Eq: Dev ex-US
In what seems to be a major growing issue between England and Scotland, the UK’s PM Theresa May is set to reject Scotland’s calls for a flexible Brexit deal where Scotland would retain access to the EU single market. The country wants to retain access to the EU market even if the UK as a whole leaves. Likewise, London has proposed a special work permit scheme for workers only in the capital. Both demands show that the country’s desire for Brexit varies across different regions. PM May is likely to resist demands for any special exemptions from Brexit. Scotland’s first minister, Nicola Sturgeon, is trying to pull together a “cross-party” coalition to stop the UK from a “hard Brexit”, or one where it loses access to the EU single market.
FINSUM: Brexit is an absolute mess. It is tearing the country apart and no one can agree how to proceed. Stay tuned for more scary headlines.
Source: Financial Times
For those who are unaware, Scotland voted very strongly to remain in the EU during Britain’s June referendum vote. That marked a wide divergence from their English neighbors to the south. Scotland also voted narrowly to remain in the UK in 2014, and now that fragile union appears to be unraveling as the Scottish are taking steps to launch a new referendum to decide on whether they want to join the UK in leaving the EU. Scotland’s first minister, Nicola Sturgeon is putting forth a draft bill to parliament today, which although non-binding, will make it much easier for her to call a referendum if need be.
FINSUM: Scotland is scared of Brexit as a whole and very afraid of a ‘hard’ Brexit. We think that if England presses ahead, Scotland will likely vote to leave the UK.
Here is a fascinating, if tangential article in Bloomberg. It says that a major university study has shown that American workers, on average, put in 25% more hours of work than their colleagues in Europe. This equates to about an hour extra per day on average. While productivity measurements are king in employment studies, having accurate hours worked measurements are fundamental to measuring that productivity. So how do the authors account for the big difference in hours? The answer is a few key reasons: lower taxes in the US giving more incentive, the fact that the range of incomes is wider in the US, which makes a promotion worth more, the fact that labour unions are stronger in Europe, and finally, that pensions are more generous, incentivizing older people to work less.
FINSUM: We found this article an interesting cross-border cultural and structural comparison and thought readers might as well.
One of the best ways to judge whether Italy may actually reject constitutional reform in its vote in December, and thus puts itself on the path towards a Euro exit, could be to follow the money. The EU has a system where it measures depositary flows in and out of various member states’ banking systems. The data seems to indicate that many think Italy is going to leave the Euro. In total €354 bn Euro is now outside of the Italian banking system, up €118 bn from last year, and €78 bn this summer alone. That means a lot of Italian depositors are worried and moving their money out of Italy.
FINSUM: While this data could be interpreted in a number of ways, it seems to surely show that a lot of Italians are spooked.
Investors beware, another potentially big market-moving event is in the process of being plopped onto the calendar. Those who pay close attention will have noticed that the Pound has been hammered lately, dropping below $1.20 to a 168-year cumulative low. Now Scotland is reacting, with Nicola Sturgeon, the country’s first minister, announcing a new draft bill to start the process of officially calling another referendum to decide on Scotland’s fate within Britain and thus the EU. Scotland voted strongly to remain in the EU in June’s referendum, and Sturgeon is pushing back against the growing idea that Britain should have a “hard Brexit” as PM Theresa May’s speeches seemed to have called for.
FINSUM: If Scotland has a referendum we believe it will likely choose to leave Britain and try to negotiate remaining within the EU. The European domino to watch, however, is Italy in early December.
Source: Financial Times
We have been warning our readers about Italy for months, as we think it is one of the big risks that the market is currently failing to price. This article seconds that idea, saying it is Italy’s turn to worry bond markets. European bonds have now moved out of the “core vs. periphery” paradigm that prevailed during the European debt crisis, as spreads between Italy and Spain are growing due to the risk Italy poses with its upcoming constitutional referendum. Polls are currently too close to call, but if PM Renzi loses, he says he will resign, which would leave the door wide open to the far-right party sweeping to power and calling a referendum on the Euro.
FINSUM: We are very concerned about Italy at the moment. Things have not gone so bad for the Brits since voting to leave the EU, and we think that will work to further embolden Italians. Faith in the Euro is key to markets, and we think an “Italeave” scenario could cause a lot of wreckage.