New Year, Same Themes
|Euro set to Break significantly higher
Welcome to 2018 the year when Brexit finally takes shape, The Eurozone casts off the shackles of easy monetary policy and the Fed becomes more data reactive.
Will this be the year that inflation starts to reappear (other than in the UK) in the global economy? The Bundesbank certainly believes it will and German CPI is slated to be reaching 2% very soon although despite the comments of ECB members yesterday, until Mario Draghi gets on board, it will continue to be "steady as she goes". Elsewhere the source and path of inflation in the U.S. is highly uncertain and with a new Fed Chairman about to take his seat, not only will we see a more pragmatic approach, we will most likely see a more data dependent Fed.
The euro started the year very much on the front foot versus the dollar and the pound just about hung onto its coat-tails. The Euro is set to reach a five-year high close to 1.2520 in Q1 as the paths of the global economies two major currencies diverge.
The "Orange One" will presumably take credit for the weakening dollar as he will claim that it is in reaction to his (non-existent) economic policy.
Wasn't it nice without Brexit?
The season of goodwill to all men (sexist I know, but "goodwill to all genders" doesn't have such a nice ring to it), is over and we can get back to the back-biting, baiting and general acrimony that is Brexit.
There was no game of football in no-man's land for Davis and Barnier just barbs over financial services. London gave away its soft-Brexit credentials with an offer over the treatment of EU banks branches in London, but it was batted away by Brussels who confirmed that the Financial passport, where banks with a license to operate in one EU country can operate in them all, will not be part of the trade talks. Davis labelled it cherrypicking, Barnier will call it negotiation.
As we move deeper into stage two, it is likely that there will be more technical talks behind closed doors with Barnier and Davis just shaking hands symbolically occasionally until the doors are flung open (probably in late June) and one side or the other declares the other impossible to deal with. Mrs May (or whoever is Prime Minister then) will have to race over to Brussels agree a whole raft of concessions and a trade deal will emerge.
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