Today, the British pound hit 31-year lows in early London trading as the reality of Brexit negotiations continued to weigh on the pair.
U.K. Prime Minister Theresa May confirmed that her government intends to begin the formal exit from the European Union as early as March, noting that it is important to set out timing of the Article 50 trigger in order to reassure British businesses. Ms. May admitted that the process will not be “smooth sailing” for the economy but she stated hopes that the U.K. will strike a number of trading relationships and will maintain its special relationship with the U.S.
There was nothing new in her remarks, but they served to underscore the reality of the Brexit issue, which has remained on the backburner for the past several weeks. Now that U.K. officials appear to be committed to a hard deadline, the market is acting accordingly and taking cable to fresh multi-year lows as fears abound that the country will suffer from a protracted economic slowdown because of being disconnected from the European Union.
Some analysts have pointed out that even under the current schedule, the U.K. would not properly exit the EU until 2019 at the earliest. But many investment decisions will be made well ahead of that date, the most important one having to do with the financial center.
The most crucial question is whether the U.K. will remain the financial center of the world. If London can maintain its preeminence in capital markets finance, then much of the economic pain from Brexit could be avoided. The U.K. operates primarily a services economy, and the free flow of those services means much more to Britain’s future than trade.
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| At the Bank of England, a gatekeeper in traditional 18th century garb seems unperturbed over Britain losing its status as the financial capital of the world. |
Ironically, in the current environment, the biggest beneficiary of all this turmoil is actually U.K. trade. Britain’s manufacturing data soared yesterday as lower exchange rates helped make U.K. goods much more competitive.
U.K. manufacturers are enjoying a “Garden of Eden” moment for now. They have full unencumbered access to the EZ market while enjoying a 17% discount in the exchange rate since the Brexit vote last June.
But, just the like the Biblical idyll, the good times won’t last. The Europeans are dead set against offering Britain any special access because the EU members fear such a move would encourage other countries to leave the union. This is especially so, because PM May’s government is emphasizing the right to sovereignty and control over immigration versus access to free trade.
Someone posted a humorous note on Twitter yesterday that at 30 pence per jar, the U.K. simply needed to sell 15 billion jars of strawberry jam per year to even out its trade balance. But the whole Brexit story is no laughing matter. In fact, it is becoming a referendum on the type of society the West will live in.
Since World War II, the inexorable path of history has been toward more civil rights, more freedom of movement and more political integration on the supranational level as well as a near-instant flow of trade and capital across the globe. Brexit and its cross-ocean cousin Trumpism are the first major revolts against this trend. And if they succeed, strawberry jam will be the least of investors’ worries.
Happy trading,
Boris Schlossberg
{ 35 comments }
“The most crucial question is whether the U.K. will remain the financial center of the world.”
Leaders lead and as an investor I’d much rather have investment capital in a free market than in what is left of Europe.
On another point to Larry. Brilliant timing.
Must reluctantly agree that problems will occur BUT the sovereignity issue is paramount so all and each co-ordination must ensure the parties’ sovereign rights which cannot and should not be subordinated to some supranational unit. Even the USA appears to have problems between Washington and the States, and States vs. Municipalities which are resolved by the power vested in the states and Washington’s involvement in FOREIGN
ADVENTURES and the CONFUSION between the Senate and Congress responsibiities and the DEADLOCKS on occasion.
“Since Word War II, the inexorable path of history has” NOT “been toward more civil rights, more freedom of movement”. We are, as citizens, becoming MORE hamstrung and repressed. BREXIT and Trumpism are merely further examples of this “Progress in a Negative Direction”, as political do-gooders do more of their evil. Even the movement against racism, while it has outwardly seemed good, has been merely been a way for those in political power to lump everyone together for political power purposes.
Citizens are hamstrung and repressed BY GOVT, which is why people are rebelling against the establishment. The UNELECTED bureaucrats of the EU are the poster child of what plagues the world. How can Brexit and Trumpism, the antithesis of political do-gooders, do more evil, when it has been the establishment, and their self-interest perks and power that have brought us to the precipis of an economic reset and another world war?
I speak for myself, but I do think we in the colonies do wish the Brits the best. I do not fear that the Brits have the courage and fortitude to forge their dreams for sovereignty. Good luck and best of times and wishes. As you Brits say “God Save The Queen”!!!
Why don’t. You still publish the small graphic showing closing price of the DOW and gold etc
Breaking free from that EU bureaucratic Culturally Marxist nightmare is a blessing for the UK. Let business be your business. Low taxation, free markets and business friendly environment. You will be just fine.
Please go back to the old format where you had the closing market info, including gold and oil, in a table on the right side of the page. It makes things easier for those of us who don’t have time to chase down details every day.
Thanks!
Boris, you are far too pessimistic about the future of the UK. The UK has many business contacts around the world that will replace a hostile EU!
London, October Evening
Very well observed, the PM Mrs May has the most difficult of balancing acts.
To work toward and sell what will be a compromise to the remaining 27 countries of the EU ,her own Conservative MP’s and the voting public of Britain.
Yes it will be some formula, accepting less than the freedom to totally control immigration into the country but will likely be limited to only inter European economic migrants judged on labour requirement. This in tandem with full mutual trading access rights with the EU that do not hinder trading agreements with any other nation. The continuing progress of this international trading nation which hopefully keeps learning not to sell its intellectual worth, whether Bletchley computer primacy or Cadburys chocolate.
Mrs May, the serious daughter of a clergyman from a middling poor background with
little social pretension has started well, standing clearly as a one nation conservative with a small c. This appeals to very many after the privileged Cameron and Blair years, particularly to those who have not benefited from the explosion of wealth that they see daily obsessed over by the media. Much in her favour and known that those who have worked for her over the years, not only have a strong loyalty but also great affection ,always knowing that what they see is what they get. Outwardly cool, somewhat awkward in public but good hearted to those she trusts.
As your strawberry jam line, Mr Trump may well win on that
same appeal though his impossible promises to the under privileged of America that amazingly seem to be believed or perhaps clung to in hope, particularly when they see the blatant insider greed of so many other politicians, now rightly or wrongly represented by Mrs Clinton. Will those pie in the sky possibilities be enough to surmount good sense
and the endless alienating insults…
what can I add about Brexit? EU countries will play hard ball with the U.K and will want it to pay a high price for Brexit.
Richard , have you not read Harry’s comments , Europe is broke and do they have any bargaining power over the UK , nope .
When broke you are powerless , the Brits are in the drivers seat and all the best to them .
Really?
1. The IMF has said that the UK is now likely to grow the fastest of all G7 countries.
2. UK stock market is at an all time high.
3. Low pound is beneficial. Brit exports are increasing. Imports being curbed.
4. Countries e.g. Australia, Canada, US, China are lining up to do trade deals with the UK.
5. London remains a global finance center
6. Germany, a country utterly dependent on exports for its well being exports a significant amount to the UK. UK is Germany’s 3rd largest trading partner. Expect a good EU trade deal for the UK. Germany depends on it.
Where the hell do you get your information. I wonder what your yearly returns have been given such poor analytical abilities.
Thank you for a dose of reality. How was London suppose to remain a global financial center by staying in the EU, when the EU would surely impose a financial transaction tax?
may also add that majority of service sector revenues are dollar denominated…..yet another windfall
Hungary had a vote on wether or not to accept the EU instructions on accepting immigrants the vote was a BIG NO.Now the EU has stated the vote invalid.Now thats what I call DICTATORSHIP.Well done the EU,I think Hitler is running the show
To compare BREXIT with the Trump phenomenon sadly is further proof that even intelligent Americans really have little clue about what goes on outside their own country!
There are many similarities, which Nigel Farage has articulated quite nicely – twice at Trump rally’s.
Can’t disagree with the comments above UK will be just fine outside the Soviet States of Europe. Sovereignty always has to be fought for and there is always a price to pay, so be it.
London will remain a financial center. Nobody in his right mind will willfully subject himself to the whims of the French government. As to Germany, they are as competent in finance as men are in knitting (DB, KB if you don’t believe me).
I find it curious that those who benefit so greatly from global corporatism look down on those who have gotten the short end of the stick. They bought the politicos who were elected to serve the majority and received preferential treatment at the expense of that majority. Now that those who were essentially shafted by the corporate elite have turned the tables these pampered princes of Piccadilly are pronouncing doom for all. They may yet use the intricacies of finance to mete out punishment for those exercising their rights. I would however hope that reason will prevail and the will of the majority will be accepted.
Expanding civil rights and free trade are not the same as accepting the increasing bureaucratic overreach by both Brussels and Washington and the lack of accountability for the financial crisis.
Boris, this is not the first time I have read and digested your screed. It is probably my last.
In this case, your misdiagnosis of relief from chronic constipation (as indigestion) is fully illustrative of your globalist aspirations and the inevitable failure of that school of thought.
An explanation on why gold fell so much yesterday. To top it all off China is closed down for the week. A great opportunity for someone (guess who. If you said the Fed and the Bullion Banks you get a cigar) to step into the very small precious metal market and really rattle its cage. Fear is the currency these people deal in and you were handed that in spades on Tuesday. The biggest gold drop in 3 years. The fix is still in on precious metals even though we still receive assurances that it is on the up and up. They will spare no expense to protect and preserve their fiat currency. Nothing is on the up and up today youse pays your money and takes youse chances. I was a buyer yesterday.
It Does Not Make Sense, Yet it Happens
Competitive devaluations are not going away, absolutely nothing has changed with regards to the EURO’s long term chances of survival without fiscal and political unity in Europe. And yet Gold is taking on water. Conclusion, again: Fundamentals are dead, global macro is determined by Coordinated and Competitive Central Bank behavior, and to use reasonable arguments to rebut irrational behavior is not just Folly, it is capitulation. And to sit at that table with a loon and try to play against him assuming some sort of normal reasons for his behavior, is to lose to a guy who plays stupid with no risk. The Fed is playing with an infinite bank roll, you are not. You only stay in on high probability wins with a very low cap on money you will put into every pot/trade.
The UK will spearhead the formation of a new European union as the old one falls apart. More confederate than federal.
Bris,
Your entire article is coloured for me buy your initial error in stating that March 2017 is the earliest that the UK will invoke Article 50 – in fact, what Mrs.May said was that Article 50 will be invoked NO LATER than March 2017.
Furthermore, what makes you think the EU is in a strong position when it comes to trade between UK/EU – the balance of trade is strongly in favour of the EU, so they will be very stupid if they jeopardise that by trying to “punish” the UK in negotiations.
Just reread your commentary and see the photo caption Presumes that Britain will
no longer be a world financial centre. Commentary/ speculation certainly ,arrogant presumption of the future another. We will see, perhaps I detect schadenfreude Mr Schlossberg.
Apparently globalisation has taken nearly a billion people out of poverty. Surely that has to be a good thing.
the people are fed up with the 1%ers……Brexit and the Trump phenomena are two examples. The Clintons have made politics their business for over 20 years. I don’t know why more people are not afraid of the deals they have made with other politicians and countries. Imagine what is In Hilarys “black book”……”….the conversation:..” Oh, Mrs Clinton…..Senator ” X” is on the phone…he is wondering when you are going to give him..”Y”…like you promised him for his support?”……be afraid….very afraid….I think Brexit is an attempt at the masses to “take it back ” from the 1%ers……I don’t know if it will work..
Boris, why do you still insist to flag a dead horse. Brexit was not just about immigration. First off, the British practice common law, as do the USA, Canada, Australia, and a lot of other countries influenced by the old British empire. Continental Europe and the EU rely upon regulations upon regulations modified over time in an attempt to fine tune every jar of strawberry jam that you talk about.
London and New York are historical financial centers for a reason. If you don’t believe me then just deposit all your wealth into Italian, Greek, German, Spanish or French banks to put your money where your mouth is; but keep it out of Swiss and British banks.
Actually, the biggest problem that I can see as a result of Brexit is that Britain will most likely lose its share of gold presently held by the EU; and Britain holds very little gold of its own at the present time. Could this be weighing on the pound?
I wish I could, but cannot improve on all of the above feedaback you have alredy abeen given. Keep on keepinag on
Totally agree with the latest posts. I have said before, that your analysis on Brexit is out of touch. Please stick to your thoughts on the US economy. On second thoughts, perhaps you should give up on that front as well !
I agree with ‘espy’, and I also will not read anymore of your articles.
After all the “Kumba Ya” BS I’m perfectly ready to try some isolationism. The way we’re going isn’t really working it’s time to try a different tack.
Now that the Brits have stepped away from the stifling effect of being locked into the European Union… they might want to look into the idea of whether or not they still need a “Royal Family” that ultimate relic of the Archaic thinking of centuries past.