Davis stirs the pot
The only lasting agreement in place between the U.K, and EU is that they agree about virtually nothing. The comments from Brexit Minister David Davis yesterday that the agreement reached last week was not legally binding and that without a trade deal, the U.K. would refuse to pay the sum agreed.
The Brexit hawks in the Cabinet had been quiet following the agreement, which will be ratified at the EU summit which concludes today, but Davis as one of the main Hard Brexit supporters showed they are still awaiting their chance to harm the process as it moves towards a softer Brexit.
There has been a lot of discussion in the newspapers about how the Brexit people voted for is not the Brexit they will get although just what was voted for is open to a large amount of interpretation. It is naive in the extreme to think that the uniquely blinkered attitude of the British public who, in the main, each had a “pet” issue would not be challenged in some way. In fact, the pet issues of social injustice, overcrowding of transport and medical facilities as well as education have barely been touched by the agreement.
Currency market pulling down the shutters
Following this week’s Monetary Policy meetings in New York, London and Frankfurt, the FX market will unofficially close until the new year. Traders will decide that they have made sufficient money or don’t want to lose any more and there will be little to excite or exercise them in the next two weeks.
Mark Carney will have to continue to explain the rate hike, Janet Yellen will Preside over her last FOMC meeting and Mario Draghi will accept the congratulations of his colleagues for a job well done but will be concerned that 2018 will present several fresh challenges.
Inflation is the theme running through the entire market. The U.S wants more, the Eurozone is frightened more is coming but he U.K. is still unable to stem the flow.
Yesterday’s 3.1% inflation rate for November in the U.K. has ironically backed up the words of Mark Carney where he said at a previous press conference that prices would continue rise only to be confounded by the unchanged October report.
In the U.S. several FOMC members are concerned that despite a buoyant labour market, low rates and continued accommodation inflation is not rising.
Inflation a global mystery
There is no doubt that the world has entered a low inflation period, but growth is not picking up as fast as many said it would as accommodation remains in place despite the global economy recovering to close to pre-financial crisis levels.
This is the basis of Mario Draghi’s argument for not acting proactively despite the Bundesbank arguing that its economic models are predicting above trend inflation by the end of next year. Draghi remains unconvinced and is basing his “steady as she goes” policy on the patchy growth being seen in many EU member countries.
There is a propensity developing for anything that doesn’t fit with accepted economic theory to be labelled as a new paradigm. We are seeing it ion cryptocurrencies, just as we are in economies that were supposed to be blighted by debased currencies as more were theoretically printed.
This is the stuff of future MBA theses but for now for those living through it Central Bankers must accept that the world is changing.