Global Themes

Brexit letter delivered and already signs of a rocky road ahead

  • Theresa May’s Brexit letter delivered to European Council President
  • Central bank commentary and the days ahead

Article 50

Theresa May’s Brexit letter delivered to European Council President
Having set out the March deadline for the triggering of Article 50 some months ago, Prime Minister Theresa May has today delivered on her promise and produced her signed Brexit directive to European Council President Donald Tusk in Brussels, via the UK’s ambassador to the EU Sir Tim Barrow. The process to negotiate the terms of the exit over the coming 2 years will officially begin in September 2017, though the ball is now officially rolling towards the March 2019 exit date.

The intended tone of the Prime Minister’s letter was conciliatory, positive and forward-looking, with hopes for partnership and alliance to remain at the core of the relationship between the UK and the EU. However, it is clear that the reception from EU representatives is that the Brexit result remains a fresh wound for the single market, and that by no means is there to be a free ride for the UK. European Council President Donald Tusk went so far as to state that “There is no reason to pretend that this is a happy day,”. The ideal scenario from the UK negotiators’ perspective seems to be to tie in ‘bold and ambitious’ duty-free trade agreements alongside exit negotiations, with a specific focus on protecting the finance sector and London’s standing as a global financial powerhouse. The reaction from German officials, specifically, was to rebuff the suggestion that these talks could be handled simultaneously, with German chancellor Angela Merkel insisting that initial withdrawal talks must focus on how to “disentangle” and that “hopefully soon, can we talk about how to craft our future relationship.”.

The Prime Minister also looked to highlight the importance of security across the UK and continental Europe as a driving force behind the need for a strong alliance, though the connection between economics and security was met with criticism from EU officials. It seems that the first day of the divorce is giving a predictable insight into the difficulties negotiators will experience to meet in the middle – and that the next few years could develop into a tug of war rather than a united front. The market reaction to the deliverance of the official directive was somewhat muted, with the writing having been on the wall for so many months. The sterling was generally weaker across the board though, retracing from the week’s high against a basket of major currencies.

Central Banks

Central bank commentary and the days ahead
Whilst so much focus has been on the triggering of Article 50, commentary from both the European Central Bank and US Federal Reserve officials did not go unnoticed in financial market participants.

On Wednesday, commentary from the ECB suggested that there is reluctance to review their monetary policy of historic low interest rates and bond buying despite positive economic performance seen from the Eurozone throughout the first quarter of the year. The euro weakened throughout Wednesday trading as a result. On the other side of the Atlantic, the U.S. Consumer Confidence Index released on Tuesday exceeded forecasts showing the index hit 125.6 for March versus a forecast of 114.  In a television interview, Federal Reserve Vice Chairman, Stanley Fisher, suggested two more interest rate hikes from the US were highly probable throughout the rest of the year, subsequently the dollar index retraced from the 4 month lows seen on Monday. Today will see US GDP and unemployment claims as the focus from a data perspective, before UK Current Account and Canadian GDP figures Friday to round out the month. 

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