FILE PHOTO: A British Union Jack flag flutters outside the European Parliament in Brussels, Belgium January 30, 2020. REUTERS/Francois Lenoir
LONDON (Reuters) – Britain and the European Union are running out of time to clinch a Brexit trade deal, Environment Secretary George Eustice said on Monday.
“We really are now running out of time, this is the crucial week, we need to get a breakthrough,” Eustice told Sky.
“I really do think we are now in to the final week or 10 days, of course if great progress were made this week and you’re nearly there it’s always possible to extend those negotiations,” he said.
“David Frost had made clear that we’re continuing the negotiations because we still think there is a prospect that we can get an agreement and while there is we should persevere with those,” he said.
Carmakers are bracing for the final Brexit deadline by moving cars and parts both ways across the Channel to make sure they are not hit by tariffs if the UK and EU fail to agree a trade deal.
Trade between the UK and EU will be governed by new rules from 1 January, but the imported cars will become 10% more expensive overnight if tariffs are imposed under the World Trade Organization regime.
Industry sources said carmakers have built up extra stocks of cars and parts in the UK, as they have done now for three previous Brexit deadlines, when the increasingly exasperated industry was threatened with a “cliff-edge” jolt to different trading arrangements.
Volkswagen, the world’s largest carmaker and the UK’s second most popular brand by sales, is one of the companies with more imported cars than normal. A spokesman insisted it was not possible to attribute this directly to Brexit, as the company also stockpiles to cover factory shutdowns at Christmas and to prepare for the March numberplate change, when sales tend to rise.
Honda has stockpiled parts to make sure it can continue making its Civic model in Swindon, although the factory is winding down production before closing next year.
Some car dealers are also understood to be importing more stock from Europe before the deadline, according to two people working with companies on their plans.
“If there’s an opportunity to get vehicles into the country before January you’d be silly not to,” said one person at a large carmaker.
Michael Woodward, UK automotive lead at the consultancy firm Deloitte: “The challenge comes in forecasting what the ‘right’ stock is. Getting the wrong stock could be as costly as not having enough, but changing consumer behaviour and Covid-19’s impact on car sales makes it increasingly difficult to forecast even short-term demand.”
Britain’s businesses have expressed their hopes that a Brexit deal will be reached just days before the end of the transition period, as talks between the UK and the EU enter a crunch week.
“Businesses’ resilience has been stripped bare by Covid-19. Rolling deadlines are already costing companies, which have seen cash reserves disappear and stockpiles dwindle,” said Josh Hardie, deputy director general of the Confederation of British Industry (CBI), which represents around 190,000 businesses.
“It’s time business and political timetables converge, rather than compete. Firms need a deal now,” he said. The group also underlined the urgent need for clarity for businesses.
One area of the automotive sector where rising demand can be safely predicted is electric cars. However, the products are still in relatively short supply as carmakers begin mass production, Woodward added.
The threat of disruption from 1 January hangs over every company selling across borders, no matter what size. Morgan, the maker of handbuilt classic-style cars, only produces about 800 cars a year, but it is rushing to finish orders for customers in Europe before the 1 January deadline.
The UK carmaker, which was bought by Italian investors last year, said: “This is to protect against any potential delays and the initial shock of currently unknown tariffs on the vehicles.”
The stockpiling of parts or products has been widespread because it is one of the few aspects that remains under companies’ control – although keeping parts or cars in warehouses and car parks can mean large amounts of money is tied up.
The Society of Motor Manufacturers and Traders found earlier this month that 60% of its members were spending significantly on stockpiling and more than half had employed customs agents to prepare for new paperwork.
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The industry has spent more than £235m on Brexit preparations during 2020, although that cost will pale beside the imposition of tariffs, which would immediately add an average of £1,900 to the cost of imported cars.
Mercedes-Benz owner Daimler and VW’s Porsche have already promised to pass on the cost of tariffs to UK customers.
For UK factories, the threat is potentially greater than lost sales: Nissan has repeatedly warned that the business model of its Sunderland plant, the largest in Britain, would not be sustainable if tariffs are imposed, and a decision from PSA Group on whether or not to replace the Vauxhall Astra production at Ellesmere Port, near Liverpool, is long overdue.
GBP/USD snaps two-day losing streak, wavers between 1.3330 and 1.3341 off-late.
UK’s Raab sounds optimistic over Brexit deal, EU’s Barnier is in London for negotiations.
The UK to become the first western country to approve covid vaccine, Pfizer-BioNTech and AstraZeneca may gain initial approval.
China’s tussle with the West intensifies, UK bans Huawei’s 5G kit installation from September 2021.
GBP/USD picks up bids around 1.333/40, up 0.31% on a day, while heading into London open on Monday. In doing so, the Cable cheers broad US dollar weakness, amid mixed catalysts at home, by keeping the week-start gap-up to 1.3313. Although the coronavirus (COVID-19) vaccine hopes can keep the bull hopeful, uncertainty surrounding Brexit can trim the monthly gains before the early December deadline.
MHRA is on the move, EU-UK stays at loggerheads…
Following the last week’s news that the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) is up for reviewing AstraZeneca’s covid vaccine, the Financial Times (FT) conveyed, during the weekend, that the Pfizer-BioNTech product to battle the COVID-19 will be approved soon. This suggests the Tory government is pushing the moves to cure the pandemic.
Also on the positive side are chatters that regulatory authorities in Europe and the US are also up for approving the key vaccines, which in turn suggests an early recovery from the deadly virus.
On the contrary, the European Union (EU) Brexit negotiator Micher Bernier is in London for the final push over the trade deal. Although key hurdles like fisheries, governance and competition rules are still unsolved, chatters that the European Commission President Ursula von der Leyen and UK PM Boris Johnson will talk over the deal favor the GBP/USD buyers.
Risk sentiment stays mixed with the US and the UK stock futures trading negative while the US 10-year Treasury yields stay directionless by press time.
While the Brexit and the vaccine updates are likely to keep the driver’s seat, the early-month US PMIs can offer intermediate entertainment to the markets. It should also be noted that developments surrounding the London-Beijing should also be closely observed as the joint efforts to battle China by the Western countries like the US, Australia and the UK weigh on the risk-tone and may weigh on the quote.
Technical analysis
With the confirmation of a short-term rising wedge bearish formation on the daily chart, GBP/USD bears are likely targeting October’s top near 1.3175 during further declines. However, sustained trading beyond 1.3400 will help the quote to refresh the yearly top beyond 1.3482.
The election of Joe Biden as US president elect could be the “lifeline” needed by EU and UK leaders to offset the feared damage expected by failure to reach a Brexit deal, a leading Irish businessman believes.
Former head of the International Fund for Ireland, Willie McCarter believes Mr Biden’s election has possibly provided a lifeline for both the UK and EU as a no-deal looks increasingly possible in January.
The former chief of the huge Fruit of the Loom leisure wear company in Donegal warned that failure to secure a deal between the EU and UK will cause serious “personal and economic hurt”.
Mr McCarter said: “On top of the 2.6 million unemployed in the UK forecast at the moment, a no-deal Brexit will add 300,000. At the same time the UK and EU Brexit negotiators are racing towards a very uncertain outcome by December 31 and inevitably one which will seriously aggravate those difficulties for ordinary people no matter whether an agreement is reached or not.”
However, the advent of the Biden-Harris presidency could help ease the difficulties if EU and UK leaders were willing to grasp the lifeline it offered, Mr McCarter said.
“What could be done is as follows. The UK and the EU might agree to extend the current transition period for a further twelve months until December 31, 2021. During that time all aspects of the transition period would remain as they are now. This would give companies, governments and people a breathing space in which to prepare for Brexit in a much more orderly manner.”
Mr McCarter said during this time, the UK could ask President Biden to open negotiations on a future trade agreement.
“At the same time, President Biden might well be amenable to negotiate a resetting of the US-EU relations including the examination of the possibilities to expand trade between the US and the EU.
“The combination of parallel UK – US and US – EU negotiations as well as the continuation of UK – EU negotiations in a more relaxed time frame might well lead to better agreements between all parties,” Mr McCarter said.
Such an arrangement would benefit ordinary people whose lives and livelihoods have been and are threatened by the pandemic and the rush to conclude Brexit negotiations.
“In both Northern Ireland and the Republic, a sympathetic Biden-Harris administration involved in these negotiations might lead to an altogether better outcome for everybody on this island,” Mr McCarter said.
The golden age of the City of London began with a big bang. It’s ending with a whimper.
Fears that the finance powerhouse that emerged from Margaret Thatcher’s 1986 deregulation — known as the Big Bang — will gradually be dismantled have deepened with a recent flurry of announcements about some business heading to the European Union as Britain enters the last month of the Brexit transition period without a financial-services deal in sight.
The latest shift comes Monday at 8 a.m., when London Stock Exchange Group Plc’s stock trading platform Turquoise Europe goes live in Amsterdam. It joins other trading venues like Cboe Europe and Aquis Exchange Plc setting up shop on the continent as part of their no-deal Brexit plans, a contrast with the late 1980s, which ushered in a period where London became the place to be for equities trading.
“The City of London has been thrown to the lions,” said Alasdair Haynes, chief executive officer at Aquis, adding that the U.K. could lose even more stock trading than it expects if giant U.S. asset managers like BlackRock Inc. decide to trade in Paris and Amsterdam.
Last week, Goldman Sachs Group Inc., said it had applied to French regulators to open its SIGMA X Europe stock platform in Paris from Jan 4. Goldman partner Elizabeth Martin said that she expects most of the 8.6 billion euros ($10 billion) a day in London-based European share trading to shift to the bloc.
Europe Calling
London venues currently have a 30% share of trading in European stocks
Source: Cboe Global Markets
Aquis has already established a platform in the French capital. It went live with more than 1,700 European shares earlier this month. Other trading venues like Liquidnet have outposts in Dublin to ensure they can service clients.
“We are expecting a big bang on Jan. 4,” said David Howson president of Cboe Europe, the largest of London’s stock trading platforms, which opened its own venue in the Dutch capital last year. “The industry has never had to move this much flow overnight.”
It’s not just stock dealing that’s shifting. Brussels disappointed London swap traders last week when its markets regulator said that derivatives need to change hands on EU-based platforms from January. That means trillions of dollars of transactions is at risk of being transacted outside of the U.K.
Land Grab
The bloc has already made a land grab for London’s euro swaps clearing business, urging its banks to accelerate a shift to Europe. Deutsche Boerse AG’s Eurex Clearing has built up a 19% share of the business over recent years although it is dwarfed by London’s market share.
In recent weeks, Goldman and JPMorgan Chase & Co. have indicated that between them more than 300 staff will move to continental cities. Goldman is shifting as much as $60 billion in assets to Frankfurt, while JPMorgan is moving about $230 billion to the German city.
Consultancy EY said in a report last month that the 7,500 roles and 1.2 trillion pounds ($1.6 trillion) in assets that have moved already may just be the beginning. It expects further shifts in personnel and assets once the U.K.’s transition period officially ends.
That bodes ill for the U.K., where finance employs more than one million people, makes up about 7% of the economy and accounts for more than a 10th of all tax revenue. Despite that, the industry has garnered little of the attention bestowed on fishing, which makes up just 0.1% of the U.K. economy, in the protracted Brexit negotiations.
Talent Pool
To be sure, London’s long-standing advantages of the English language and legal system and a deep talent pool mean it won’t be overtaken anytime soon. And a last-minute agreement with the EU on financial services could still happen.
The LSE said it would call off its plan for Turquoise Europe if the European Union declared that Britain can host trading services for EU shares, part of a process known as equivalence. Such an agreement remains a possibility.
But time is running out. And without an agreement London’s status as Europe’s financial hub will no longer be in its hands.
“The kingmakers here will be the Americans,” Aquis CEO Haynes said. “There’s no guarantee they will still trade in London. They will follow the liquidity.”
