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Brexit 101

  #641 (permalink)
 
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 jtrade 
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Good morning.

As the Brexit fiasco continues & Mother Theresa was essentially rebuffed last week in Salzburg, some obvious questions spring to mind:

Why is the EU being so difficult, despite also holding out the occasional, "Ďt's not too late to stay" olive branch (Tusk has said this several times over the last year or so) ?

Why is the press focus continually on the damage to the UK of a no-deal Brexit, when the damage is far greater for the EU in monetary - if not percentage - terms ?

For your morning amusement, here is the conspiracy theory analysis from jtLabs :

Fundamental premise : the EU absolutely does not want the UK to leave.

EU strategy : simply refuse to agree to any significant UK proposals, publicly ridiculing them again and again.

Interim outcome : the UK needs agreement, but cannot get it as 29 March 2019 looms ever closer. Out of the current political shambles within the UK (both Conservative and Labour Parties), the calls for a new referendum become deafening - they are indeed growing every week - and eventually one takes place.

Final outcome : UK votes to Remain subject to a few "improvements" in terms, originally requested by David Cameron, duly granted by a very relieved EU. The EU forges ahead with economic union, but the federalists who want political union are put in their (rightful) place at the back of the queue.

Hope nobody choked on their cornflakes !

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  #642 (permalink)
Arlo
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Which sector of the economy you think would be affected the most in these scenarios:
UK=EU Deal
UK≠ EU No deal
I think the other thing that poses a questions is about flow funds.
I m trying to link to an article on ft about Uk and these flows of funds,but i dont have the required posts.
I dont think we will see less fund flows in UK if it gets out,but i am willing to take a bet on rising yields due to risk.Since Carney has been reinstated,i view that as a risk trigger guarantee(i.e lowering rates,asset purchases whatever tools the cb has) to offset that risk.
Regarding that,the sector which would be affected the most by this may be those with the highest interest rate sensitivity(i.e credit based) such as construction,autos,banks.Especially banks.
Let me know what you think and what might seem to be the case.

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LONDON (Reuters) - Britain’s decision to leave the European Union has cost the government 500 million pounds a week, wiping out for the moment any future savings from stopping payments to the bloc, according to a study published on Sunday.

The economic impact of the Brexit vote has been the subject of intense debate, with supporters and opponents of leaving the EU seizing on positive and negative data to reinforce their case.

The Centre for European Reform, a research group that focuses on the European Union, said the British economy is about 2.5 percent smaller than it would have been if the public have voted to remain in the bloc in June 2016. Its findings were based on the impact on the economy until the end of June 2018.

Public finances have been dented by 26 billion pounds a year, the equivalent of 500 million pounds a week and a figure that is growing, the group said here.

The Centre for European Reform, which describes itself as “pro-European but not uncritical”, said it created a model of how Britain’s economy could have performed had the campaign to remain in the EU won the referendum in 2016.

The group said its analysis was based on 22 advanced economies whose characteristics closely matched Britain and that did not vote to leave the EU. They then compared it with Britain’s actual economic performance since the vote.


Full article on Reuters

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  #644 (permalink)
 
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Here's the The Centre for European Reform's link with the full detail from @xplorer's post above : https://www.cer.eu/insights/cost-brexit-june-2018 which makes interesting reading.

Good post, @Arlo : the article I link to above suggests that the additional annual borrowing cost to the UK since the referendum has been about GBP 26 billion - hence the "dent" to the public finances - so it is indeed all about flow of funds / cost of borrowing.

I continue to watch aghast at the quite extraordinary UK political shambles....

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The pound surged on signs that the U.K. is inching closer to an agreement with the European Union on a Brexit divorce deal.

The currency climbed to the strongest level since April versus the euro after a report that negotiators have agreed on an Irish border backstop, a key sticking point in the talks. Prime Minister Theresa May will hold a Cabinet meeting Wednesday to discuss a draft Brexit agreement, and a summit with the EU could occur as soon as Nov. 25. Gilts declined as conviction grew that the Bank of England will raise interest rates next year.



The currency bounced in response to a “breakthrough in the Brexit negotiations,” said Valentin Marinov, head of FX research at Credit Agricole SA. “What remains to be seen is whether the U.K. Cabinet will agree to the proposed text.”

The pound rose as much as 1.5 percent to $1.3047 before paring gains, and reached 86.56 pence per euro, the strongest level since April 18. The yield on the U.K. 10-year government bond increased nearly seven basis points to 1.52 percent. In money markets, short-sterling implied yields climbed, a sign traders may be raising bets on rate increases by the central bank, should a Brexit deal be concluded.

Even if the Cabinet signs off, the agreement would need approval from parliament, where May faces a stiff challenge. And while the body may approve a withdrawal by March, the pound could suffer some whiplash on the way, Wells Fargo currency strategist Erik Nelson and economic analyst Abigail Kinnaman said in a note to clients. If that scenario plays out, the pound-dollar rate could near $1.34 in six months and $1.40 in a year, they said.

“We see potential for a rally (around 1%) in the pound once a withdrawal deal is finalized by the EU and U.K. and then another, larger, rally (perhaps 2-3%) once that deal is ratified by parliament,” they wrote, referring to that base-case scenario. “The period between the initial deal being reached and the subsequent ratification by parliament will likely be marked by ongoing volatility and uncertainty, which could see the pound retrench.”

In the case of a “no-deal” Brexit outcome, Nelson and Kinnaman see the pound falling nearly 8 percent against the dollar and 6 percent against the euro.


Full article on Bloomberg

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Brexit Secretary Dominic Raab has resigned saying he "cannot in good conscience support" the UK's draft Brexit agreement with the EU.

https://www.bbc.com/news/uk-politics-46219495

... and down goes the GBP



Edit : I think this really could be the end for Mother T. She would imho have been replaced a long time ago if there had been a real leader waiting in the wings... but there is not.

Angela Merkel for PM, anyone ?

Edit2 :

Political comments just now :


Quoting 
“The thing I think people need to remember from Theresa May’s speech last night is she conceded it is not a choice between no deal and this deal – it is a choice between no deal, this deal and not doing Brexit.

“The only way in which she gets out of this with any dignity is going back to the people and holding another vote in order to determine whether they want this.”

If Labour would make Remain part of an election manifesto, they would win hands down... because of this, the Tories will do everything to avoid one.

Marlon sums it all up perfectly (at the end of Apocalypse Now) :



Edit3


Quoting 
MP David Lammy says a second referendum now looks like the best option.

Edit4

Quoting 
A new referendum on Brexit should be held if Theresa May is replaced as prime minister and no general election is called, says Wales's First Minister.


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European Council president Donald Tusk has appeared to express the hope that Brexit could still be averted.

"The EU is prepared for a final deal with the United Kingdom in November," he told a news conference in Brussels.

"We are also prepared for a no-deal scenario but of course we are best prepared for a no-Brexit scenario."

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EU leaders have approved an agreement on the UK's withdrawal and future relations - insisting it is the "best and only deal possible".

After 20 months of negotiations, the 27 leaders gave the deal their blessing after less than an hour's discussion.

They said the deal - which needs to be approved by the UK Parliament - paved the way for an "orderly withdrawal".

Theresa May said the deal "delivered for the British people" and set the UK "on course for a prosperous future".

Speaking in Brussels, she urged both Leave and Remain voters to unite behind the agreement, insisting the British public "do not want to spend any more time arguing about Brexit".

The UK is scheduled to leave the EU on 29 March 2019.





Full article on BBC News

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Until it’s ratified in parliament everything is still on the table!


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The Brexit deal negotiated by Prime Minister Theresa May will lower economic output over the coming decade compared with staying in the European Union, researchers said.

The deal would lower gross domestic product per capita by between 1.9 percent and 5.5 percent versus EU membership, said a team led by economist Jonathan Portes. Leaving without a deal could lower output per head as much as 8.7 percent.

Savings on the U.K.’s contributions to the EU budget would make up only a fraction of the potential damage to the economy, according to the joint paper by the Centre for Economic Performance and academic think tank The UK in a Changing Europe. The deal will also reduce the money available for public services.

Trade barriers and reductions in the immigrant labor force “would leave the U.K. significantly smaller than it would otherwise have been over the medium to long term,” Portes said. “That in turn would mean higher taxes or public spending.”



Full article on Bloomberg

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