Trick Or Treat?

The British stereotype can be a confusing one. The French call us “Roast beef”, I suppose due to our affinity to the quintessentially British Sunday roast and, one would assume, partially in retaliation to being referred to as frogs. Internationally, are we not also supposed to love a good cup of tea and love a wait around governed by proper good-old queueing etiquette?

Well, I don’t. And Theresa May is, I suspect, about to be reminded by her own Conservative Party, those who oppose her in the House of Commons, and the UK electorate, that perhaps the well-tempered, orderly and patient British approach to things is a thing of the past or a figment of the imagination.

A European Council summit last night has confirmed markets’ expectations that the United Kingdom will not be forced to honour a deadline for leaving the European Union this Friday. Instead an extension of the Article 50 process of approximately six months has been agreed, with the new deadline of October 31st 2019 – spooky!

The offering reflects a win for France’s President Emmanuel Macron, who’s preferences appear to have been most closely reflected in the extension deal, restricting the more lengthy timeframes thought to be on offer by Germany’s Angela Merkel and favoured by the Council president, Donald Tusk.

The UK Prime Minister will be back in London today to sell the deal to Parliament. With her authority in the House falling by the day, I’m unsure whether last night’s deal will be something for the party to rally behind to keep her in the top spot. I can imagine Mr Johnson and Mr Gove, front runners in the race for her job, in rather high spirits this morning.

So is it bye-bye T-May, T-May goodbye? Perhaps not. One feature of the extension is a review period scheduled for June. This caveat will allow May to convince more Eurosceptic members, who might otherwise suggest she put down the tea cup and hang up her queueing boots, that this isn’t a six month wait around; if they get behind her deal this can be done by Summer.

The Pound was unchanged on the news as most market participants had expected a significant delay and had consequently priced out the risk of leaving the bloc tomorrow. May’s argument to achieve the extension in Brussels relied upon needing more time for cross-party talks with the opposition leader, Jeremy Corbyn. 

Sterling needs Parliament to swap the cup of tea for a piping hot black coffee and to get on with it. The Pound, that had broken its 2-year long ranges earlier this year on hope of a resolution and progress, looks in serious risk of falling back within this range once again. If it looks like we’re leaving with a no-deal come deadline day and Halloween 2019, foreign apples in the trick-or-treating bag might be welcomed for once!

A big day for central banks yesterday with an ECB policy decision and release of the US Federal Reserve’s minutes from its last meeting saw little change in market prices yesterday. A reminder of the dovish tilt to European monetary policy versus a US that is further along its economic cycle mildly reinforced the weak Euro strong Dollar trade evident since mid-2018.

Discussion and Analysis by Charles Porter

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