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Brexit Bulletin: A Plan at Last?

Tune in on Tuesday to hear Theresa May’s Brexit vision.

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We’ve had “Brexit means Brexit,” “red, white and blue Brexit” and the repeated promise to seek the “best possible deal.”

Now investors and lawmakers have a date in the diary from Prime Minister Theresa May for more details about her strategy for removing the U.K. from the European Union.

Next Tuesday is the day she will set out her vision for Brexit and creating a “truly global Britain,” her spokeswoman said yesterday. Onlookers will be seeking answers to many questions, among them: how does May plan to curtail immigration, and will she unilaterally let EU citizens stay in the U.K.? Is she going to pull the Britain out of the single market and/or customs union and if so, what model of trade does she want? Will she try to protect the finance industry? Does she want a transitional deal to the new regime?

Listeners might still not get much insight, with May repeatedly saying she doesn’t want to reveal too much of her negotiating position early on as she plans to trigger the withdrawal by the end of March.

Currency traders are already nervous. A one-week measure of anticipated price swings for the pound climbed to the highest in two months on the news alone that May will speak.

Meanwhile in Bloomberg Businessweek, Tim Ross explains how preparing for Brexit just got harder as May marks six months in office.

Message From Malta

May is just one side of the negotiating table, and it’s her EU interlocutors who may ultimately have the whip hand.

The message sent this week from Malta, which holds the EU’s rotating presidency, doesn’t bode well.

While he said “nobody is out to destroy the British economy,” Prime Minister Joseph Muscat said he doubted Europe’s common front will fracture and that “it’s very obvious” any deal must be inferior for the U.K. than EU membership is. He also said European courts will have some jurisdiction over the U.K. through any transitional phase. 

Finance Minister Edward Scicluna was even harsher, betting Britain will “blink first” in the discussions.


Blissful No More?

One thing in May’s favor has been the resilience of the economy to the Brexit vote, yet a new index from Bloomberg Intelligence suggests the mood is shifting.

BI’s Bliss Index, an amalgamation of growth, employment, uncertainty, and inflation measures, now sits just above the zero mark that divides above and below-average levels of well-being. Excluding the post-referendum dip, the gauge is now at its lowest level since June 2013.

“Heightened uncertainty has caused the index to drop off since the referendum,” said Bloomberg Intelligence economist Dan Hanson. “It’s likely the gauge will fall further in 2017 as households feel the pinch of a sterling-led bout of higher inflation.”

Retailers, including Next and closely held John Lewis, this week warned that the year ahead will be tough as inflation kicks in. Still, Tesco, J Sainsbury and Marks & Spencer all enjoyed a lift over Christmas.

What’s Equivalence?

Banks may be lowering their expectations of what can be achieved in Brexit negotiations.

Having once sought to maintain so-called passporting rights to enable them to access the EU from bases in the U.K., executives and lobby groups are now increasingly discussing “equivalence,” which would require the U.K. and EU to pursue similar regulatory standards.

Bloomberg’s Gavin Finch and John Glover outline the different kinds of regimes, while Lionel Laurent of Bloomberg Gadfly details the banks’ retreat. Bloomberg View’s Mark Gilbert argues how bluffing on finance is a risky strategy.

Brexit Bullets

  • U.K. Labour lawmaker Tristram Hunt quits seat in Brexit heartlands 
  • U.S. Envoy to EU says hard Brexit would be "absolute folly"
  • German Chancellor Angela Merkel says Brexit will be a catalyst for the bloc to harmonize corporate tax rates and strengthen ties
  • Homebuilder Taylor Wimpey says 2017 won't deteriorate because of Brexit as previously expected
  • Center for Global Development says the U.K. can use commerce to help itself and also poor countries by lowering tariffs, improving preferential access, cutting red tape and enhancing the effectiveness of aid for trade
  • Ryanair’s Brexit pessimism dims as Irish carrier plans to add nine new routes from London’s Stansted airport this summer
  • AIG is weighing Dublin as possible European HQ, says Irish Independent
  • Bank of France Governor Francois Villeroy de Galhau says financial firms showing real interest in moving to Paris
  • Insurance companies, asset managers, and financial technology companies have knocked on Luxembourg’s door, says Finance Minister Pierre Gramegna 
  • After Brexit, Davos wonders if it’s part of the problem
  • Birmingham City University launches Centre for Brexit Studies

On the Markets

As the pound continued to swoon this week, investors are asking just how much further it has to fall.

At Pacific Investment Management, portfolio manager Thomas Kressin tells Bloomberg’s Chiara Albanese sterling is still worth selling despite being undervalued by about 5 percent based on purchasing-power parity.

And Finally...

Brexit just cut the cost of that dream sports car. As long as you live in Ireland.

Mercedes-Benz is reducing new car prices there by 10 percent because of Brexit, a move it says is designed to support distributors after the slump in the pound made U.K. imports cheaper. At 14 Irish dealerships, the top-of-the-range Mercedes-AMG GT S now costs €225,000 ($240,000), saving about €25,000, reports Bloomberg’s Dara Doyle.

“Like the U.K., Ireland has right-hand drive, plus it has the euro,” said Ashley Winston, who sources cars on request across the U.K. from his London base. “So Irish drivers are almost uniquely placed to take advantage of Brexit.”

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