Brexit Bulletin: A Darker Shade of Red Line
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Brexit negotiation lines are turning an even darker shade of red as Prime Minister Theresa May heads to her first meeting of the United Nations General Assembly looking to defend border rights.
On the British side, officials tell Bloomberg's Svenja O'Donnell that Chancellor of the Exchequer Philip Hammond is giving up hope the U.K will be able to maintain membership of the single market.
Some in May's Conservative Party, including lawmakers Dominic Raab and Owen Paterson, have also formed a pressure group called "Leave Means Leave" It will argue the U.K. should leave the single market even if no new trade deal is struck, according to the Sunday Telegraph. The U.K. Independence Party also wants May to "stop the faff" and start formal talks.
In a blow to bankers, this all suggests the government will focus on securing control of immigration over ensuring trade access. Although he was subsequently rebuked by May, Brexit Secretary Davis Davis has already said it is "improbable" the U.K. can do both.
European leaders have warned as much. Many reiterated at a summit in Bratislava, Slovavkia, on Friday that the U.K. can't "cherry pick" the best bits of the EU as it walks out the door. Some in Europe are also adding other demands. Slovakia, Hungary, Poland and the Czech Republic are warning they will seek to veto any pact that hurts the rights of their citizens in the UK.
Having said on Friday that the Brexit won't be allowed to "damage" the EU, Slovak Prime Minister Robert Fico told the Financial Times that Europe will make the withdrawal process "very painful" for the British.
Meanwhile, Bundesbank President Jens Weidmann told the Guardian any "hard Brexit" would threaten London's status as a financial hub and the ability of banks to do business in the region. That will worry banks as they prepare to meet Davis.
There's one piece of good news for banks today. A report from ratings agency Moody's which reckons global banks based in London now will likely retain limited access to the EU even if they lose full entry.
That's because most EU financial-services laws recognize that some non-EU countries' rules and oversight of specific business lines are as tough as its own, the credit-ratings company said in a report. While the U.K. leaving the single market would increase costs for the banks, it would likely be "manageable," Moody's said.
The Weekend in Brexit
The Sunday Times said Britain could be hit by fines if it tries to negotiate trade deals before leaving the EU. ITV's Robert Peston reported that Trade Secretary Liam Fox had irked business leaders. In the Financial Times, the head of Japan's biggest bank called for a "soft Brexit". The Sunday Telegraph reported that Canada's export agency is opening an office in London and that companies are checking out property space in Dublin. The Mail on Sunday cited the CEO of Berkeley Homes CEO as saying that new home-building could halve if the supply of European workers dried up.
On the Markets
The Bank for International Settlements warned the rebound in markets since the Brexit referendum may be ignoring risks. International Monetary Fund Managing Director Christine Lagarde said a drawn-out withdrawal also adds to investor uncertainty.
Early economic reports on Monday showed a mixed picture. London house prices rebounded in September after four straight declines, according to Rightmove. By contrast, Lloyds reported confidence among businesses had dropped to a four-year low.
European stocks rebounded from Friday's Deutsche Bank-driven fall, rising across the board during Monday trading.
Polish workers are already voting with their feet. While Britain is still home to more Polish expatriates than any other European country, Germany has become more of a lure, with about 41,000 moving there in 2015, according to a Bloomberg Benchmark analysis. That’s the fourth consecutive year that Europe’s biggest economy has been more attractive to them than the U.K.