Everybody knows much of the City of London was vehemently opposed to Brexit because of fears of what might happen to banks’ interests if so-called “passporting” rights into and out of the European system were lost. What is less talked about, however, is Brexit’s impact on the European payments clearing system, Target2 — and how the passporting issue connects by way of Target2 to the realm of sovereign monetary policy. At the absolute heart of the matter is the status and treatment of payment systems worldwide, and whether or not they can really be treated as something independent and thus distinct from national monetary policy (and hence open to commercial competition) — or as integral to sovereign interests.
Softbank’s blockbuster offer for Arm Holdings, British Land’s wariness and Boris Johnson’s Brussels debut as foreign minister. FT Opening Quote, with commentary by Naomi Rovnick, is your early Square Mile briefing. You can sign up for the full newsletter here.
Upsides for whom, you ask? For Chinese policymakers, we respond. As do Deutsche Bank: More subtly, Brexit indirectly helped reduce concerns of a ‘risk off’ shock from China thanks to the stealthy RMB devaluation around the UK vote. This has confirmed a new-found market tolerance of China currency slippage, at least when it looks controlled by policymakers.
Theresa May has become the UK prime minister, and the internet — in the style of looking up what the EU is only after the Referendum — is only now alive with articles/tweets about who exactly Theresa May is. Indeed, amusingly enough, whilst a lot was being made of Andrea Leadsom’s “City” credentials, there was almost no word in the run up to the appointment of May’s own City credentials.
PageGroup shows referendum jitters while Asos bucks the UK retail trend with strong sales and housebuilder Galliford Try expects postive results. FT Opening Quote is your early Square Mile briefing, with deputy companies editor Matthew Vincent. You can sign up for the full newsletter here.
UK retailers, with some exceptions, have had a rocky start to the day, but The City can take solace in musical metaphors for Brexit. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for a full newsletter here.
Wholesaler Booker has seen like-for-like sales slip 2.9 per cent in the first quarter. This is mostly due to tobacco sales falling 7.7 per cent following a ban on small stores displaying packs of gaspers. A 0.7 per cent drop in sales of non-tobacco products reflects deflationary pressure in the retailing industry. Other data released today reflects the gloomy mood in the run up to the Brexit vote. New car registrations fell slightly last month, according to the Society of Motor Manufacturers and Traders. The British Retail Consortium reports that shop prices in early June were down 2 per cent.
From Standard Life Investments as it suspends trading in its £2.9bn UK real estate fund (one of the UK’s largest) because of post-referendum redemption requests: Updating with actual press release: STANDARD LIFE INVESTMENTS UK REAL ESTATE FUND Due to exceptional market circumstances, Standard Life Investments has taken the decision to suspend all trading in the Standard Life Investments UK Real Estate Fund (and its associated Feeder Funds) from 12:00 noon on 4July 2016. The decision was taken following an increase in redemption requests as a result of uncertainty for the UK commercial real estate market following the EU referendum result. The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio.
Shareholders in the London Stock Exchange will vote today on a merger with Deutsche Boerse to create a pan-European exchanges champion. The deal has been cast into doubt by the Brexit referendum, according to some commentators. LSE investors can be expected to vote Yes, not least because the drop in the value of sterling has increased the value of the 46 per cent stake they will take in the merged entity.
- Benn Steil explains the Marshall Plan
- Marcel Fratzscher on the dark side of the German economy — now with transcript!!
- Marcel Fratzscher explores the dark side of the German economy
- Emi Nakamura on calculating inflation
- Stephanie Kelton explains how the government budget affects the economy and the mechanics of student debt forgiveness
- Jonathan Knee explains 25 years of Wall Street’s evolution
- Marcus Noland explains the North Korean economy
- Brad Setser explains how corporate tax policy affects the balance of payments
- Michele Wucker explains “Gray Rhinos”
- Listen - The "gray rhino" theory
- James Heckman tells us why IQ is overrated
- Mihir Desai explains the wisdom of finance — Now with transcript!
- Mihir Desai explains the Wisdom of Finance
- Can we avoid another financial crisis?
- Hirschmania, the final chapter
- The life and speeches of Sadie Alexander
- Kim Rueben on the fiscal impact of immigration
- A sit down with Adair Turner
- Stephen Kotkin explains how Stalin defined the Soviet system
- Richard Florida on geographic inequality
Alphachat is available on Acast, iTunes and Stitcher.
In 1532 Henry VIII effected a series of acts of parliament to formalise his kingdom’s breakaway from Rome. As Rupert Gavin commented in the FT last week what happened next ended up defining the Britain of today: Back then, after a period of near bankruptcy, constant war and disruption, the breach was a trigger for economic growth, for the emergence of a thriving middle class and for the rapid expansion of London. By 1600, with a population of about 250,000, it was one of the largest cities in the world. The City of London played a significant role in the post break-up environment too. Rome may have been viewed as oppressive, unaccountable and governed by a clerical elite, but it also provided important welfare safeguards for the poor, the infirmed and the weak. The confiscation of Church assets deprived the poor of their primary source of income support and welfare, says Gavin, and with little other choice they flocked to the cities to find work.
If the EU is a sinking ship and the UK should leave, then most of the UK is a sinking ship and London should leave
The European Union’s economy is a “sinking ship” and Britain would be better off “detaching itself” from the bloc, Michael Gove, the U.K.’s Justice Secretary and prominent leave campaigner told CNBC on Tuesday. “By voting to leave we can not only take back control of hundreds of millions of pounds that we send to the European Union, we will also be detaching ourselves from the sinking ship that is the European Union economy,” Gove, who is hoping for a Brexit vote on Thursday’s referendum, said. – Britain needs to jump from EU’s ‘sinking ship’: UK lawmaker (June 21, 2016). We would never defend the economic management of the euro area, which is often conflated with the policies recommended by the European Union as a whole. But it’s worth noting most of the UK is actually quite poor compared to large areas of Western Europe, and particularly deprived relative to greater London.
Legal & General has brushed off the effect of the Brexit vote, Tory leadership nominations close at noon, Mark Carney speaks at 4pm. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
This guest post on the issue of the wider global impact of Brexit is from Paul Donovan, Global Economist at UBS in London. The British referendum decision to end the country’s EU membership may seem an isolated event. Something for the UK to worry about, certainly. Something for the EU to muse over. But not, necessarily, something that Asia should be concerned about. This attitude is a mistake, in my view. The UK referendum matters because it signals trends that will shape the world economy. These trends are important for Asia and Asian investors. Leaving aside the details of EU membership, the referendum result marks a victory for “anti-politics”. This is the politics of being against something rather than for something. Anti-politics suggests “if only we get rid of this one thing, all our troubles will be over”.
FT Confidential Research will be hosting an intimate ‘up, close and personal’ China session at the FT’s Festival of Finance this coming Friday at 2pm. It will take place in the M&G Coffee House area and be hosted by FT Confidential Research’s principal for China David Wilder, their chief economist Xiao Qi and head of research Sun Yu. This will be a chance to put your questions directly to the experts and benefit from their unique on the ground, regional perspective. Here follows their analysis of whats’ been going on in China’s shadow banking sector whilst we’ve all been distracted by Brexit. In some respects, Brexit has been a gift for Beijing. The chaos in world markets unleashed by the UK’s vote to leave the European Union means a Chinese hard landing has slipped down the list of potential threats to global stability. Not that Li Keqiang appeared particularly gleeful at this newfound loss of status when he gave his annual address this week to the World Economic Forum in Tianjin. Instead, the premier rolled out his government’s now-familiar tropes about the resilience of Chinese growth and the relative health of the labour market, again dismissing talk of an economic hard landing.
Michael Sherwood of Goldman Sachs faces a grilling from MPs on BHS, house prices are up 5.1 per cent in June, says Nationwide, Dixons Carphone profits are up 17 per cent. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
See if you can spot which one of these United Kingdom equity ETFs is priced in dollars pic.twitter.com/7EdcQEBB3p — Joe Weisenthal (@TheStalwart) June 27, 2016 There are probably lots of these sorts of divergences going on in the markets, with the pound’s decline against the dollar masking the underlying loss in investor confidence (see the FTSE 100 vs. the FTSE 250, for example). Here’s one that shows, in times of fear and volatility, money does get left on the table, albeit temporarily:
They think it’s all over, but maybe not yet. Despite Brexit and England’s exit from the Euros, Redrow and Rolls-Royce are upbeat this morning and the pound has steadied. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Day two of post-Brexit trading and… bank stocks are being suspended. So not a great start and it’s a sign that whatever market-stabilising powers UK chancellor George Osborne once had have been diminished. In fairness, though, he’s trying to calm a hurricane that will leave the banking sector stuck in low interest rate purgatory for even longer than expected. As per David Lock and Atul Hanamante at Deutsche Bank, with our emphasis:
If you’d asked any observer four or five years ago which country would be the first to leave the European Union, few would have guessed it would be the UK. Of all the countries in the EU, the UK is probably the one with the least to gain from meaningful changes in its economic relationships with its neighbours. Yet here we are. London’s stock markets, priced in sterling, probably understate the expected impact on the UK economy given the sectoral and geographic earnings mix of the listed companies. So we looked at the short-term interest rate markets to get a sense of how traders think the Bank of England will react to the vote.
EIF’s established reputation in the European VC market is substantiated by its significant role in European investment and fundraising activity. In this paper we estimate that the investment activity backed by EIF represented 41% of total investments in Europe in 2014 (29% in 2007). The share directly attributable to EIF amounts to 10% (5% in 2007), hinting to the significant leverage that characterises EIF-backed investments. Moreover we estimate that fundraising volumes backed by EIF in 2014 amount to 45% of the overall volumes collected by European VC investors (36% in 2007), against a share directly attributable to EIF totalling 12% (5% in 2007). That’s from a European Investment Fund research paper published at the start of June and it shows the extent to which dynamic European venture capital relies on the munificence of sluggish European government — as told by said government, of course.