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Tax reform and Brexit negotiations key across majors


Financial markets are reacting to the continued progress in US tax reform. This is having a significant impact on risk appetite across major markets early this week. Along with the Brexit negotiations, this is likely to be a key factor for traders. We look at the impact on the outlook for forex, indices and commodities.

Brexit agreement

A crucial EU Summit on 14th/15th December approaches. To move on to a transitional agreement and all important trade negotiations, the EU has said that it needs to have serious workable proposals agreed over three red lines. The “divorce bill”, the position of EU citizens living in the UK and the Northern Ireland border. EU citizens should ultimately be relatively straight forward and now it seems that the UK is finally making progress on the other two. On the divorce bill, reports suggest the UK will propose €50bn, which could now be a runner. The EU wants €100bn (the UK’s 13% share of spending commitments from the EU’s 2014/2020 c. €750bn long term budget), but with €28bn of receipts, sterling depreciation and the reduced relative size of the UK economy, a bill of €50bn could be agreed. Politically this is a tough sell to the Brexiteers, but paid over decades could be stomached. The Northern Ireland (NI) border is a harder circle to square. A proposal that the NI Assembly gets increased devolved power on agriculture and energy in addition to a customs agreement with the EU could help form a deal. However it is hugely difficult to appease all sides who want the same result (no hard land border) but from completely different angles. For example the unionist DUP will not accept a pseudo Irish Sea border. Donald Tusk (EU Council President) has set a deadline of 4th December for a proposal for the EU Council circulars to be ready for 14th. Time is running out.

 

 

 


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