Theresa May ... My Vision for the Future ...

The Prime Minister outlined the way ahead in a Mansion House speech yesterday. "We can work it out" the headline echoed in The Times" today. It's the title from an old Beatles hit ...

"Try to see it my way", the Fab Four lyrics continue ... "Do I have to keep on talking 'till I can't go on? The ominous refrain.

Well probably, the answer. The speech moved the debate forward but it was no more than an agenda, with a wish list, without solution. The ten thousand words included some strong warnings to Tory back benches. Brexit means Brexit but it is not "an end in itself". We are leaving the single market and the customs union but ...

We will still seek Free Trade Access for the important bits, offering regulatory alignment and subjugation to the European Court of Justice where applicable. Payment will be made for access to European institutions on Air Safety and the Medicines Agency.

We will also want to explore with the EU, the terms on which the UK could remain part of EU agencies that are critical for the chemicals, medicines and aerospace industries. We accept this would mean abiding by the rules of those agencies and making an appropriate financial contribution.

UK law may not necessarily be identical to EU law, but it should achieve the same outcomes and in some cases might be identical. We are leaving the Common Fisheries Policy. We will regain control over our domestic fisheries and access to our waters but we will continue to share the fish. "It's all a question of scale!"

Fudge over Ireland, no mention of a transition period. Partial inclusion in a customs union but free to set tariffs with the rest of the world for goods for domestic consumption (not for re export). A commitment to ensure that the relevant UK regulatory standards remain at least as high as the EU.

On Thursday night, I listened to Greg Clark the Secretary of State for Business, Energy and Industrial Strategy in his speech at the Mansion House. It was reassuring. "I hear loud and clear, three things in particular businesses need from our EU negotiations." he said ... "First, the implementation period needs to be agreed; Second, tariff and friction free trade is required; and third regulatory alignment is desired. Above all businesses require certainty for the three years ahead.

The Prime Minister's speech moved the agenda forward. It was a demonstration of the complexity of issues and the challenges of negotiation. It is a clear message there will be no hard Brexit. We will have (partial) access to the single market, (partial) inclusion in the customs union, (partial) regulatory alignment, (partial) payments made to the EU, (partial) submission to the ECJ and (partial) free movement and rights for EU citizens.

A truly (partial) global Britain, taking back control making the sovereign decision to give some of it back again. A Global Britain which thrives in the world by forging a bold and comprehensive economic partnership with our neighbours in the EU, and reaches out beyond our continent, to trade with nations across the globe. Excellent!

So why are we leaving exactly? "Try to see it my way, Only time will tell if I am right or I am wrong ..."

A level playing field or flat lining  ...
Jerome Powell the new Chairman of the Fed was in bullish mode this week. A strong recovery without signs of inflation prompted hints of at least three US rate rises this year. Ten year US bond yields closed at 2.9%, UK LIBOR closed at 2%. UK gilts hovered around 1.5%. We are leaving Planet ZIRP, it is time to buckle up.

The Bank of England admitted this week, one of the side effects of QE and life on Planet ZIRP was to inhibit investment (and damage productivity). Corporate funds were diverted to shore up pension fund deficits, a result of soaring bond prices and the miserable yields generated as a result.

The IMF had been bullish about world trade with growth of over 5% in prospect this year. Then came the Trump tantrum on trade. Another "Defiance Disorder Order", committing the US to 25% import tariffs on steel and a 10% tariff on aluminium. No discussion with policy advisers, no formal review of policy implications. The President was in a fury and decided to act.

Hope Hicks had resigned, Jared and Ivanka are heading for the exit, the Mueller investigation is closing in. The President tweeted the declaration of a trade war. Gary Cohn, Director of the National Economic Council and chief economic advisor to the President is threatening to walk.

US steel applauded. Domestic manufacturers, from cars to beer, booed. The move is inflationary, alienating allies in the process. Canada and Brazil will be the worst affected. China and the EU threaten retaliation. Blue Jeans and Soybeans could be the obvious target. US bond sales could be the weapon of last resort for China and Japan.

The President reassured "Trade Wars are easy to win". The pursuit of a level playing field, for steel, will come at a heavy price. Time for adult supervision, to put the President back in his play pen before it's too late ...

That's all for this week, have a great week-end,

John