Theresa May Brexit Speech: PM reveals UK Will Leave Single Market, Flags Australia Trade Deal
I think it is good to get the Australian perspective on this and here is The Sydney Morning Herald’s article on Mrs May’s speech:
London: British prime minister Theresa May has flagged a trade deal with Australia as a priority for a "new global Britain".
In a historic, detailed speech, Mrs May dashed the hopes of Remainers and delighted Brexiteers by setting out a vision of an independent UK – a "trading nation" that will look beyond Europe to "new friends and old allies".
She confirmed the UK would leave the European single market and instead would negotiate a new free trade deal with the European Union.
She was less clear on the UK's role in Europe's customs union, saying Britain would not be part of the common commercial policy or external tariffs, but could remain a "signatory to elements" in order to lower barriers to trade.
She emphasised the British people had voted to regain control of immigration, though she wanted European citizens already in the UK to retain their right to work there.
She revealed that the final Brexit deal would be presented to the British parliament for a vote before it comes into force – though she did not discuss what would happen if it was voted down, saying instead she was confident it would be approved.
Mrs May concluded with a barely-veiled threat to Europe: that if they sought a "punitive" Brexit then it would be "an act of calamitous self-harm" as the UK would retaliate by lowering its tax rates below Europe's to draw companies and investors from the continent.
She also admonished Europe for "trying to hold things together by force, tightening a vice-like grip that ends up crushing into tiny pieces the very things you want to protect".
But she said it was "overwhelmingly and compellingly in Britain's national interest that the EU should succeed".
Mrs May's speech drew a rapturous reception from those who had campaigned for Brexit, with UKIP leader Nigel Farage commenting "I can hardly believe that the PM is now using the phrases and words that I've been mocked for using for years. Real progress."
But it is likely to be less welcome in Europe.
European ambassadors were present in the room for the speech, and Fairfax understands few if any applauded the conclusion.
Some were seen shaking their heads when it came to the threat of Britain becoming a tax haven.
In a deliberate irony the speech took place at Lancaster House in London, where Margaret Thatcher set out her plan for the UK's membership of the single market in April 1988.
Mrs May began by saying she wanted the country to be "a truly global Britain", a "best friend and neighbour" to Europe but one that "goes out into the world to build relationships with old friends and new allies alike ... a great global trading nation respected around the world".
She said the UK would begin by adopting EU laws, then modifying them, to allow a smooth transition and certainty for business.
Mrs May also spent some time reassuring Ireland that there would be a "practical solution" that balanced the common travel area with Northern Ireland with the need to protect the UK's new immigration controls.
"Nobody wants to return to the borders of the past," she said.
On immigration, she said the UK would "get control" of the number of people coming to Britain from the EU, but would guarantee the rights of EU citizens already in Britain as an "important priority", preferably before the rest of the Brexit deal was done.
On trade, she said "as a priority, we will pursue a bold and ambitious free trade agreement with the European Union.
"This agreement should allow for the freest possible trade in goods and services between Britain and the EU's member states. It should give British companies the maximum freedom to trade with and operate within European markets – and let European businesses do the same in Britain.
"But I want to be clear. What I am proposing cannot mean membership of the single market."
This agreement might take in elements of the current single market as it "makes no sense to start again from scratch", she said.
But the UK needs to leave the single market and key elements of the customs union, Mrs May said, in order to strike its own trade deals.
"We want to get out into the wider world, to trade and do business all around the globe."
"Countries including China, Brazil, and the Gulf states have already expressed their interest in striking trade deals with us. We have started discussions on future trade ties with countries like Australia, New Zealand and India. And President-elect Trump has said Britain is not 'at the back of the queue' for a trade deal with the United States, the world's biggest economy, but front of the line."
David Fuller's view
Well done Theresa May and her team. This speech has ended much uncertainty and also frustration on the part of Brexit supporters, who’s numbers have increased following the historic vote.
Importantly, even the Chancellor Philip Hammond has come to his senses following a dreary Autumn Statement on 23rd November.
As for EU spokesmen, I have heard some more lame “cherry picking” comments in response to Theresa May’s speech today. No, the government is not cherry picking – we are leaving the EU.
Dominic Lawson: Why Our Cautious Chancellor Just Dropped a Brexit Bomb On Berlin
Here is a section of this apt article by Margaret Thatcher’s former chancellor Dominic Lawson for the Daily Mail:
It’s not enough for Theresa May to say that if she doesn’t get a bespoke UK/EU free trade deal outside the Single Market and the Customs Union, she will walk away and risk the imposition of tariffs on both sides. She has to mean it — and be believed.
Such rough talk from her supposedly ultra-cautious Chancellor gives her much greater credibility in such a stand-off.
But Mr Hammond’s change of tone is not just a negotiating ploy. As he also pointed out to his German interviewers: ‘Since the referendum, we have seen, on the European side, movement away from the UK positions . . . to things that are anathema to the UK: more political integration.’
Some of that ‘movement’ would now be causing political mayhem in the UK, if we had not already voted to leave. Here are just four examples.
Last week, details leaked of an EU White Paper suggesting Brussels be allowed to impose taxes directly on member states, to include a levy on CO2 emissions, an electricity tax and an EU-wide corporate income tax.
Last month, the European Court of Justice ruled that British laws allowing the security services retention of bulk data on calls and emails would not be allowed to stand as they ‘exceeded what is strictly necessary’.
Also last month, Brussels ruled that all members of the Single Market had to impose a requirement that every off-road vehicle — every quadbike, every golf-cart — had to be covered by insurance for ‘third-party injury and damage’. Our own Department for Transport said that it ‘opposed measures which impose an unreasonable burden on the public’ but that it would have to abide by the new rule until Britain exits the EU.
And, only a few days ago, Brussels ruled that even motorists who break the law by driving without insurance should be protected if their car is damaged — so law-abiding drivers face an increase in insurance bills to cover that cost.
It is only because we are leaving the EU that these four power-grabs — proposing new EU-wide taxes; adversely affecting MI5’s ability to protect the British people; creating a totally new overhead for farmers and families playing around with quadbikes; and driving up the costs of running a car — have not caused an even sharper spike in the British people’s hostility to our membership.
David Fuller's view
That is what the bureaucratic EU does – it makes silly nanny state rules which damage free enterprise, slow GDP growth and increase unemployment.
Email of the day 1, as I catch up
On the vetting of Rex Tillerson for US Secretary of State:
I spent much of the afternoon watching the live coverage of Rex Tillerson’s senate confirmation hearings. I was very impressed with his responses, and found that some of the questions he was asked were entirely inappropriate for a public hearing as they would reveal possible ploys for dealing with the Russians. The most petty moments were the grandstanding questions of Rubio, who appeared adolescent in contrast to a pro like Tillerson. How fortunate for all that Rubio was eliminated early on in the campaign.
Regrettably there was an overlap and I had to leave that coverage to watch The Donald. There is clearly something wrong with that man on a personal level, but he has a very good case for the attempted vilification by certain segments of the media. I loved his rebuff of CNN by refusing to accept any questions from their correspondent. His comments re Buzzfeed were predictable, NYT, Vanity Faire, Streep pettiness, but that group is a joke anyway. For me the most impressive moment was the time on stage of his attorney, who detailed the alleged efforts he has made to separate his past business ventures from his future job. She was excellent, but I did wonder just how many blank pages there were in those stacks of documents lying on the table to her right. Perhaps the rebuffed CNN reporter will have had a quick look.
David Fuller's view
Thanks for your thoughts on this important confirmation hearing. I saw a brief section of the Rex Tillerson hearings over the weekend and was impressed. He was very articulate, knowledgeable and reassuring on a range of subjects.
In fact, I would not have minded if he had just become the president elect. I also maintain that Trump has selected the most capable business team of any president during my lifetime. I think that will be good for the USA and I hope to see more successful people from the private sector nominated for senior governmental roles in the UK and any other democracies.
(See also: If Rex Tillerson Is Confirmed By The Senate, What Does That Mean For XOM?, by Martin Tillier for Nasdaq)
Whisper It, But This Could be a Good Year for Growth
Here is a latter section of this excellent column by Roger Bootle for The Telegraph:
A third major factor making for a stronger world economy is not directly related to the financial crisis. At the beginning of last year the markets and many commentators managed to get themselves extremely worked up over the damage supposedly done to the world economy by low oil prices. By contrast, it seemed to me that low oil prices had to be a good thing. But the losses from low oil prices were highly concentrated and visible in the short term; by contrast, the gains were more widely distributed and might only become evident to the beneficiaries after a period of time. Accordingly, it was likely that there would be a short-term hit to the global economy, offset by a longer-term gain. We are now into that longer term.
Meanwhile, the recovery from ultra-low oil prices has brought a further benefit, namely the easing of the pressure on hard-pressed companies and countries. Russia, for instance, should emerge from recession this year. Even so, oil consuming companies and individuals are still facing much lower prices than they were two years ago. The result is that the world should now be experiencing a substantial net dividend from lower oil prices.
The upshot of all of this is that world growth this year is set to be higher than last year. Not only that, but it may well be a good deal stronger than almost anyone expects. Of course, in the world of forecasting you have to be prepared for surprises. Over the last few years we have all been exceedingly well prepared for downside surprises. What I am about to say is decidedly risky but I will say it nevertheless: I have a hunch that we now need to be prepared for surprises on the upside.
David Fuller's view
I have been making many of these points for a while, so I agree with Roger Bootle.
Businessman Trump will certainly want to improve the US economy and he has selected a highly experienced and business savvy cabinet to help him achieve this goal. There is a risk that he might trigger a trade war with China, but I think he is too smart for that lose-lose mistake.
Trump is fed-up with what he saw as Obama’s passivity. He wants China to know that the US will now compete, and also cooperate, on a level playing field. The same goes for Russia and any other country, although I think he could be particularly helpful towards the UK, as thanks for Brexit which Trump believes helped him to win the Presidential Election. He holds little affection for the EU, having heard more about it from Nigel Farage, and having seen some of the whopping legal settlements and fines imposed on US corporations. He probably views the EU as a rival rather than a friend, and he knows it has seldom paid its 2% of GDP per country NATO fees.
This item continues in the Subscriber’s Area, where a PDF of Roger Bootle’s column is also posted.
Email of the day 2
On Fuller Treacy Money and Markets Now:
I just wanted to say again 'thank you'. I know it feels hard work at times but you make a huge difference to many lives with your efforts at Fuller Treacy Money and Markets Now. Please keep going. I will support you all I can. It is a real pleasure to know you.
David Fuller's view
Thank you for this thoughtful email.
I have learned a great deal from my subscribers over the decades. They include some of the nicest and most knowledgeable people, sometimes from very different professions, that I have ever met.
Stocks Could Post Limited Gains in 2017 as Yields Rise
Thanks to a subscriber for this transcript of Barron’s annual roundtable. Here is a section:
Gundlach: People have forgotten the mood regarding stocks and bonds in the middle of 2016. Investors embraced the idea that zero interest rates and negative rates would be with us for a very long time. People said on TV that you should buy stocks for income and bonds for capital gains. This is when 10-year Treasuries were yielding 1.32%. Someone actually said rates would never rise again. When you hear “never” in this business, that usually means what could “never” happen is about to happen. I told our asset-allocation team in early July that this was the worst setup I’d seen in my entire career for U.S. bonds. It occurred to me that the bond-market rally was probably very near an end, and fiscal stimulus would soon become the order of the day.
Schafer: People were also worried about deflation back then.
Gundlach: Based on a comparison in July of nominal Treasuries to Treasury Inflation-Protected Securities, or TIPS, the bond market was predicting an inflation rate of 1.5%, plus or minus, for the next 30 years. Now, that is implausible, and kind of proves the efficient-market hypothesis is wrong. More likely, the inflation rate would increase not in five or 10 years, but one year, because commodity prices had already bottomed. The Federal Reserve Bank of Atlanta’s wage-growth tracker is now up 4%, year over year. Oil prices have doubled since January 2016, to around $52 a barrel, which likely means that headline CPI [the consumer-price index] will be pushing 3% in April.
I expect the history books will say that interest rates bottomed in July 2012, and double-bottomed in July 2016. At some point, the backup in rates will create competition for stocks. Bonds could rally in the short term, but once the yield on the 10-year Treasury tops 3%, which could happen this year, the valuation argument for equities becomes problematic. When the long bond [the 30-year Treasury] was at 2%, bonds had a P/E of 50. Compared with that, a P/E of 20 on stocks didn’t look all that bad. But if the 10-year yield hits 3%, you could be talking about 4% on the 30-year, which implies a P/E of 25.
Something else happened in 2016: The Fed capitulated, as I predicted a year ago. The Fed gave up on its forecast for higher interest rates and lowered its dot projections for 2017, just when it might have been right. [The Fed’s so-called dot plot shows the interest-rate projections of the individual members of its policy-setting committee.] In December, the Fed had to reverse itself and raise rates.
Priest: For the first time in years, the Fed didn’t lower its forecast for GDP [gross domestic product] growth in coming years. Central banks and the International Monetary Fund have been dead wrong for years with their annual forecasts for world GDP growth. The danger now is that pressure on P/E multiples will be negative. Unless we get tax reform and more growth in the real economy, the chances of a down stock market aren’t insignificant this year.
Gundlach: Fed Chair Janet Yellen suggested a few months ago that running a “hot” economy might not be such a bad idea. But when unemployment is low, wages are rising, and significant fiscal stimulus is likely, inflation could exceed consensus expectations. Jim Grant, the founder of Grant’s Interest Rate Observer, wrote a fantastic article a few years ago likening the current environment to the 1940s and ’50s. Short-term interest rates were at 3/8s in the late 1940s, and long rates were around 2%-2.5%. Inflation was running at 2%. Everyone had been predicting higher inflation rates, but after a long period of 2%, they gave up. Then inflation spiked to 8%. It came out of the blue.
Gabelli: Does the strength of the dollar change your thinking?
Gundlach: A strong dollar keeps inflation lower. It is helpful to the bond market. A weak dollar isn’t helpful to the bond market. However, I brought along a quote from President-elect Trump today because it makes me think. He said, “While there are certain benefits to a strong dollar, it sounds better to have a strong dollar than it actually is.” Is it really a given that Trump will bring us a strong dollar if he is supposed to be helping the forgotten middle class.
Eoin Treacy's view
A link to the full report is posted in the Subscriber's Area.
Bonds sold off very aggressively following the November election result and the Dollar surged. The news flow has been sensational and Twitter has probably never been so popular but the reality is that both of these overextended short-term moves are unwinding.
Iron ore price: China imports top 1 billion tonnes for first time
This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:
Forging more than half the world's steel, Chinese imports of iron ore for the full year 2016 topped one billion tonnes for the first time. The 1.024 billion tonnes constitute a 7.5% increase over the annual total in 2015 and is indicative to what extent exporters from Brazil and Australia has been able to displace domestic producers struggling with low grades and high costs.
The total value of cargoes climbed to just under $58 billion, with the average import price over the course of 2016 at $56.50 per tonne. The all-time record in terms of dollar value was set in January 2014, when the country imported $111.3 billion worth of iron ore back when prices were firmly in triple digit territory.
Eoin Treacy's view
Iron-ore prices have not quite broken out to new recovery highs but have sustained last year’s breakout from a well-defined base formation and the upside can be given the benefit of the doubt provided that remains the case.
Alibaba jumps ahead of Amazon with Maersk tie-up
This article by Sam Chambers for splash247 may be of interest to subscribers. Here it is in full:
Alibaba’s move to partner with Maersk Line should be seen as a game of one-upmanship with US rival Amazon, a leading name in online logistics has said.
Chinese customers will now be able to book space on Maersk ships, a first for the industry and one that potentially removes many freight forwarders as middlemen.
Dr Zvi Schreiber, CEO and founder of logistics technology Freightos, offered his perspective on the bigger picture and what this deal means for online shoppers and Alibaba’s rival, Amazon.
“Maersk is testing the waters of digital sales with one of the world’s largest ecommerce companies while threatening forwarder business. But for Alibaba, this is a direct challenge to global retailers like Amazon. Beyond drones and futuristic supermarkets, Amazon opted to get licensed as a forwarder. Alibaba one-upped them by going directly to the world’s largest ocean liner. Point, Alibaba.”
Eoin Treacy's view
There is a great deal of speculation going on at present relating to the implications of a Trump presidency on global trade. Certainly an America first manufacturing policy would have profound implications for low cost, high population countries’ ability to compete against what would in all likelihood be a highly automated US attempt to re-shore. Nevertheless even with the most ambitious timetable that kind of initiative could take years to unfold.