A Bribe? Surely Not!

May to offer Eur 20 billion inducement.

In carefully released snippets of what she will say in Florence later today, U.K. Prime Minister Theresa May has confirmed her switch to “Soft Brexiteer”, abandoning her “no deal is better than a bad deal” mantra. The main plank of her offer to the EU, to break the logjam that has been created by her chief negotiators prevarication, will be an Eur 20 billion payment which will fill a hole in the EU’s budget.

It is certain that the contents of her speech have been agreed with Messrs Tusk and Juncker in advance and entirely possible that the full amount the U.K. will pay has also been decided or at hands have been shaken subject to Parliament's ratification.

Given his own “Blueprint for Brexit released last weekend, Foreign Secretary Boris Johnson must now be in direct conflict with the Prime Minister and both will need to decide the worth of being on the inside looking out or the outside looking in. It is now impossible for Johnson to influence the direction Brexit will take as the die is cast and his only course would be to resign.

Rate Hikes not as “cut and dried as Traders expect.

The “hawks” in London and Washington and the doves in Frankfurt and Tokyo are not as far apart as traders believe they are. The advance guidance following meetings of the FOMC and MPC seem to hinge upon macroeconomic data which has shown no inclination to move in the direction needed.

Inflation is a major concern to both Central banks for varying reasons. Lael Brainard, a permanent member of the FOMC has cautioned against a rate hike while the long-term trajectory for inflation is lower. Next week sees the release of inflation data in the U.S. and with the headline well below the 2% level generally seen as the minimum to warrant a rate hike, a December hike is far from the 70% probability that futures markets are predicting.

In the U.K. a November hike is now “en vogue” despite the parlous state of the economy. A lot will hinge on reaction to today’s speech from Theresa May but Mark Carney would be a brave man to announce a rate hike on November 2nd, the date of the next MPC meeting. September headline inflation is likely to hit 3%, a month earlier that the MPC’s prediction. Coinciding with the November 2nd MPC is the release of the bank of England’s Quarterly Inflation Report which will make very interesting reading (particularly for those with insomnia!)

Kim’s reaction to Trumps rhetoric is no surprise.

Kim Jong-un the leader of North Korea, a nation trying very hard to no longer exist, was entirely predictable in his reaction to the further tightening of the sanctions and physical threat delivered this week.

China has instructed its banks to no longer deal with North Korea, a potential economic stranglehold that will be difficult to usurp. Kim’s has not reacted at all to the almost total economic isolation of his country by its only and therefore biggest ally.

Donald Trump’s speech to the United Nations General Assembly earlier this week was probably as undiplomatic as it could be and Kim reacted entirely predictably. He has promised an imminent test of a hydrogen bomb in the Pacific a threat that will send shivers through Tokyo and Seoul. North Korean Foreign Minister Ri Yong Ho delivered the threat and is slated to address the UN later today.

Were Kim to carry out his threat it is hard to imagine what will follow. The reaction of China and Russia will be critical since such an escalation will present a clear and present danger to the entire region.