Intended to post on this thread this morning re Eur/Gbp and Gbp in general but events overtook, only getting the time now.
Last night the Spectator magazine published a memo from No.10, seemingly written by Cummings - special adviser to the UK PM.
The memo was a anti Irish rant in particular and anti EU in general, more worryingly there was a British threat to withdraw all cooperation including security matters from countries within the EU and that lack of cooperation would targeted more on countries perceived to prevent Brexit on Oct 31st - a league table so to speak.
By coincidence the UK PM was scheduled to call the German Chancellor this morning - surprise, surprise - the call was frosty - worth a few pips, and possibly some more to come.
End of 2019 in sight, the UK/EU withdrawal bill has finally passed in UK so the stage is now set for the UK withdrawal from the EU on Jan 31st 2020.
The agreement covers how the UK leaves the EU but does not set out the future relationship including finance, trade, security etc.
There is a transitional period, ending on Dec 31st 2020 where everything carries on close to normal, there was a clause for extending that period, such extension has been ruled out by the UK (placed into law on Friday past)
Here is the current position from the EU’s perspective as articulated by Michel Barnier on Friday past.
Week one of the roaring 20’s over, incomin week the focus for GBP is inflation and coupled to that retail spending.
Guys that have read the recent retail reports will have a sense of where the numbers are going.
Then at the end of the month comes the driver of price - the Central Bank.
Here again market participants have soundings - not likely that the rate will change but will the count vote change, and if so will it be positive or negatiive?
There are 2 possible waverers - Gertjan Vlieghe and Silvana Tenreyro.
There is a third but I havent yet identified him.
Carney said last week:
“With the relatively limited space to cut Bank rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response,”
Bottom line - reasonable chance of some selling tomorrow on GBP and into the vote count at the end of this month.
Finally this thread has meaning - the UK departs at 11.00pm GMT thuse the beginning for both the new EU and UK.
Trade talks will begin in about one month’s time.
There are quite a few hurdles to overcome - the first one was mentioned by @Clint in a thread dating back perhaps 2 years, namely the banking and finance sector.
I’ll not bore with a link but basically the UK wants to continue ‘passporting’ rights for UK finance in the EU,:
Reuters: Until now, financial firms running EU operations from Britain believed that technical assessments by EU banking, insurance and markets regulators would be enough judge UK rules ‘equivalent’ to those governing EU-based firms, granting them market access after December.
The EU’s de facto position is that there will have to be agreement on same -yet to be negotiated.
The bad news is that there is talk from the UK banking sector that the EU wish to link any such agreement to Fisheries - the Uk have just published their intended law on fisheries ahead of any talks.
This and many other trade aspects have 4 months to be at least half completed.
Tweet yesterday from M. Barnier- A crucial week ahead of us to make tangible progress across all areas, in line with the Political Declaration.
He undertook to brief the press this Friday.
Expectation is that the deadlock will remain - there was talk last month of movement from the EU but No.10 briefed that this was just wishful thinking from the EU side.
The meet between the UK PM and the EC will take place later this month in a likely vain attempt to move forward - deadline for agreement is in 4 weeks - then the talking will stop according to UK.
The EU countries are responding to the economic impacts of the covid crisis just as expected - money for all, provided by the northern European banks, increased state subsidies for big manufacturers, increased state dirigisme of car-makers etc…
I say, Great! let them throw their money at jobs that will not exist in just 1 year’s time.
I don’t want the EU to become poor - we need them to trade with us. But their short-sightedness and interfering tendencies will allow our economy to accelerate away from lockdown and will demonstrate to our voters what happens under such a regime.
This is true - according to the House of Commons library - The EU is the UK’s largest trading partner. In 2018, UK exports to the EU were 45% of all UK exports. UK imports from the EU were 53% of all UK imports.
I wouldn’t write off the proposed recovery fund by the EU just yet any more than I’d write off the UK’s efforts.
Back 10 years there was a crisis - Govt’s response was ‘austerity’ - this seemed to make sense - high taxes, less govt spending - when that didn’t produce the results quickly enough then reluctant money printing - the big fear was the printing would lead to increased inflation and higher interest rates - thus exasperating the economic woes.
Economies are still affected by austerity - oil was USD 112.00 in August 2013
Printing didn’t raise inflation - instead austerity decreased it - the spectre of deflation raised it’s head.
So in Nov 2013 I posted about the threat facing the EZ (and indeed many economies that utilized austerity)
I was asked why I defined deflation as an enemy of business in Nov 2013 -
In context: the truth, sadly, is that most business people regard inflation as a friend - a lesson I learned some 40 years ago.
Back then as a mere teen I couldn’t understand why anyone would embrace inflation, now I understand his point.
I have just recently purchased stock for selling over the next 6 months or so. That is a risk, sentiment could diminish, sales may not be as good as anticipated, it could take me longer than 6 months to sell the stock.
The risk can be reduced dramatically if prices are increasing, I know then that my stock value is appreciating, I have an edge on the competition, I can sell cheaper than they can.
Deflation, on the other hand, ensures that there is no way that I’ll take that risk, I will not invest in stock more than my immediate needs.
Lack of investment…enemy of business, enemy of all.
Tom mentioned the car industry - many analysts think of this sector when discussing the current trade talks - and Germany with BMW and Mercedes jumps to mind.
Funny enough the largest exporting country to UK is Belgium, followed close by Holland - Germany comes in at 8th place.
This industry is taking a hiding in both Uk and EU at present.
Edit: now 24hrs later the ECB have announced stated:
In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households
Explaining their increase in QE from 750bn to 1.35trn - no worries about inflation - the new norm.
Today marks the first face to face meet since early March - smaller delegation - 20 uk guys compared to 100 last time.
Unsure whether this is the ‘tunnel’ talks - if zero leaks then it is.
The market is not expecting a breakthrough as witnessed by EG on friday and this morning - (GBP not helped by ousting of UK head of civil service over the weekend)
There was some discussion elsewhere regarding the German Court case last month which some guys felt that the ruling would impact negatively on the EU plans for recovery post covid
Seems that the German Govt are happy that the requirements of the court ruling have been fulfilled:
“Together with the documents provided, the ECB Governing Council’s decision comprehensively fulfils the demands of the FCC’s May 5 judgement,”
Some softening from EU a couple of weeks back but little progress thus far.
UK pushing for an agreement ‘outline’ - a paper laying what trade-offs are possible.
EU not keen - there was a similar paper a couple of years back called the Political Declaration - the 27 signed up to this, also basis for Barnier’s mandate from the 27.
If July ends with no progress then pressure of time will increase and liklihood of agreement diminish.
EU and UK already undertaking infrastructure changes to accommodate no deal (e.g. Irish trucks use GB as a ‘landbridge’ to rest of Europe, thus an Irish EU vehicle coming off a ferry from England will have a separate ‘green’ lane in France/Holland/Belgium)
