Eq: Dev ex-US
The Brexit situation seems to be getting worse and worse (or maybe better and better, depending on where you stand). In an embarrassing defeat, PM Theresa May just lost a Parliamentary vote regarding her Brexit deal which now gives Parliament the right to vote on any final deal. Parliament also ordered her government to release the legal advice they had received regarding the departure from the EU, an unorthodox move that shows a lack of faith in the PM.
FINSUM: What this means is that Parliament now essentially has the right to block Brexit, or call for a second referendum. Sterling plummeted on the news.
Pretty much since the day it happened, the prospect of a second Brexit referendum has loomed large. Now, almost 2.5 years since the initial vote, it is becoming closer to reality. PM May’s universally panned Brexit deal with the EU is adding weight to efforts to hold another vote. A conservative MP (same party as Theresa May) has proposed a new vote in May, saying it would only take 22 weeks to prepare. The vote would have three options—stay in the EU, accept the May plan, or leave without a deal.
FINSUM: Critics of a second referendum argue that it is undemocratic to not abide the first vote. However, the action of leaving the EU is unprecedented, and the deal that Britain could get from the EU was completely unknown, so in our view, holding second referendum to decide on the actual terms is actually the most democratic option.
Just a couple of days ago it seemed like the UK and EU were on the verge of coming to an agreement over Brexit. Now, just 48 hour later, a deal actually seems further away than it ever has. Reviewing UK headlines, the irony of PM May’s proposed deal is that it did what no one else has been able to—unite Britain. However, the unity is driven by shared hatred from all sides over what a terrible agreement the government has proposed. Numerous government ministers have resigned on the back of the proposal.
FINSUM: The pushback to this deal has been more than anyone would have anticipated. A no-deal Brexit looks increasingly likely.
The Brexit deal has taken so long to figure out that it mostly seemed hopeless. Markets were legitimately pricing in the chances of a no-deal Brexit. Now, the EU and UK have announced they have come to a provisional agreement. While that is cause for some relief, it is very far from a done deal as both the UK and European Parliaments need to endorse the agreement. The UK side in particular may be tricky as PM Theresa May needs to rally an extremely factionalized government behind her.
FINSUM: This could go many ways, but we think either everything will just fall into place quietly, or there will be major fireworks
In what could be a sign of a looming recession in Western countries, the EU just released its worst GDP figures in four years. The third quarter produced just 1.7% growth across the EU, the worst number in four years. The pace slowed from the second quarter, when growth was at 2.2%. Oxford Economics commented on the numbers that “‘temporary factors’ have been overplayed to justify the slowdown in the eurozone economy at the start of the year, and that risks are clearly skewed to the downside.” Notably, Italy produced no GDP growth in the third quarter.
FINSUM: We wonder if this is a case of the EU suffering its own problems, or whether it may be systemic and spreading.
Beijing made a big proclamation yesterday. The country is in the midst of a brutal bear market—its benchmark Shanghai Composite has fallen 27%—but yesterday the government made a big announcement. It said that it would do “whatever it takes” to stop its falling stock market. A large pledge of support came from Xi Jinping himself, which given his grip on power, means that it can likely be counted on. One analyst thinks the bear market might be nearing its end, saying “Bottoming is a process, and we’re starting to see some evidence of reversals and lows taking shape”.
FINSUM: The big x-factor for China is that a trade war and tariffs hurt them much worse than the West, so it is very hard for us to agree that the market rout there is ending.