Monday 25th March 2019
Another week has led to more developments in the Brexit saga, which can be perfectly summarised by France’s Europe Minister, Natalie Loiseau, saying she considered naming her cat Brexit, because it meows when it wants to go out, but then when the door is open it remains inside, paralysed by indecision – sound familiar?
On Thursday, Theresa May headed over to Brussels to seek a postponement of the UK’s exit date until the end of June, almost three years after the referendum. Having failed to answer a series of questions about what will happen next, she was only granted until 22nd May, which is the latest the EU could allow without the UK needing to participate in the upcoming European Parliament elections.
However, there’s one slight catch attached to this – the outcome depends on the UK parliament voting in favour of her deal, something that’s not always gone so well for the Prime Minister, and she is opposed to returning to the people for a supplementary vote on Brexit. Despite this, she saw no problem in returning to parliament with the same deal for a second attempt, and, until recently, planned for a third – but reports from over the weekend suggest this is no longer the case.
Voting maths are not Theresa May’s only challenge – John Bercow, the Speaker, found a further problem with her ‘just keep asking’ approach, or should we say he found a convention in the parliamentary handbook that bans the practice of bringing a substantially identical bill back for multiple votes during the same session of parliament.
As you can imagine, once the PM publicly blamed parliament for the Brexit impasse it didn’t help her cause, and the government motion tonight will, if approved, guide the way for a series of ‘indicative votes’ on the next steps. And following the million-strong anti-Brexit march held in London on Saturday, the Chancellor said that a second Brexit referendum “deserves to be considered”.
If we remain in this stalemate, the UK will leave the EU on 12th April without a deal. To avoid this outcome, the government needs to present the European Council with a sufficiently new approach to justify a further extension.
Taking into account all of the Brexit shenanigans that have been underway, and following some hardball comments by Emmanuel Macron, sterling has suffered its sharpest fall against the dollar so far this year.
After a week of fluctuation, at close of Friday trading the FTSE 100 was down for the period, despite unemployment dropping to a four-year low. “In assessing what these UK risks mean to global assets, we continue to view what is happening in the UK as more localised than globally significant,” said BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund. “We may expect to see the pound under a little pressure as complacency over a hard Brexit continues to be challenged. However, we believe that a more substantial opportunity exists with respect to the pricing of UK gilts.”
Both the Fed and the Bank of England left interest rates on hold, and the Fed also said it would not raise them any further this year. It also states it may even slow the pace of its quantitative tightening programme.
Although many of us have focused on Brexit in the past week, the US-China trade negotiations were actually the main driver for the global markets as Donald Trump trailed the possibility of tariffs staying in place for a ‘substantial period’. In addition to this, China saw a rebound in manufacturing during the last week, following a few months’ worth of disappointing figures.
“The markets were hit hard by the US–China trade war, but the slowdown in Chinese growth has mainly been driven by sharply slowing credit growth at home, not by falling exports,” said Tom Miller, Senior Editor at Gavekal Research. “Unlike the last downturn in 2015, the economic slowdown is across the board, with services falling alongside industry. This time, debt worries mean a giant monetary or fiscal stimulus is out of the question, but a pick-up in credit growth means the economy should begin to stabilize by mid-year.”
When we examine the US a little closer, we can see that the S&P 500 was held back primarily by the ongoing trade worries, but also by a number of specific developments around the world, such as the European Commission’s decision to fine Google €1.5billion over antitrust failures. On Friday, the Mueller inquiry report was submitted, however it did not uncover the direct collusion between the Trump election campaign and Russia. Friday was also the day that saw the S&P 500 down for the week, as technical developments on bond markets stoked fears of a US recession.
Across the Pacific, both Japan’s TOPIX and China’s Shanghai Composite had reasonable weeks. This has therefore helped to push global equities up 12% for the year, and we’re not even out of the first quarter yet!
“One perceived risk of the elections is a further rise in populist support, but I don’t see that having a disruptive influence,” said Ken Hsia of Investec, Manager of the St. James’s Place Continental European fund. “After all, no politician will want to put themselves through what Theresa May has been through, which is why I believe further fragmentation of the EU is off the agenda for now.”
On the other hand, the EURO STOXX 50 enjoyed a strong week, as did major indices around the world. The TOPIX index in Japan and S&P 500 both saw an increase, and the Shanghai Composite rose marginally more. Across the Pacific in the US, technology stocks led the rally, surviving news of weak inflation and retail sales and the unfortunate and tragic crash of a Boeing 737 MAX 8 in Ethiopia. This caused Boeing to see its largest single-day drop on markets since 2001; despite this, it was already recovering by the end of the week.