11 Sep 2018

Market Brief: Is Prime Minister May ready to pay?

Sana Hanassi-Savari

Dealing team

Theresa May is reportedly ready to increase Britain’s financial settlement offer.

Today's data releases
  Key levels
09:30 UK Industrial and Manufacturing PMI   Support Resistance
09:30 UK Construction output GBP/USD 1.3030 1.3340
09:30 UK Trade Balance GBP/EUR 1.1065 1.1440
15:00 US University of Michigan Sentiment      
Market overview

Theresa May is reportedly ready to increase Britain’s financial settlement offer amidst indications that the more Eurosceptic Conservative MPs are more willing to get Brexit negotiations moving forward.  It is thought that she will considerably increase the €20bn which she has already (reportedly) put on the table with the aim of tying such an offer to an agreement in principle over a Brexit transition arrangement.

Over recent days, French and German sources have warned that if the UK did not up its financial offer, they may refuse to budge talks onto transitional arrangements at the all-important 14-15 December Summit. If reports of PM May upping her financial offer are correct, and providing she proposes a sizeable enough rise for Brussels’s liking, this looks to increase the prospect a positive move forward at the December Summit. Note though that the behind closed doors talks between the UK’s David Davis and the chief EU negotiator Michel Barnier, continuing through today, are not expected to lead to any big steps forward. Indeed, in Rome yesterday Mr Barnier levelled a number of criticisms at Britain in a speech about the challenges ahead. In other news, PM May’s office confirmed Penny Mordaunt as the new Minister for International Development.

In the US, the Senate has released their version of the draft tax bill. The highlights include:

  1. corporate tax cuts to 20% delayed by one year to 2019 (vs. 2018 as per the House’s tax bill)
  2. maintaining the interest deduction for home purchases up to $1m (vs. a cut to $0.5m in the House plan)
  3. state and local tax deductions for individuals will be entirely repealed (vs. mostly repealed)
  4. seven individual tax brackets will be retained with the top tax bracket reduced 0.9ppt to 38.5% (vs. House plan to consolidate to 4 tax brackets and unchanged top tax rate of 39.6%).

Elsewhere, in the mark up of the House tax bill, the House Ways Committee is reportedly considering lifting the one-time tax rate on US companies’ accumulated offshore earnings, from 12% to 14% if the income was held as cash (vs. 10% as per the Senate tax plan). What is next? The two versions of the tax bill will be further debated, negotiated and then somehow reconciled before final voting. Republican leaders in the House of Representatives are aiming to hold a vote on their plan by Thanksgiving (23 November). The market is having a lot of doubts about this timetable. 

The day ahead

Looking at the day ahead, it is another quiet day with very little to report on in terms of data. In the UK we have the September Industrial and Manufacturing Production, Construction output followed by the Trade Balance releases. Over in the US we have the preliminary November University of Michigan consumer sentiment print and October monthly budget statement in the US. 

Thought of the day

When Ayssa Stringfellow from Arkansas, US, tried to get insured on her grandmother's car it seems she got a bit mixed up by the details requested. Instead of sending front and side pictures of her car, Alyssa sent the insurers front and side photos of herself. Somewhere, lost in translation her grandmother passed on the message that she would need to provide her “driver's license number, my date of birth, and a picture straight on and a picture taken from each side.” Whether she mentioned the word ‘car’ in the letter, is up for debate! Alyssa’s self-confession of this blunder on social media has been shared over 20,000 times.

When it comes to your foreign exchange requirements we are here to act as a sounding board, to ensure you understand the risks inherent in your business and be 100% clear that nothing is lost in translation. Please speak to your Investec FX dealer today to ask about putting a VaR (Value at Risk) analysis to ensure that you fully understand how changes in the FX rate can impact your bottom line.

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