Cool Video: Brexit, Europe and EU Challenges

<br /> Cool Video: Brexit, Europe and EU Challenges – Marc to Market<br />


Earlier today, I had the
opportunity to discuss the outlook for sterling and the US dollar on Bloomberg
TV with Rishaad Salamat and Haidi Lun.  
It is a momentous day with Article 50 of the Lisbon Treaty being formally triggered by UK Prime Minister
May, nine months after what was, at least initially, a non-binding referendum.
European Council
President Tusk is expected formally to respond
for the EU before the weekend. 
 It is not immediately clear when the
negotiations will start. However, it is clear that the formal triggering of
Article 50 will transfer the initiative and balance of power toward the EU from
the UK.  Over the 24 months, there will be plenty of posturing,
negotiations, brinkmanship tactics, and blinking.  
Many investors
may be best served by keeping the core
issue in perspective.
  The UK government is willing to lose
access the single market in order to get
more control of its borders for immigration and trade.  Europe, on the
other hand, just celebrated the 60th anniversary of the Treaty of Rome which
established the European Project.  Losing a member, and an important,
though not a founding member, is a significant blow to Europe, which is having
its own identity crisis of sorts.  
Some evolution
that the UK blocked, such as European army, may go forward, but the UK’s
amputation will change the balance in Europe on a range of issues and alter
Europe going forward. 
  Non-EMU, EU members, have lost a voice,
and these countries are mostly in eastern and central Europe and are presently
strained relationships with the older Western part  
contrary to speculation that Brexit would lower the barrier to exit and others
will soon follow. 
 Surveys suggest that EU support has
risen among most of the members.  It is
as if the body politic has been attacked,
and the antibodies have rallied in defense.  The populist-nationalist
challenge was turned back in the Netherlands.  The price was to co-opt the
anti-immigration plank of the populist-nationalist platform.  
In France,
Fillon’s self-immolation gave Macron an opportunity and because of the nearly
“anyone but Le Pen), it is not clear
if the center of the political spectrum shifted.
  In Germany, Merkel’s CDU did well in
past weekend election in the state of Saarland.  In the two elections next
month and the national election in September, her biggest challenge is from the
centrist Social Democrats, not the anti-EMU and anti-immigration AfD.  
Italy’s election may be a more serious challenge than this year’s contests.
Rishaad asked me
in the interview if the EU is such a good place, why make it hard to leave? 
To me, it is obvious that you cannot make plans for the
future unless there is a commitment. There are some things, like national
interests, which if not permanent, have a longer life that individual
administrations (governments).    There is no clause in the US
Constitution that allows states out of the union (yes, leave aside the Republic
of Texas, which for a brief moment was an independent country).  As I
noted in the interview,  the American Civil War, fought to keep the union
together, and the poorest states are the Old South, like Mississippi, Alabama,
Arkansas and Louisiana, 
I think Brexit
ultimately makes the UK weaker, not
stronger, but there are competing influences on sterling. 
 Cyclical factors are what I cite in the interview,
but of course, market positioning may also be important.  There are some
drivers that have very little to do with the UK, such as the dollar’s broad direction, Fed and ECB policy, or, as we have
seen, significant volatility emanating China, or Greece.  Nor can
investors ignore the reaction function of the Bank of England.  Although
we expect the BOE steady, we recognize that price pressures have not peaked and
the economy is still resilient. There is
some risk of a hike.  

finished the North American session on a soft note on Tuesday and opened Asia
around a half cent lower to return to $1.24.
  The US dollar more broadly is seeing
Tuesday’s recovery extend against European currencies.  The Dollar-bloc
currencies are firm, and the dollar is
steady around JPY111.00.   Consolidation is the most likely near-term

Click here for the 5.5 minute interview.  


Cool Video: Brexit, Europe and EU Challenges
Cool Video:  Brexit, Europe and EU Challenges

Reviewed by Marc Chandler

March 29, 2017

Rating: 5

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