A Leaked Memo to the Times Reveals a Brexit Surprise

A Leaked Memo to the Times Reveals a Brexit Surprise

A Leaked Memo to the Times Reveals a Brexit Surprise

Good Morning

The government has no plan for Brexit, according to a memo leaked to the Times. Written last month the memo says that there are currently 500 Brexit related projects and the government could need up to 30,000 more staff to get the work done – good luck finding the money for that! The government has distanced itself from the memo, which was written by a consultant, by saying “it doesn't recognize” the claims, but we'd far rather they countered this by saying 'we have got a plan' and then showing a little of what it is.

Later this month we get the autumn statement from Philip Hammond and it will be interesting to see how much stimulus he lays out in, as this could give us a clue over how rough the government thinks the negotiations will be. It's touted that £100bn over the next five years is likely to be the number and this means that George Osborne's dreams of a budget surplus by 2020 will actually be a deficit of closer to £20bn.

In Europe; the ECB want to keep policy accommodative until sustained trajectory's for growth and inflation are reached, according to governing council member Praet. We'd imagine this means keeping ultra-loose policy well into the Brexit negotiations of 2017 at least, which could well mean announcements of further stimulus at next month's meeting.

This talk of stimulus is playing into the Dollar's hands, and the bets that the euro will reach parity with the Dollar in 2017 have doubled since Trump's victory. The reason for this is the market thinks the Fed will get back onto the rate rise wagon this year and will hike a couple more times next year to make sure that Trump's stimulus efforts don't let inflation get out of control, and this will leave Europe's ultra-low policy well behind.

The market could be getting ahead of itself though, with bond yields already rising hard on the prospects of Trump's fiscal loosening. So far we've heard little from the man about his spending plans (other than on walls) so to rally as much as they have – now at one year highs in less than a week – might be a little steep and need some correction.

The implication of the bond market may be felt pretty swiftly in the US housing market, as the average 30 year mortgage rate has already hit 4% on the back of the Trump victory, which was a level that many didn't see happening until late 2017. 4% is a big psychological level and will have a bearing on purchasers' appetite to take on more debt.

In the stock market, it's the tech stocks that are getting hit hardest following the Trump victory, though nobody really knows why. Immigration and protectionist trade policies are one possible reason, with tariffs being placed on components and products being manufactured in the Far East, alternatively it could be that people realize there are too many unicorns out there and perhaps don't think they'll perform well with more protectionist policies in place. Either way, it's the biggest sell-off since February for the sector.

Overnight we've seen little in the way of directional movement in all asset classes – this should lead to a slow start in Europe. On the calendar today we've got UK inflation numbers, which the market will spend some time on as the BoE have a vested interest in given their hopes to cut rates next month.

Obama is visiting Europe today on his farewell tour – and my god they're gonna miss him!

 Have a great day

©Hamilton Court FX

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