U.K. Brexit Shambles Continues

New Customs proposal labelled “fantasy”

It is becoming ever more difficult to take the U.K. Government’s handling of Brexit seriously. Although these are my words, they could be equally attributed to Michel Barnier the EU’s Chief Negotiator.

Surely, we are past the stage, almost fifteen months after the referendum and nearly six since the triggering of Article 50, of issuing wish lists of what we would like from Brexit. It seems David Davis is encouraging everyone in the Cabinet to write to Santa to let him know what he wants and mummy Theresa will send them to Lapland (or in this case Brussels).

Davis is the leading candidate should Theresa May not manage to remain as leader of the Conservative Party. This, above all else, is a telling indictment of the state of British politics.

If the pound is a bellwether of the market's opinion of the political and landscape then I am not alone in my thinking! Yesterday the pound fell to its lowest level for ten months against the common currency. Once 0.9150 is broken then the all-time high becomes a real target.  

 

Dollar turnaround coming as economy improves

The dollar continues to correct against the single currency and has started to trend higher versus a weakening pound. As the global tensions created by the North Korean situation abate the dollar has also reclaimed the 110 level and is set to resume its trend towards 114.

Yesterday’s surprisingly strong retail sales data continued a series that began with the employment data. Two months of above +200k new jobs, inflation that isn’t as benign as was thought, consumer confidence growing and retail sales better than twice the previous month indicates that despite, rather than due to, the influence of President Trump, the U.S. is starting to perform at an acceptable level. We are still some way from a further rate hike but the withdrawal of additional stimulus by the Fed could begin next month.

President Trump is, apparently, going to put a series of economic stimulus measures in front of Congress this Autumn together with proposals for fiscal reform. It seems the market will wait to see them before getting too excited about what they may contain.

The only blot on the landscape could be further revelations about “Russiagate” as the grand jury continues to investigate.

 

Germany Starting to exert pressure in the ECB

Angela Merkel is back from holiday and starting to ratchet up her campaign for a fourth term in office. The German economy is performing well despite a few recent hiccups. Exports were lower last month probably due to the strength of the Euro. Since this is likely to continue, domestic growth and intra-Eurozone activity will be expected to take up the slack.

Growth in Germany was a little disappointing but not outside of expectation. Q2 was 0.6% with Q1 at 0.7%. Finance Minister Wolfgang Schaeuble commented overnight that easy money is starting to come to an end. A veiled demand? Quite possibly.

Such demands will be easier to make when his colleague, the Bundesbank President Jens Weidmann takes over from Mario Draghi who leaves the ECB in November 2019. While nothing has been confirmed, following a Dutchman, a Frenchman and an Italian, a German seems logical.

Merkel is likely to be re-elected her Chancellorship has led to a heightening of German influence on the world stage, she has managed to steer Germany through the financial crisis and has managed to deal with the refugee crisis in an uncharacteristically humanitarian manner. It would be the blackest of black swan events were she not to win the election.