Week Ahead: Brexit Deal Failure Will Rattle Markets

◊ The Week Ahead in Business and Finance ◊


The Week Ahead – Stock Markets
All times listed are EDT.

21:30: China – PBoC Interest Rate Decision

20:30: Australia – RBA Meeting Minutes: expected to provide additional insights into current—and possibly future—Aussie interest rate policy.

8:30: Canada – Core Retail Sales: anticipated to edge up to 0.1% from -0.1%.

10:00: U.S. – Existing Home Sales: likely to decline slightly, to 5.45M from 5.49M.

10:30: U.S. – Crude Oil Inventories: forecast to plunge to 2.878M from 9.281M.

4:30: Germany – Manufacturing PMI: seen to have edged up to 42.0 from 41.7.

7:45: Eurozone – ECB Interest Rate Decision: expected to remain at 0.00%.

8:30: U.S. – Core Durable Goods Orders: probably plunged to -0.1% from 0.5%.

10:00: U.S. – New Home Sales: seen to have edged down to 700K from 713K.

4:00: Germany – Ifo Business Climate Index: expected to edge down to 94.4 from 94.6 previously.

6:30: Russia – Interest Rate Decision: forecast to remain at 7.00%.

Financial Charts

Markets, particularly currency trade and especially sterling, will likely be volatile as the week begins. As well, expect gains across all markets to slip, as optimism over the prospect of a Brexit deal between the UK and EU—touted by UK Prime Minister Boris Johnson late last week as a virtual certainty—fades, after the British Parliament deferred Saturday’s vote in order to have more time to study the details.

As a result, Johnson was forced by law to request an extension from the EU, after repeatedly vowing he would not do this. European Council President Donald Tusk will discuss the request with EU leaders, while Johnson plans to try and push the deal through at his end.


Last week, the U.S.’s third quarter earnings season kicked off, with major banks reporting mostly solid earnings versus depressed investor expectations, leading the group and most U.S. benchmarks, higher. Overall, U.S. equities eked out gains on a weekly basis but fell Friday with Boeing (NYSE:BA) plunging -6.79% on additional bad news for the U.S. aerospace giant. Microsoft’s (NASDAQ:MSFT) losses on Friday allowed Apple (NASDAQ:AAPL) to take back the lead as the world’s most highly valued company.

The Dow Jones Industrial Average underperformed on Friday after closing on Thursday just 1.25% below its July 15 record. Boeing (NYSE:BA), the most heavily weighted stock on the 30-component mega cap index, accounted for roughly two-thirds of its selloff. The avionics manufacturer which has been in the news for months now, made fresh headlines on Friday after regulators charged that the company neglected to disclose communications between its employees in 2016 during the certification of the now grounded 737 MAX jet.

Technically, Friday’s trading erased four days of advances, on the highest volume since Oct. 2, when the index dropped 1.8 percent, after nearing record highs. For the week, the Dow retreated 0.2%. Though U.S. corporate earnings thus far have been relatively upbeat, after Morgan Stanley (NYSE:MS) on Thursday became the latest big bank to buck concerns about weak growth, technicals on U.S. indices increased chances of topping out.

Also, economic data flipped negative once again. U.S. retail sales disappointed, and the International Monetary Fund (IMF) lowered, yet again, its projections for global growth this year from 3.5% to 3%. Traders will also be mulling the data from China, released early Friday, which showed GDP had slowed to 6% in the third quarter, with limited pick-up from domestic demand, but factory output had improved and retail sales held up.

The NASDAQ Composite slumped -0.83% on Friday, with Microsoft (-1.63%) leading tech firms lower. Technically, the price neared the neckline of a potential H&S top, whose development was accompanied by falling volume. The tech heavy index gained 0.4% for the week. Treasurys fluctuated but remained unchanged. The U.S. 10-year note closed at the top of a symmetrical triangle, situated below the downtrend line since November 2018.

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The pound is expected to plunge when FX trade opens this coming week, unless some drastic new twist toward a Brexit deal materializes. Technically, the pound surged through both the downtrend line since May and its uptrend line since August. Unless a miraculous deal emerges, the pound is likely to retest the broken downtrend line toward 1.2600.

Oil closed slightly lower after fluctuating throughout Friday’s session, finishing at the bottom of a rising flag, bearish after the preceding sharp downturn. If completed, it will imply a downside breakout of a larger descending triangle singe April 2018 and the top of a rising channel since August, on high volume, after cutting through the 200 DMA


Trump Promised Britain A Broad Free-Trade Accord Once It Leaves The European Union

UK US news

President Trump promised Britain a broad free-trade accord once it leaves the European Union, an offer that would require the U.K. to secure the decisive break with the bloc advocated by prominent Brexit backers in the race to succeed Prime Minister Theresa May.

Such an agreement, though, could take years to materialize even after an abrupt split and would face multiple political hurdles in the U.K. and the U.S. At a press conference with Mrs. May on the second day of a three-day state visit, Mr. Trump talked up close economic links between the U.S. and its ally and said a free-trade pact had “tremendous potential” to boost trade between the two countries.

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“As the U.K. makes preparations to exit the European Union, the United States is committed to a phenomenal trade deal between the U.S. and the U.K.,” he said. Brexit backers have long touted the prospect of a free-trade accord with the world’s biggest economy as a major prize from Britain’s EU withdrawal. But negotiating such a deal would require the U.K. to ditch many EU regulations and pull out of the bloc’s customs arrangements, threatening existing trade with the 27 remaining member states.

The issue strikes at the central question in Britain’s tortuous Brexit debate: whether to hug the EU close after Brexit or engineer a decisive, but potentially disruptive, split. Divisions over this choice have riven the main political parties since voters chose to leave the bloc in 2016, leaving Parliament in gridlock. How close the relationship is has far-reaching consequences for the economy, relations with Ireland and the U.K.’s ability to set its own rules on immigration and other policy areas.

Mrs. May presented a Brexit plan to lawmakers she billed as a compromise that would allow the U.K. to strike out on its own while maintaining close economic links to the EU. But lawmakers on three occasions rejected it, critically injuring her premiership. She is due to step down as prime minister on Friday, though will carry on official duties while a successor is chosen, a process that could take weeks.

The U.K.’s break from the EU, originally scheduled for March 29, has been delayed to Oct. 31. Mr. Trump’s promise of a post-Brexit free-trade deal is catnip to advocates of a decisive split, including former Foreign Secretary Boris Johnson and former Brexit secretary Dominic Raab.

Mr. Trump has expressed support for Mr. Johnson, who is considered the front-runner to become the U.K.’s next prime minister, and has said the U.K. should swiftly break with the EU without a deal to smooth its exit. Multiple studies, including analyses by the U.K. government and the Bank of England, have suggested such an abrupt split would damage the U.K. economy.

Mr. Trump spoke with Mr. Johnson for 20 minutes by phone on Tuesday, a person close to the former U.K. foreign secretary said. Mr. Trump is also close to Nigel Farage, a fierce advocate of a decisive break with the EU who leads the U.K.’s upstart Brexit Party. Mr. Farage was seen on Tuesday leaving the U.S. ambassador’s residence in London, where the president was staying during his visit.

British lawmakers who favor close ties to the EU, along with many economists, are skeptical about the benefits of a U.S. trade deal. A 2018 government analysis concluded that leaving the EU would leave the U.K. economy smaller after 15 years than it would have been had the country remained a member state. The size of the hit ranged from 0.1% to 9% over that period, depending on whether the U.K. pursued close ties or opted for a decisive break.

Over the same period, free-trade agreements with the U.S. and other economies were forecast to boost the economy by 0.2%, the analysis found, irrespective of the manner of Brexit. The difference reflects the scope of the EU’s trading relationships, compared with more-conventional free-trade deals and the greater distances to the U.S. compared with Europe.

“The government must ask itself one simple question: Is such a negligible increase [in U.K. gross domestic product] really worth putting so many areas of the U.K. economy on the table for?” said Angus MacNeil, an anti-Brexit Scottish National Party lawmaker who chairs a parliamentary panel that scrutinizes U.K. trade policy. Some in the U.K. are hostile to the trade-offs that a deal with the U.S. could involve. British farmers worry the U.K. will be flooded by cheap U.S. imports, pushing them out of business.

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Another British concern is the state-run National Health Service, which voters don’t want to see opened to American corporate involvement in any trade pact. In a sign of that sensitivity, Mrs. May said on Tuesday that parties to a trade negotiation decide what is and isn’t open for discussion. Mr. Trump had a moment earlier said “everything is on the table” in a U.S.-U.K. deal, including health care.

Meanwhile, a trade pact with the U.K. is likely to face resistance in Congress, where some Democrats have said they wouldn’t ratify such a deal if an abrupt and messy break between the U.K. and the EU undermines peace in Northern Ireland by requiring the imposition of border controls between the U.K. region and the Republic of Ireland.

Prime Minister Theresa May Warns Lawmakers: Back My Deal Or Face Long Brexit Delay

Prime Minister Theresa May’s warned lawmakers that unless they approved her Brexit divorce deal after two crushing defeats, Britain’s exit from the European Union could face a long delay and could involve taking part in European parliament elections.

After two-and-a-half years of tortuous divorce negotiations with the EU, the final outcome is still uncertain with options including a long delay, exiting with May’s deal, a disorderly exit without a deal or even another referendum. May issued Brexit supporters an ultimatum: ratify her deal by a European Council summit on March 21 or face a delay to Brexit way beyond June 30 that would open up the possibility that the divorce could be ultimately thwarted.

The prime minister bluntly warned that Britain will be forced to take part in European parliamentary elections expected to place at the end of May if there is a longer extension to Brexit talks.

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“If the proposal were to go back to square one and negotiate a new deal, that would mean a much longer extension – almost certainly requiring the United Kingdom to participate in the European Parliament elections in May,” she said in an article in the Sunday Telegraph.

“The idea of the British people going to the polls to elect MEPs three years after voting to leave the EU hardly bears thinking about. There could be no more potent symbol of parliament’s collective political failure.” The Sunday Times said May will warn Brexit supporters that unless they support her deal they will face a “Hotel California Brexit” where you can check out, but never leave.

EU leaders will consider pressing Britain to delay Brexit by at least a year to find a way out of the domestic maelstrom, though there is shock and growing impatience at the political chaos in London.

Her deal, an attempt to keep close relations with the EU while leaving the bloc’s formal structures, was defeated by 230 votes in parliament on Jan. 15 and by 149 votes on March 12. But May continues to fight to build support for her plan, which is expected to put before lawmakers for a third time next week, possibly on Tuesday.

To get it through parliament, the prime minister must win over dozens of Brexit-supporting rebels in her own Conservative Party and the Northern Irish Democratic Unionist Party (DUP) which props up her minority government. “I know that I will have to do more to convince others, as well as the DUP, if I am to succeed in finally securing a majority for the deal,” May said.

The DUP said on Saturday it is continuing to hold talks with the government but differences remained over the Irish border. The proposed changes would address the most contentious part of the divorce deal – an insurance policy aimed at avoiding controls on the sensitive border between the British province of Northern Ireland and EU member Ireland. The DUP is also demanding a seat at post-Brexit trade talks as its price for supporting her deal, The Sunday Telegraph reported.

But the opposition Labour Party’s finance policy chief John McDonnell said on Saturday he was concerned that Chancellor of the Exchequer Philip Hammond’s presence during the talks on Friday means the government might have offered the DUP money to back the deal. “It will rightfully be seen by the British electorate as corrupt politics and will demean our political system in the eyes of the world,” McDonnell said.

The DUP denied that they were seeking money from the government. After three dramatic days in parliament this week, lawmakers voted on Thursday to have the government ask the EU for a delay beyond the date Britain is scheduled to leave – March 29.

May says she wants to minimize any delay but to achieve that she will need parliament to back her deal at the third time by the middle of next week, possibly on Tuesday. She needs 75 lawmakers to change their vote. If she can swing the DUP behind her, along with several dozen more Brexit supporters in her own party, she will be getting close to the numbers she needs.

One eurosceptic Conservative lawmaker Daniel Kawczynski said on Saturday he will now back May’s deal because otherwise there is a risk Brexit may not happen. Around 20 Conservatives lawmakers are unlikely ever to be satisfied but she may draw in a small number of opposition Labour lawmakers.

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In another sign of how Brexit continues to reshape loyalties in Britain’s politics, a senior Conservative lawmaker quit his local party on Saturday due to disagreements over Brexit. Nick Boles, 53, has been critical of the government’s threat to leave the EU without a deal and has faced calls from his local party to be ousted as its candidate for the next general election. Boles said he could remain aligned with the Conservatives in parliament if it is offered “on acceptable terms.”

UK Said On Wednesday It Would Eliminate Import Tariffs On A Wide Range Of Goods And Avoid A So-Called Hard Border Between Ireland And Northern Ireland

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Today’s Stock Market News — Britain said on Wednesday it would eliminate import tariffs on a wide range of goods and avoid a so-called hard border between Ireland and Northern Ireland in the event of a no-deal Brexit.

The government announced the moves, which it said would be temporary, ahead of a vote by lawmakers later on Wednesday on whether Britain should leave the European Union without a deal, a prospect that alarms many employers with the scheduled March 29 Brexit date fast approaching.

Prime Minister Theresa May suffered a second, heavy parliamentary defeat on the withdrawal deal she struck with the bloc on Tuesday, leaving open the possibility of an abrupt, economically damaging Brexit without a transition arrangement.

However, lawmakers are expected to vote against a no-deal Brexit and then, on Thursday, vote in favour of seeking a delay to Brexit. Under the tariff plan for a no-deal Brexit that would last for up to 12 months 87 percent of total imports to the United Kingdom by value would be eligible for tariff-free access, up from 80 percent now.

The new system would mean 82 percent of imports from the EU would be tariff-free, down from 100 percent now, while 92 percent of imports from the rest of the world would pay no duties at the border, up from 56 percent now.

Some protections for British producers would remain in place, including for the country’s carmakers and beef, lamb, pork, poultry and dairy farmers.

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Cutting import tariffs on imported goods would ease the hit to British consumers from an expected jump in inflation in the event of a no-deal Brexit which would probably cause sterling to tumble and make imports more expensive.

But it would also expose many manufacturers to cheaper competition from abroad and, if maintained, low or zero tariffs would deprive Britain of ammunition for extracting concessions from other countries in future trade talks.

On the Irish border, the British government said it would not introduce any new checks or controls on goods moving from the Irish Republic to the British province of Northern Ireland in the event of a no-deal Brexit, stressing the plan was temporary and unilateral.

“The measures announced today recognise the unique circumstances of Northern Ireland,” Karen Bradley, Britain’s secretary of state for Northern Ireland said in a statement. “These arrangements can only be temporary and short-term.”

Britain would seek to enter discussions urgently with the European Commission and the Irish government to agree long-term measures to avoid a hard border. Goods crossing the border from Ireland into Northern Ireland would not be covered by the new import tariff regime.

Britain, Ireland and the EU have said they want to avoid physical checks on the border, which was marked by military checkpoints before a 1998 peace deal ended three decades of violence in the region. But they disagree on the “backstop”, or insurance mechanism, to exclude such border checks.

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The Pound Jumped And Asian Shares Rallied On Tuesday After The European Commission Agreed To Changes In A Brexit Deal

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Today’s Stock Market News — The pound jumped and Asian shares rallied on Tuesday after the European Commission agreed to changes in a Brexit deal ahead of a vote in the British parliament on a divorce agreement.

European Commission head Jean-Claude Juncker agreed to additional assurances in an updated Brexit deal with British Prime Minister Theresa May on Monday, but warned UK lawmakers would not get a third chance to endorse it.

Sterling, which had risen ahead of the talks between May and Juncker, extended gains in hopes the changes may be enough to sway rebellious British lawmakers who have threatened to vote down May’s plan again on Tuesday. The pound was up 0.5 percent, buying $1.3215 and taking its gains over two days to more than 1.5 percent.

A lower likelihood of crashing out of the EU with no Brexit deal could help to inject some bullish sentiment into equity markets by eliminating one of the three major concerns of global investors, alongside trade and slowing global growth, said Greg McKenna, strategist at McKenna Macro.

“Take Brexit off the table and I think some of the real money flows that appear to have turned up late last week are likely to be there again. So I think it helps change the backdrop a little bit,” he said.

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MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1.08 percent, with early gains reinforced by a rise in Chinese shares and oil companies, which were buoyed by higher oil prices. Chinese blue chips .CSI300 rose 1.3 percent, extending the previous day’s 2 percent gain.

Despite slowing domestic economic growth and uncertainty about the outlook for trade negotiations between China and the United States, Chinese markets have been buoyed this year by investors’ expectations of more stimulus to cushion any downturn.

The CSI300 index has risen more than 25 percent this year. But Oliver Jones, market economist at Capital Economics cautioned that the Chinese rally is “built on shaky foundations.”

“The surge in China’s mainland equity markets since the start of the year looks excessive, even allowing for renewed optimism about stimulus in China and the possibility of a US-China trade deal,” he said in a note.

“Since we are anticipating more economic weakness in both China and the rest of the world regardless, we suspect that the Shanghai and Shenzhen markets will fall back sharply later in the year.” Australian shares were up 0.4 percent, while Japan’s Nikkei stock index .N225 jumped 1.9 percent, helped by a weaker yen.

The amended Brexit deal gave a further boost to investors’ appetite for riskier assets, after global equity indexes climbed overnight on gains in technology stocks and expectations of more stimulus from China.

U.S. shares rebounded from a week-long losing streak, with news that U.S. chip supplier Nvidia Corp (NVDA.O) has agreed to buy Israeli chip designer Mellanox Technologies Ltd (MLNX.O) for $6.8 billion helping to boost tech shares.

A nearly 7 percent gain in Nvidia shares helped to propel the Nasdaq Composite .IXIC 2.02 percent higher, to 7,558.06 points. The Dow Jones Industrial Average .DJI rose 0.79 percent, with gains tempered by a 5.3 percent drop in Boeing shares after some airlines grounded the company’s new 737 MAX 8 passenger jet following a second deadly crash of the airliner in five months.

The S&P 500 .SPX gained 1.47 percent to 2,783.3. The market’s turn toward riskier assets lifted yields on U.S. Treasury bonds, with benchmark 10-year Treasury notes US10YT=RR at 2.6645 percent compared with its U.S. close of 2.641 percent on Monday.

The two-year yield US2YT=RR was at 2.4998 percent compared with a U.S. close of 2.477 percent. The dollar index .DXY, which measures the greenback against a basket of rivals, shed 0.2 percent to 97.036. But rising risk appetite weighed on the safe-haven yen, pushing the dollar up 0.16 percent to 111.37. The euro EUR= was up 0.13 percent on the day at $1.1262.

In commodity markets, oil prices rose on a combination of strong demand and supply cuts by the Organization of the Petrolum Exporting Countries (OPEC).

A political and economic crisis in OPEC-member Venezuela is also seen as lifting crude prices. Venezuela’s opposition-run congress on Monday declared a “state of alarm” over a five-day power blackout that has crippled the country’s oil exports and left millions of citizens scrambling to find food and water.

U.S. crude CLc1 was up 0.5 percent at $57.08 a barrel and Brent crude LCOc1 was 0.4 percent higher at $66.84. Spot gold XAU= jumped 0.2 percent to $1,296.45 per ounce.

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More Than 275 Financial Firms Are Moving A Combined $1.2 Trillion In Assets And Funds From Britain To The European Union In Readiness For Brexit

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Today’s Stock Market News — More than 275 financial firms are moving a combined $1.2 trillion in assets and funds and thousands of staff from Britain to the European Union in readiness for Brexit at a cost of up to $4 billion, a report from a think tank said on Monday.

UK lawmakers are due to vote on Tuesday on an EU divorce settlement. But with less than three weeks to go before Brexit day on March 29, it is still unclear whether the deal will be approved, whether departure from the EU will be delayed, or whether it will happen without agreement.

The report by the New Financial think tank, one of the most detailed yet on the impact of Brexit on financial services, said Dublin alone accounted for 100 relocations, ahead of Luxembourg with 60, Paris 41, Frankfurt 40, and Amsterdam 32.

The independent think tank said half of the affected asset management firms, such as Goldman Sachs Investment Management, Morgan Stanley Investment Management and Vanguard, had chosen Dublin, with Luxembourg the next port of call, attracting firms like Schroders, JP Morgan Wealth Management and Aviva Investors.

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Nearly 90 percent of all firms moving to Frankfurt are banks, while two-thirds of those going to Amsterdam are trading platforms or brokers. Paris is carving out a niche for markets and trading operations of banks and attracting a broad spread of firms.

New Financial identified 5,000 expected staff moves or local hires, a figure that is expected to rise in coming years. A better measure of Brexit’s impact is the scale of assets and funds being transferred, it said.

Ten large banks and investment banks are together moving 800 billion pounds of assets from Britain – or 10 percent of banking assets in the country. A small selection of insurers have shifted a combined 35 billion pounds in assets, and a handful of asset managers have moved a total of 65 billion pounds in funds.

William Wright, founder and managing director of New Financial, said the hit to London was bigger than expected and would get worse.

“Business will continue to leak from London to the EU, with more activity being booked through local subsidiaries,” Wright said. “This will reduce the UK’s influence in European banking and finance, reduce tax receipts from the industry, and reduce financial services exports to the EU.”

A 10 percent shift in banking and finance activity would cut UK tax receipts by about 1 percent, the report said. Relocations have cost firms $3 billion to $4 billion, which will be passed on to customers and shareholders, the report said.

But the breadth and depth of relocations so far, combined with pacts between regulators in Britain and the EU, mean the industry is well prepared for whatever form Brexit takes, New Financial said. London will remain the dominant financial center for the foreseeable future, but other European cities will chip away at London’s lead over time, it added.

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Airbus is planning for a “no deal” Brexit as its “baseline” scenario amid a political storm over a draft transition deal


Europe’s Airbus (PA:AIR) is planning for a “no deal” Brexit as its “baseline” scenario amid a political storm over a draft transition deal, according to a staff memo seen by Reuters.

Europe’s largest aerospace group on Thursday welcomed a draft divorce agreement between London and Brussels, but said there needed to be more clarity to allow businesses to plan.

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With Prime Minister Theresa May facing a battle to get her draft agreement on the terms of Britain’s departure from the European Union through parliament, and a potential revolt from members of her party, Airbus vowed to pursue contingency plans.

“The draft agreement is certainly encouraging but we must remember it is subject to parliamentary approvals,” the head of the company’s internal Brexit task force told staff.

“For the teams working on preparing for Brexit we must stay focused and keep working at full speed from a baseline of no deal.” An Airbus spokesman declined to comment on the memo but told Reuters, “the situation remains unclear, so we have to continue planning and putting in place mitigation measures,” adding this position was unchanged since a paper published in June.

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The comments echo those of German carmaker BMW (DE:BMWG), which has said that with the politics so uncertain, it would continue to prepare for ‘no-deal’ or leaving the single EU market and customs union with no agreed transition.

Airbus, which employs 14,000 people in Britain and builds most wings for its jetliners there, said in June a ‘no-deal’ exit would cost it billions of euros and force it to reconsider its investments and “long-term footprint” in the country. Chief Executive Tom Enders on Thursday called for “the removal of uncertainty as soon as possible”.

Stock Market News Today: UK trade secretary Liam Fox thinks the chances of Britain crashing out of the EU without a Brexit deal are high.

Stock Market News Today

UK trade secretary Liam Fox thinks the chances of Britain crashing out of the EU without a Brexit deal are high — 60-40 to be exact. He was not the only one making Brexit warnings at the weekend. Philip Hammond, UK chancellor, warned of a French effort to stifle Britain’s financial services sector in red tape after the UK leaves the bloc.

The EU is looking at limiting the legal power it would wield over Northern Ireland to avoid a “no deal“ outcome. Finally, the UK’s biggest companies have become more optimistic about the impact of Brexit on the UK economy.


Brexit News Today. The complications of the UK leaving the EU aside, many bankers and analysts are more worried about moving global finance away from its reliance on disgraced interest rate benchmark Libor. “In many ways this is potentially bigger than Brexit,” Dixit Joshi, group treasurer at Deutsche Bank, said.

HSBC News Today. Higher operating expenses continued to bite at HSBC’s profitability in the first half of 2018 as the bank invested in its retail and investment banking operations. The bank closed its morning session in Asia up 1.5 per cent at HK$73.40, compared with a 0.7 per cent gain by the Hang Seng Index.

Saudi Arabia and Canada News Today. Saudi Arabia is expelling the Canadian ambassador and freezing new trade with the country. The move comes after Canada said it was “gravely concerned” about the arrest of several human rights activists in the Gulf kingdom. Saudi Arabia did not appreciate the “interference”. Staying in the Middle East, Donald Trump’s hopes of delivering the “ultimate deal” to resolve the Israeli-Palestinian conflict are foundering.

UK Insurance Companies News Today. Three large UK insurance companies have been accused of failing to properly spell out the risks their businesses face from climate change. If the complaints against Lancashire, Admiral and Phoenix are upheld, the companies could face fines. This comes after a weekend of extreme hot weather in Europe.

Iran Sanctions News Today. US sanctions on Iran, which had been lifted under the 2015 nuclear accord, go back into effect from today. They cover Iranian trade in automobiles and metals including gold.


Stock Market Overview. European stocks are set to start the week on a solid footing as Asia-Pacific markets shrug off concerns over a fresh round of trade war rhetoric between the US and China.

Asian equities are mostly gaining ground, though stocks in China are down after President Donald Trump’s claim the US is winning its deepening trade war with China, which on Saturday threatened retaliatory tariffs on $60bn of imports from the US.

In Hong Kong the Hang Seng index is up 0.6 per cent thanks to gains for utilities and technology stocks, which are 1 per cent and 0.9 per cent higher respectively.

In China, however, the CSI 300 index of major stocks in Shanghai and Shenzhen is off 0.8 per cent.

Tokyo’s Topix has slipped 0.6 per cent with a 1 per cent fall by financials offsetting gains of 1 per cent in the telecoms segment.

Sovereign bonds are steady, with the yield on 10-year Japanese government bonds hovering above 0.1 per cent following a volatile week that saw it range between 0.053 per cent and 0.142 per cent following the Bank of Japan’s tweaks to its quantitative easing policy. The yield on 10-year US Treasuries is up 1 basis point at 2.956 per cent.

Investors are waiting to see whether the Italian government’s bond-buying operation — which was announced late on Friday — is sufficient to stabilise the country’s bond yields, which climbed late last week as political turmoil once again hit the markets.

Oil prices are rising following news that some US sanctions on Iran will be reinstated.

JPMorgan issues bleak warning on Brexit damage – The UK economy could suffer such a significant downturn after it leaves the EU that it will have an impact on global growth.

Coming a day after two senior cabinet ministers resigned in protest at Mrs May’s Brexit negotiating plan, Mr Dimon’s comments underline how business leaders are losing patience with the lack of progress in deciding the terms of the UK’s exit from the EU.

“We still do not fully understand what Brexit is, its economic effects and how its effects will play out: these are huge question marks that will stay for a long time,” Mr Dimon told the Italian newspaper Il Sole 24 Ore.

“I do think that, because of Brexit, some businesses across the financial and manufacturing sectors will be relocating from the UK to other parts of Europe, including Italy,” he said.

JPMorgan last week became the latest big bank to begin moving staff out of London ahead of Brexit, telling its UK employees that “several dozen” of them had been “asked to consider relocation from the UK” around the end of this year.

Mr Dimon had a message for the new populist Italian government, warning of the dire consequences of attempting to withdraw the country from the eurozone.

“Because of the way it has been designed, the European Monetary Union would be hard to reverse without causing catastrophic events,” he said. “This does not mean that Europe should not fix itself. There are many regulatory issues that remain to be solved, and the fact that Brexit happened should make the dialogue between European countries easier.”

Boris Johnson raises the EU colony question
The JPMorgan boss also had stern words about the potential “bad outcome” of US president Donald Trump’s threats to impose tariffs on imports.

“President Trump has been warned about this by the business community in the US,” he said. “The impact of tariffs on trade can offset the benefits that US growth is having from tax reform, but we do not yet know to what extent.”

Mr Dimon has previously warned that JPMorgan’s 16,000-strong UK workforce could be reduced by 4,000 after the UK quits the EU.

JPMorgan had banking licences in Frankfurt, Dublin and Luxembourg and was adding staff in other locations including Paris, Madrid and Milan, it said in a memo to UK staff last week.

Most big financial groups are trying to limit the disruption of Brexit and plan to move at most a few hundred jobs each from London to other European cities in the first phase. However, executives warn that they may later be forced into more radical shifts in a hard Brexit scenario in which the UK leaves the EU without any agreement on trade.

Bank of England nears rate decision. Britain’ economy picked up a bit of speed in May after slowing in early 2018, according to official figures that are likely to give the Bank of England more confidence about raising interest rates next month.

Sterling fell against the dollar after the data, which showed a mixed picture of the economy. Growth came mostly from the dominant services sector while factory output disappointed.

But Cathal Kennedy, an economist at RBC Capital Markets, said the figures should support expectations that the BoE would raise rates in August.

“The gradual momentum into May really backs up what the Bank has been saying of late. We have seen a bounceback from the first quarter,” he said.

BoE Governor Mark Carney and other top officials at the central bank opted not to raise rates in May because of the early 2018 slowdown.

Instead, they decided to wait for signs the weakness was temporary and caused by unusually cold winter weather rather than a sign of broader problems before Britain’s exit from the European Union next year.

However, upheaval in the government of Prime Minister Theresa May — battling to keep her grip on the ruling Conservative Party, which is split over Brexit — could yet affect confidence among employers, a potential new hurdle for the BoE.

Britain’ economy grew by 0.2 percent in the three months to May, as expected, after stagnating in the three months to April.

In annual terms, the economy was 1.5 percent bigger than in May last year, the ONS said.

The BoE’ rate-setting committee is expected to raise rates by 25 basis points to 0.75 percent


The ONS said the warm weather and spending around the royal wedding of Prince Harry and Meghan Markle helped the economy.

Britain’s services industry grew 0.3 percent month-on-month in May, slowing from an upwardly revised 0.4 percent in April.

Over the three months to May, growth in services — which makes up 80 percent of economic output — picked up speed to 0.4 percent from 0.2 percent.

But industrial output fell unexpectedly in May by 0.4 percent on the month, hit by the shutdown of the Sullom Voe oil and gas terminal.

Manufacturing growth also disappointed, rising only 0.4 percent on the month — less than half the growth rate expected in the Reuters poll.

May capped the weakest three months for British factories since December 2012.

There was better news from construction, which had struggled in the bad weather of early 2018. Output jumped 2.9 percent in May, far exceeding expectations and marking the first growth in the sector since December.

Separate data showed Britain’s deficit in goods trade during May was broadly unchanged from April at 12.362 billion pounds ($16.37 billion).

Theresa May has moved to strengthen her grip over Eurosceptics in her cabinet, telling them that if they now disown the “soft-Brexit” strategy agreed at Chequers on Friday they will be sacked.


Mrs May faced down Eurosceptic critics, including foreign secretary Boris Johnson, as she pushed through a new Brexit plan that would keep Britain closely tied to the EU single market on goods and agriculture and within the EU’s customs territory.

“We will deliver on Brexit but we also do so in a way that is in a good deal for Britain,” Mrs May told BBC News.

According to those who attended the all-day meeting at the prime minister’s country residence, Eurosceptic ministers “grumbled” about the proposal but recognised they could not stop it or even change it substantially.

“I think what was crucial yesterday was that we had a very good discussion, a very detailed discussion and yes, we agreed the position that we can now all take forward as a government, Mrs May said. “And the challenge now is if you like to the European Union.”

Mr Johnson is said to have ultimately spoken in favour of the agreement over dinner at Chequers. “There was a sense of realpolitik — a feeling that we just need to break through the logjam,” said one person briefed on the meeting.

Mrs May’s decision to restore cabinet responsibility on Brexit is intended to prevent Mr Johnson and other colleagues disparaging the agreement after they had left the Buckinghamshire estate; any minister who criticises the Chequers deal would be liable to be sacked.

Jacob Rees-Mogg, leader of the influential European Research Group of pro-Brexit Conservatives, said he wanted to see more details and warned that he would not vote for a plan which crossed the red lines set out in the Tories’ election manifesto.

He said Mrs May’s plan could make “trade deals almost impossible” if it meant regulations would have to apply to any goods coming into the UK.

“It is possible that this deal is worse” than a “no deal” Brexit he told BBC Radio 4’s Today programme.

Labour’s shadow international trade secretary Barry Gardiner said there was a danger that the plan had been drafted to hold the cabinet together rather than to secure a strong negotiating position with the EU “that will create jobs, that will create growth in our economy”.

Mrs May’s proposals, while far from acceptable to the EU, have been widely seen across Europe as a serious attempt to unlock stalled negotiations in Brussels. David Davis, Brexit secretary, will begin an EU tour next week to sell the ideas.

Michel Barnier, EU chief negotiator, tweeted: “Chequers discussion on future to be welcomed. I look forward to White Paper. We will assess proposals to see if they are workable and realistic in view of European Council guidelines.”

The 120-page white paper will include a proposal to keep Britain tied to the EU’s single market for goods and agriculture through a “common rule book” and in a complex “facilitated customs agreement”; both are intended to remove friction at the border, including in Ireland.

Brexit News: Michel Barnier has said Brussels remains ready to change its Brexit offer to the UK if Theresa May’s government shifts on its “red lines”.

The EU has insisted Britain cannot cherry pick from parts of the single market which will require the UK to stick by the bloc’s common rules, common court, and abide by its four principles on the free movement of people, goods, capital and services.

Theresa May has said the UK not be a part of the internal market and customs unions, leaving an “ambitious” free trade agreement on the lines of that signed between the EU and Canada as the only alternative relationship the EU is willing negotiate.

But Mr Barnier said the EU would drop its insistence if the government shifted its position.

“I am ready to adapt our offer should the UK’s red lines change” said Mr Barnier.

The former French foreign minister also insisted that the EU’s backstop plan to prevent a hard border between Ireland and Northern Ireland in the absence of a deal did not mean undermining the territorial integrity of the UK.

The backstop would keep the territory of Northern Ireland inside the EU’s regulatory orbit, creating an effective border between mainland Britain and Ireland.

“We are not asking for any new borders between Northern Ireland and the rest of the UK. All or parts of the backstop can be replaced by a future EU UK relationship” said Mr Barnier.

“We must all de-dramatise this backstop”.

After today’s Chequers meeting, the UK is expected to publish a White Paper on its Brexit strategy next Thursday. Mr Barnier said he hoped the proposal would “facilitate both the UK internal debate and the negotiation with us.”

“My goal has always to find an agreement with the UK not against the UK”, he said.

Mr Barnier said his negotiating team would look “carefully, precisely, and concretely” at the White Paper when it is published.

“I have real respect for Theresa May and I know her daily work is not easy”, he said.

Although the EU27 has managed to maintain rare unity in its negotiation position for the last 18 months, Horst Seehofer, Germany’s interior minister, last week wrote to the European Commission warning Brussels not to put the lives of citizens at risks over Brexit.

Responding to the letter on Friday, Jean-Claude Juncker, said the commission would stick to the negotiating guidelines it has from EU governments.

Theresa May’s entire cabinet is supposed to finally settle on a policy for the UK’s long-term relationship with the EU as a non-member, expectations are that the prime minister is manoeuvring towards an arrangement known to the initiated as “the Jersey model”.

StockMarketNews.Today – The standard reading of the mood in Brussels is that this solution is unacceptable. The European Commission has focused on “off-the-shelf” solutions, such as Norway’s European Economic Area deep integration model with the EU, or a Canada-style free trade agreement. Of the examples available, only the latter would fulfil all the criteria set out in the UK prime minister’s early speeches; only the former (plus a customs union) would fulfil the promise of no physical infrastructure on the Irish land border. According to The Times, May’s officials believe the EU will force the UK to choose between these two options — and it is likely the government will choose the Norway model (with a customs union-like arrangement) on the edge of the abyss.

As far as I can judge, this is an accurate take of the EU’s position. But from many conversations with policymakers (in the EU itself and in the member states) I get a distinct sense that this is partly a consequence of omission. European politicians have not had to seriously consider a “goods only” model for the simple reason that the UK has come nowhere close to making such a proposal. Britain’s public negotiating position remains one of promiscuous self-contradiction.

If (a big if) the UK could get serious, its best move would be to make an unambiguous, committed and earnest proposal for a permanent deal for free movement of goods akin to the Jersey model. Only when it does will member states have to engage with it properly. And when they do, chances are they will find much to like and might be minded to compromise. Examine them properly, and the arguments rehearsed in Brussels against a proper agreement for the free movement of goods — my colleague Alan Beattie sets them out well — are not as convincing as all that.

First, how could the EU ensure the integrity of its rules if goods could freely circulate between it and the UK? The answer, clearly, is that the UK would have to accept all EU rules and European court jurisdiction permanently for all that has to do with the trade and production of goods. Qualitatively this would be like the EEA — whose members the EU trusts to enforce the rules on their territory — but would differ in scope, because services would not be covered. That is why the European Free Trade Association court provides a suitable model for jurisdiction and enforcement.

Second, what about unfair competition? The UK has foolishly threatened to deregulate to favour its industries after Brexit, giving the EU cause to be worried about an unlevel playing field. So the UK would also have to accept a whole set of “flanking policies”. The rules it accepts EU laws and jurisdiction for would have to include certain environmental, social and state aid standards.

If the UK is serious, it will accept all of this. And if it does, other EU objections fall away. Some worry that other countries would prefer the British model to EU membership. Really? Note that the UK would accept to be permanently governed by rules set by an organisation and adjudicated by a court in which it has no representation, and to continue to adjust as the rules change over time. This is in no way preferable to EU membership; it is only preferable to a much weaker association still.

Then there is the mantra of the indivisibility of the “four freedoms”. As I have argued before, there are deep economic reasons why it is incoherent to treat the free movement of people separately from the free movement of services. But there is no such incoherence with pursuing only two freedoms: those for capital and goods. It is sometimes said that it is becoming ever harder to separate services from goods, given that goods are often sold with service contracts attached or built-in service components through software. But this is just as much an objection to standard FTAs in goods as to a more ambitious single market in goods. It just means some advanced goods may not flow easily because of their service content.

The hypothetical test case is this. Suppose Canada, for whatever political reasons, asked the EU to upgrade their bilateral trade deal. The upgrade would involve Canada unilaterally subjecting itself to all EU rules on goods production and trade, plus a number of flanking policies, now and as they change in the future. It would also enter a customs union, adopt the EU’s trade policy and accept the jurisdiction of EU courts in these fields. In return, it would ask the EU to dismantle border checks on trade, dismantle its own checks on imports from the EU and enforce EU rules against goods flowing into Canadian territory from third countries.

If the request were meant in earnest, could the EU respond in any other way than welcome it with open arms?