also announced that he would be meeting Prime Minister Theresa May soon after he takes office adding ‘We’re going to work very hard to get it done quickly and done properly. Good for both sides’.
Over the weekend the UK’s Prime Minister denied that both she and the UK government were guilty of ‘muddled thinking’ over Brexit negotiations, along with hinting that that she was prepared for the UK to leave the single market, thus initiating a hard Brexit. In an interview with Sky news she claimed ‘Our thinking on this isn't muddled at all, yes, we have been taking time’ adding ‘I said we wouldn't trigger Article 50 immediately, some said we should. I'm ambitious for what we can get for the UK in terms of our relationship with the European Union because I also think that's going to be good for the European Union’.