May Crashes back to Earth
For 'Tusk and Juncker' read 'Good Cop Bad Cop'
The optimism that had been building around the move to stage two of Brexit talks has faded like Autumn mist as European Commission President Donald Tusk appeared to contradict his colleague Jean-Claude Juncker, saying that Theresa May still had a lot of work to do for talks to move towards discussing the future relationship.
He also gave an ultimatum of December 4th to receive proposals over the three issues that the EU wants settled before the stage two talks begin. Just what will happen if that date is missed is not mentioned. This is typical of the cloak of equivocality that surrounds Tusk and Juncker’s comments.
Sterling has barely reacted to this latest setback, becoming immune to the prospect of a hard Brexit.
Amongst commentators and analysts there is a hardening of attitude beginning to grow where there is a suspicion that the EU is pushing the U.K. towards a no deal scenario. Messrs Tusk, Juncker and Barnier are determined to leave every part of the talks to the U.K. with absolutely no concessions at all. It seems they are overly concerned about giving encouragement to any other waverers within the EU.
Their studied avoidance of providing any positive encouragement, ensuring that their words are ambiguous at best, is encouraging hard-line members of Theresa May’s Cabinet to toughen their stance despite support for an increase in the amount offered to settle the “divorce bill”.
Merkel gets her wish
It is highly likely that the German President, Frank-Walter Steinmeier, had a quiet word with the leader of the SPD Martin Schulz to encourage him to rejoin the Grand Coalition that has been ruling Germany for the past twelve years. It is ironic that the constitution forced upon Germany at the end of World War Two, that ensured that there would almost always be a coalition Government, could have seen the far right become part of that ruling council.
Angela Merkel will now be able to concentrate on her role as de-facto Political leader of the EU. This is important as Brexit is now reaching a critical stage and, going forward, the reforms being championed by French President Emmanuel Macron will need to be discussed and agreed.
The euro reacted well to German news both political and economic as the IFO survey of industrial activity and confidence reached an all-time high. It is still shy of 1.2000 versus the dollar but made a little ground against sterling in a holiday thinned market. It reached 1.1158 and sterling has continued to look a little weak overnight.
Powell to be confirmed as dollar suffers rate hike concerns
Jerome Powell is facing his confirmation hearing in the senate this week and will then take the Chair of a Federal Reserve that is torn between stimulus and monetary policy tightening.
The deciding factor is inflation. Price growth has been relatively benign throughout 2017 but the FOMC has still seen fit to hike rates twice in the past twelve months. A further hike is slated for next month but with a new less hawkish hand on the tiller that hike is now not so likely.
Jerome Powell is likely to be a more pragmatic Chairman of the Federal Reserve than Janet Yellen. He is far more likely to be driven by data than the need for a pre-emptive move. Yellen had built a strong relationship with Wall Street and it will take a while for Powell to be trusted in the same way. The dollar will suffer a crisis of confidence until the market gets to understand Powell’s underlying agenda.
The dollar fell against sterling as Brexit optimism pushed the pound to highs not seen since early October. It reached 1.3360 but its fate is very much in the hands of Brussels and the gang of three.