Brexit or how to deliver the undeliverable

Everyone should worry about no deal Brexit

Everyone should worry about no deal, the civil servant who was, until March, head of the Brexit department has said. Philip Rycroft, who resigned after 18 months, told the BBC's Panorama no deal was "fraught with risk". Both the candidates in the race to replace Theresa May as prime minister - Jeremy Hunt and Boris Johnson - have said they would be prepared to leave the EU without a deal. The pound is unlikely to rally until we have some clarity around Brexit. Disappointing UK data last week also weighed on Sterling as all of the PMI’s came in much worse than expected. We await manufacturing data and May GDP in Wednesday, these will be closely watched as there is a risk that the UK may have stagnated in the second quarter.

Brexit "Do or Die" Game Theory: Is Johnson Lying? Hunt? Ireland? EU?

Everyone knows what everyone else "says" they will do. But what will they really do, if pushed? There is an excellent discussion of Brexit game theory by Eurointelligence and Peter Foster in a set of articles on the Daily Telegraph. Boris Johnson: "Do or Die". He will deliver Brexit on October 31. No delays. No extensions. He does not want No Deal but he is prepared for one. EU: They will not under any circumstances reopen the deal they made with Theresa May. In the event of No Deal, they will not negotiate trade agreements unless the UK honors the backstop, helps Ireland, and agrees to pay the Brexit fee.

Trade Dispute and Brexit are Driving the Outlook

Global economic growth continued to suffer in the first half of 2019 due to the trade dispute and the uncertainty surrounding Brexit. By contrast, the prices of economically sensitive assets such as stocks or high yield bonds have performed quite well so far in 2019. This divergence is primarily attributable to the shift in Fed and ECB communication over recent months. The trade war between the US and China remains the most important factor for the economic outlook. As both sides are under pressure, we expect a rapprochement in the second half of this year.

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