Brexit negotiations start with EU calling the tune

David Davis, the U.K. Brexit Minister met Michel Barnier the Chief EU Brexit Negotiator yesterday for the opening of the U.K.’s departure talks.

It seems that, chastened by the election debacle the befell the Government, Davis has been instructed to adopt a more conciliatory tone. Gone is the “no deal better than a bad deal” bluster, replaced by an acceptance that the bill for leaving will have to be agreed as one of the first priorities.

Single Market versus Free Movement is going to be a key discussion. The EU is going to have to accept that other than those already resident in the U.K. EU citizens won’t enjoy the freedoms they have until now.

Traditionally nationals from Ireland made up the clear majority of EU immigrants but that number is now dwarfed by those from Poland that make up more than twice as many as Ireland. The U.K. economy has, no doubt, benefitted from the influx of EU migrants most of whom are genuine “economic migrants” looking for work and prepared to contribute.

Construction, hospitality and medicine are the three major sectors most at risk.

Sterling in narrow ranges as ample liquidity continues

The pound has performed well over the past ten days following the election surprise. It is a testament to continued support of liquidity providers that a flash crash has not occurred. Sterling has fallen against the Euro more due to the strength of the single currency following its recent economic and political stability.

The dollar is directionless not reacting to any of the “traditional” drivers. Two FOMC members gave contrasting view of the economy yesterday.

Fred Dudley, President of the New York Fed and a staunch Janet Yellen supported was a little more hawkish than his colleague, Chicago Fed President Charles Evans.

Dudley feels that inflation and wages growth will justify the Fed’s rate moves. A tight labour market should be a driver for growth. This is taking being “ahead of the curve” to new heights.

Evans sounding a bit more cautious believes the Fed should wait until the end of the year to whether a further hike is necessary.

It seems that everyone is afraid of the “elephant in the room”. The stock market is continuing to climb and a wrong word could bring a correction, the depth of which could be catastrophic considering the speed and steepness of the climb.

May facing the political abyss

From being a strong, confident and purposeful Prime Minister a month ago Theresa May is facing a totally different future. If it looks like the Government is struggling to get the vote on the Queen’s Speech through Parliament she will be unceremoniously dumped by her party. Then should a General Election be called there is a distinct possibility that her political career will be over.

The political headwinds facing the U.K. are getting stronger as the Brexit talks get under way. The EU were hoping for a stable U.K. Government to pass things smoothly but the reality is anything but! A change in Government is a real possibility although whether Labour can really gain a majority is hard to imagine.

Having accepted a Labour Party lurching to the right under Tony Blair virtually “selling their soul” to get elected, it is doubtful that the electorate will tolerate a more caring sharing Conservative Party. The political landscape is changing and it is time to follow examples like the Netherlands and France to form more popular less divisive Governments that comply with the wishes of more than a minority of die-hard supporters.

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Alan is a highly experienced banker with an in depth knowledge of Corporate Banking, Treasury and Trade Finance. He has had a varied career in Global markets, Risk management, FX Trading and Sales & Interest Rate Management. He has managed sales teams mentoring his team in both markets and marketing.He has been published in a number of journals and has appeared daily on radio to discuss market movements and events. His first novel was recently published.