60 years later, the beginning of the new EU

peterma · June 3, 2020, 5:46pm

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.

peterma · June 4, 2020, 10:24am

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.

peterma · June 5, 2020, 10:22am

Further update this morning from ECB confirming my earlier posts concerning deflation risk right now.

EG traders are aware that Michel Barnier will give a pressie imminently.

peterma · June 29, 2020, 10:48am

Latest update on talks EU/UK.

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)

Any leaks will be reported

peterma · June 29, 2020, 5:18pm

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,”

So wrote the German Fin Minister on Friday past.

peterma · July 16, 2020, 6:48am

Quick update on the Trade Agreement talks UK/EU

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)

peterma · July 18, 2020, 6:51pm

Another update - this time on the EU27 recovery fund.

The leaders are still in talks in Brussels - yes Friday and Saturday - not very usual.

Discussions not yet finished - so more talking and bargaining tomorrow Sunday.

The signs are reasonably good - likely more work to be done but possible positive market reaction Monday on Euro price - more to follow tomorrow.

peterma · July 18, 2020, 9:28pm

Oh - forgot to mention - they entered the ‘Tunnel’ - everyone having to sign non-disclosures - so will have to watch a little more closely

peterma · July 19, 2020, 8:24pm

Yep - right now - live at 10.25pm EU time - they are still talking - and it’s now down to numbers - this is a program that gets re-paid over 30 years so good chance that it may out-live me and maybe a few others - so is there a good chance of agreement?

Hmmm… think maybe I’d rather be on the buy side for now

peterma · July 22, 2020, 10:42am

Well they took a while, but yes there was agreement.

Experience has taught me that when you see the leaders extend their talks it’s usually a sign that they are arguing - when they don’t argue they don’t agree.

On the ‘buy side’ comment - worth about 150 pips so far.

Is it a positive agreement? - yes it is all of that and more.

peterma · July 24, 2020, 7:11am

Has added a further 50 pips since those 2 days - and worth noting that the market expected agreement since France and Germany first muted the idea of Recovery Fund - ‘news already priced in’ I often read, so guys won’t take the trade and instead wait for the squiggly line

peterma · July 24, 2020, 7:20am

On the Brexit talks - both sides reporting bad news and blaming each other.

Seems that 2 large sticking points - first is Fishing.

This I spoke of last year and suggested that it would be problematic - not due to economics since Fishing represents a tiny portion of UK GDP and that the UK imports more fish (i.e. doesn’t eat it’s catch) - the problem is political. Trade off here would be passporting rights for UK Financials.

The second obstacle is ‘level playing field’ - EU are concerned that a new competitor on it’s doorstep will undercut - and in business undercutting causes hassle.

More to follow, there is a suggestion that UK want to go to the wire for 2 reasons, first that the EU will baulk at the prospect of no deal and offer more and second that a last minute agreement will give less time for ardent brexiteers in the Tory party to organize against any perceived give aways.

peterma · July 24, 2020, 6:03pm

And finally at the week’s end worth a total of 220 pips (another 70 pips from the above quote, that was the ‘more’ part) - good chance that the positive element is now priced in, so likely over to the Dollar next week.

Falstaff · July 24, 2020, 9:24pm

Apparently Peter has decided to ignore my input – so I don’t expect he will even see this – but for those of you interested in this “Deal” – there are some tiny little issues he seems to have missed out of this seemingly Europhillic thread.

To wit ;

As “deals” go it seems it was not quite to everyone’s liking and as we are constantly being told “the EU is democratic” – so the Budget has to get through the “European Parliament” – who do not seem quite so Compliant as they are normally forced to be.

The “European Parliament” has 751 MEPs

And it seems that whilst the Irish were faithfully assisting the EU with Brexit, the EU were lining up the next set of “Cash Cows” nad the leader of the Irish was seemingly allowing them to get “stitched up”

Now 16 Billion is the Nett figure they will have to pay and with a population a little under 5 million – that is Euro 457.29 per year for every man woman and child in Eire – or Euros 35.21 for an average family of 4 – PER WEEK ! – all in Additional Taxation – “Great deal “ ? for the EU perhaps since they will have all that lovely cash to “Spend” as they see fit (!.0734 trillion) – so Peter ought to be very glad he doesn’t live a few miles South as neither he – nor I will have to pay that – because of Brexit.

That is the second largest per capita payment in the whole EU – only being beaten by Luxembourg and is TWICE what the Average German will have to pay !

And it is unlikely the EU have “shelved” their “Harmonisation of taxes” which may well severely damage Ireland’s position as a “Tax Haven” for Google etc.
Reference for above quotes

The MEPs will vote on Thursday !

We may see a “Little volatility” next week – then !

Meanwhile the Dutch (Netherlands) MEPs are pretty choked at their PM collapsing in compliance !

Here’s another reference to the “Ireland issue”

Then of course there s that new 750Billion Euros debt by borrowing the EU are intending to commit themselves to – and which WILL in one way or another have to be paid back ! – in the default position by the citizens of those same countries who are stumping up the trillion plus for their extra layer of Beaurocracy

Bill Cash – Brexiteer and legal expert says “This is a huge step ” – Now the EU have voted themselves fundraising powers it is a huge step towards political union – it is only by having tax-raising powers they can become a Political Union.

It seems the UK got out in “the Nick of time”

So just because someone says in reply to themselves “yes it’s a good deal” – with confidence and apparent authority – does not necessarily mean they are disclosing the “whole truth”

peterma · July 25, 2020, 8:13pm

I couldn’t resist to view the above hidden post, and I’m glad that i did that.

If you are a learner of the market, then the first thing that you must take on board - forget the notion of bias.

Always let the market tell you it’s bias and then align yourself with that thinking.

Bias, whether it’s pro this, or phile that or bullish/bearish an instrument will ultimately side track you.

Mark Douglas wrote about trading in the ‘zone’ - if you ever wish to enter that zone then it’s imperative to dump all bias.

peterma · July 25, 2020, 8:17pm

Btw, for those interested - I’m an Irish citizen, old enough to remember when we were a poor country, now we are in the good position of being 3rd in the world GDP per capita .

Our recently new PM acknowledged that Ireland would be a net contributor to the covid recovery fund, ’ as an exporter to EU a healthy EU is in Ireland’s interest.’

This is the type of forward thinking that has sown the seed of success.

And now, my favourite thought - onwards and upwards

peterma · July 29, 2020, 6:03pm

I suppose a sign of changing times - the EU’ banking authority - the EBA - today reminded EU banks who currently use the UK as a clearing gateway must have set up their required framework bearing in mind that this gateway will close in 5 months time.

In reality it’s just a formal reminder, most financials are already making the changes - perhaps helps explain the 32.5 % increase in volume q2 past vs q2 last year in Euronext

peterma · August 7, 2020, 8:47pm

Another weekend update re UK/EU trade deal talks.

In the withdrawal talks last year Ireland played a pivotal role in helping map a route to agreement. the then Irish PM, Leo Varadkar and UK PM, Boris Johnson struck up a good working relationship that ensured work got done.

In Ireland there has been a change in government, but unusually for politicians old foes have become friends, the new PM’s second in command is the old PM.

End result is that today the senior UK minister in charge of brexit, Michael Gove, acknowledged that the Irish will play a pivotal role in helping UK/EU reach a deal.

Wise thinking - many years ago. before EU, on a ship from France to UK all passengers were required to report to report to immigration with their passports. As soon as i showed my Irish passport i was waved on just like my UK friends - the 2 passports were identical to UK immigration.

It’s known as the Common Travel Area - perceived in the last century, now perhaps the Common Interest Area.

peterma · August 17, 2020, 7:14pm

That was 10 days ago, since that the UK PM has also come over to NI - this time he met with the new Irish PM - a FTA with the EU was on the agenda.

These 2 have met before when neither were leaders, they get on ok.

“The last thing we all need now is a second significant systemic shock to our systems to our economic systems and that’s what a no-deal Brexit would present on top of or alongside Covid,”

“So I did take from that a genuine view that comprehensive free trade agreement was in the best interest of all concerned, and that the British government was sincerely seeking such an outcome,”

The upbeat comments from the Irish PM, suspect some leverage being applied from him on EU in return for support from Ireland on the virus fund plan.

Bottom line - the chances of a FTA have increased.

peterma · September 8, 2020, 6:48pm

Some movement on GBP this week, Eur/Gbp up by 130 pips in 2 days since the release of the Financial Times news leak that UK was going to renege on the treaty signed late last year with the EU - known as the Withdrawal Agreement (WA).

Eur/Gbp can often be viewed as the Brexit cross - a rise of 130pips is large for that cross.

On sunday, before the UK leak there was news from Dublin that the UK were pressuring the Irish to in turn pressure the EU to push forward the negotiations on the FTA - in turn special arrangements for Irish truckers using GB as a landbridge to the EU (over 70% of exports to EU using GB as a bridge for which they pay a tax).

Then strangely a statement from a DUP MP also before the news release that there would have to be changes made to the Agreement - this was unusual because the DUP leader had just stated that the agreement was law and they would just have to make the best of things.

Tomorrow the UK will publish their adjustment to the treaty - the adjustment will focus on what is known as the Irish Protocol - a UK Government admitted that this was in breach of international law - but only by a little bit, he suggested…

The UK govt’s most senior lawyer has resigned in protest.

Analysis:

Likely this was thought up after last week’s informal talks between UK/EU which were unproductive - Ireland is seen as the chink in the EU’s armour - specifically the land border issue. The Irish Protocol portion of the WA is designed specifically to remove the possibility of a hard border in Ireland. The EU is very sensitive to the possibility that such a border could reignite violence at worst or undermine the Good Friday Agreement which led to peace in Northern Ireland at best.

For this reason yesterday morning the EU President tweeted:

I trust the British government to implement the Withdrawal Agreement, an obligation under international law & prerequisite for any future partnership. Protocol on Ireland/Northern Ireland is essential to protect peace and stability on the island & integrity of the single market.

Likely that the British are employing a carrot and stick policy in these final days of negotiations - will it work?

Chances are that it will focus minds to the reality a trade agreement is in everyone’s interest, not least Ireland. The risk is that reneging on an already signed deal will cause many in the EU to come to the conclusion that any deal they sign up to could suffer the same fate - therefore better off without one.

Watch tomorrow’s GBP moves.