Schengen Beats Brexit as Trump Tops
March 02, 2016
Let's put Brexit on the back burner and look at something more imminent; The collapse of Schengen (which has pretty much happened in all but name) could hit European countries to the tune of €28bn. The Telegraph reports that 0.2% of GDP is at risk if Europe reverts to closed borders, as the cost of cross border travel raises by 5% and the trade flows between countries falls by as much as 20%.
Eight of the twenty six Schengen members have reinstated border controls in the last six months, which the EU wants to see gone by November at the latest. The establishment wants to focus on securing external borders and hopefully some much needed help for Greece, who have been threatened with being ejected from Schengen if they can't get their house in order (talk about being kicked when you're down). Turkey is also being pressured to do more to stem the flow to Europe, but with 2.5 million refugees living there already and a total aid package from Europe of €3bn, you'd be forgiven for thinking they haven't got the resources to solve a problem they didn't cause.
None of the above is having an immediate impact on markets. Stocks in Europe rallied yesterday, all pushing up between 1-2%. The exception was the FTSE, which was slowed down by Barclays, who lost more than 8% yesterday and saw trading in their shares briefly suspended.
Lloyds shares are now back above George Osborne's magic number, prompting speculation that the share sale could now be back on. Mr Osborne is likely to miss his borrowing target and, even worse, say that more spending cuts will need to be made in the next financial year, as the economy isn't as big as he thought it was. Releasing the big chunk of change that is the Lloyds share certificates could go a small way towards plugging the borrowing deficit.
Share price positivity moved into the US session, with the best day on American exchanges in seven weeks. Decent manufacturing numbers, construction data and another rise in the oil price all helped to push prices higher. US investors will take some comfort that the domestic numbers are stacking up and that there could also be some Central Bank action from overseas later this month, potentially providing a double whammy of optimism.
Optimism on the economic front, but terrifying political news as Donald Trump and Hillary Clinton increased their nomination leads in the biggest voting day, Super Tuesday. Despite Trump being systematically picked apart by John Oliver (well worth a watch) he remains the streaks ahead front runner and though Hillary Clinton's victory over Bernie Sanders was more marginal, she's still the favourite.
A preliminary ruling from the US Commerce Department yesterday says that Chinese steel imports could be slapped with a 266% (yes, 266%) import tariff as Chinese steel producers have been accused of dumping steel on the US market at unfairly low prices. George Osborne could take a few notes here.
Overnight the positivity has continued, with Shanghai up Tokyo up more than 4%, Hong Kong more than 3% and Australia putting in a solid 2% gain having seen a decent Q4 GDP number. China have said that they'll lower the thresholds for foreign investment over the course of this year, which is being welcomed by just about everyone, hungry to get in on the action in the world's biggest economy.
Today's data calendar is a little lighter than yesterday, with UK construction and US employment the highlights. There's an abundance of central bankers taking to the wires in the afternoon and the Fed release the Beige Book this evening.
Have a great day