The rally in the Pound after just a few words from Leo Varadkar was a sign of just how ready the market is to go long sterling if there is a deal done. The negotiations have intensified over the weekend and investors seem to have come into this week with no more or no less optimism than they left their desks with on Friday. Listening to what MP’s had to say over the weekend though, it might not be Europe that Boris needs to worry about…
Some opposition MP’s are keen to get a confirmatory vote on any Brexit deal and are pressing their peers not to cross the party divide to back any deal that Boris might bring back. Labour are leaning towards the opinion that a confirmatory referendum would be preferable to a general election, because an election before Brexit would essentially be just a referendum by proxy and wouldn’t allow parties to get their broader message across. With Boris lacking any working majority in parliament and the logic for the opposition to go down this route, we wouldn’t rule it out.
The LibDems have reiterated that they wouldn’t support an interim government with Jeremy Corbyn as PM, because he is “not fit to be Prime Minister”. Meanwhile Nicola Sturgeon has said that if the SNP were to provide longer term support to any party in power, that party needn’t bother asking for help unless another independence referendum is firmly on the agenda.
Boris has still got to get something back from Brussels and he’s remaining tight lipped about any concessions he’s made so far on his plan. There definitely are concessions though, as even Jacob Rees-Mogg has written in the Telegraph saying that compromise is necessary. The PM will be speaking to Merkel, Macron and Juncker today to see if the deal still has legs, with The Times reporting that if it doesn’t, he’ll suggest making a no-deal as friendly as possible.
After writing the above, we’re perhaps less optimistic than the wider market…
The Sino-US trade talks have made some small progress, but the big elephants in the room don’t seem to have been addressed: China have agreed to increase agricultural purchases and in turn the US have agreed not to implement their next round of tariffs – but only the next round, they’ve not ruled out future hikes if things don’t go to plan. As Bloomberg point out, the big obstacles of technology transfer and national security remain and there’s still a chance that the progress they have made falls apart in the time it takes them to draw up the paperwork. For those of you that just can’t get enough on trade wars, Forbes has a long read that’s worth a look.
Trump’s multi-tasking with his foreign policy disputes and has said he’s ready to hit Turkey with sanctions if they do anything that crosses any lines. Turkey wasted no time in launching offensives in Northern Syria, aimed squarely at the Kurds but the US has not rolled back the decision to withdraw troops. The Kurds have reached a deal with the Syrian army, which will involve them moving to the northern border in a bid to stop the Turkish offensive. The BBC has more.
In Russia, Putin has said that there should be a reduction in oil supply in a bid to stabilise prices. Oil is back on the slide with the trade uncertainties and the price fall isn’t being entirely offset by geo-political tensions in the Middle East. Moscow relies heavily on high energy prices to fund their economic policies and suffered heavily when oil was last below $50. The FT reports that Russia are also looking again at clearing their oil and gas trades in Euros or Rubles and trying to get away from the petro-Dollar.
The Brookings Institute has said the world is now in a period of “synchronised stagnation” and cite everything that’s going wrong as the reasons! They do say that talk of an imminent global recession seem premature, but also point out that the global leadership seem at a loss as to work out how to stop things. They point out that the growth in popularity of ultra-low interest rates is a concern, as they introduce market vulnerabilities with little to no signs of boosting economic growth. If you choose just one of the articles this morning, make it this one.
The market is starting to slide as we get into the European session. Equities are on the back foot and the Pound has fallen back a bit in the time it’s taken to write this. We’ll be listening intently for anything Brexit related to determine the direction of travel.
Have a great week