UK: Brexit certainty (temporarily) lifts sentiment
Head of Macro Analysis
Summary: Saxo's latest Brexit overview: improving market sentiment, Boris boom and limited risk of no-deal Brexit.
Tomorrow, I will be in Brussels to discuss with the EESC Brexit follow-up group Saxo’s macro outlook for the UK.
My Brexit base case scenario:
- No-deal Brexit at the end of 2020 is unlikely.
- Trade agreement: Phase 1, Phase 2 etc…for the next 5/10 years
- High risk zone: June/July 2020
- « Boris boom » is coming: Fiscal stimulus (March 11 budget) + rate cut by the BoE (March)
- Negative spillovers to the EU are limited (positive sentiment, CB support, solid underlying fundamentals)
Here’s what we know for the banking and financial industry:
Limited staff relocation in absence of hard Brexit. Paris (front office activities), Poland and Ireland (back office activities), Frankfurt (administrative departments) and Luxembourg (funds).
In terms of jobs, the figure officially mentioned for France is 1,500 job transfers to Paris, but it is likely to be lower.
The ECB regulator is putting pressure on banks so that commercial and market activities for continental Europe are no longer processed from London. Ultimately, it is likely that London will remain the financial hub for UK and global (outside Continental Europe) financial operations.
Clearing houses are the most important sovereignty issue that has not yet been resolved. As of today, London is the main euro clearing market. In the context of Brexit, the ECB wishes to relocate these activities to Continental Europe.
In the interim, the ECB has granted a one-year extension until the end of January 2021 during which it recognizes UK-based clearing houses as “legitimate”, which should help find common ground. Ultimately, the most likely scenario is that UK-based clearing houses will be subject to “dual regulation”, both from the UK regulator and the ECB.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.