14 December 2018

Iain Gibson

14 December 2018

Good morning,

Given that the unwritten rule of reporting and analysis right now dictates that absolutely everything needs to be linked in some way to Brexit, it is appropriate that for today’s briefing that we go to the country which played some role in one of the biggest myths of the 2016 referendum campaign: Turkey.
After all the NHS funding nonsense written on that bus, the assertion that Turkey was about to join the EU and all of its 80 million inhabitants were set to pitch up in Dover was one banded about by some on the Leave campaign. Given that Turkey has been trying to enter the EU club without success for at least 30 years, the notion was at best a fanciful one.
Regardless, Turkey plays a pivotal role as a (literal) bridge between Europe, Asia and the Middle East, so we should always view what’s happening there with interest. And at the moment, we should be particularly focused on the country’s economic performance.
Inflation is at a whopping 24%, more than four times the central bank’s recommended rate. Consumer prices rose 25% in October and then 22% in November. The Turkish lira is struggling as a result of sanctions placed on the country by the US in August, over its detention of an American pastor being held on espionage charges, and is down nearly 30% against the dollar over the course of the year. The economic pressure being exerted by the Americans has had its desired knock-on effect and just yesterday the Turkish central bank opted to leave its benchmark interest rate on hold, as it desperately tries to bring inflation down.
Whilst the situation is still salvageable, it could equally get even worse and the timing is terrible for President Erdogan, who faces municipal elections in March 2019. His grip on power was challenged by an attempted coup in the summer of 2016 and he more than anyone is keen to ensure that his support base is not eroded at a local level. Turkey has struggled with extremism in recent years, with a number of deadly attacks, so anything that further destabilises the political landscape and, by extension, the global security picture, should be taken seriously.
The murder of Jamal Khashoggi in Istanbul two months ago gave Erdogan an opportunity to try and supplant Saudi Arabia as America’s chief ally in the Middle East. However, Uncle Sam is highly unlikely to fast track a friendship if the country’s economy goes under. Economic uncertainty also means that Turkey’s ultimate goal of EU membership is further away than ever – something we should remember the next time a Brexiteer tries that one again.


The man suspected of killing three people and wounding at least 13 others at Strasbourg’s Christmas market earlier this week has been shot and killed by French police. Cherif Chekatt was involved in a shoot out with officers after one of them recognised him and he subsequently opened fire.
Theresa May was back in Brussels yesterday, seeking changes to the Brexit withdrawal deal negotiated last month. EU leaders have insisted the deal cannot be renegotiated, but acknowledged that some points could be clarified.
The US Senate has voted to end American military assistance for the war in Yemen. The chamber voted by 56 to 41 to stop backing the conflict, which is in essence a proxy war between Saudi Arabia and Iran.

Business & Economy

Apple announced yesterday that it would invest $1bn to expand its operations in Austin, Texas, by constructing a new employee campus that could take a further 15,000 employees. It will also establish further facilities in Culver City, Seattle and San Diego, with existing sites in Pittsburgh and Boulder to also be expanded in the coming years.
Investment bank Morgan Stanley has announced it is to close its equities and FX trading desks in Moscow, relocating its Russian trading businesses to London. Around half the jobs will be cut however, according to sources, who also gave the reason for the move as being linked to a stagnant Russian economy and the ongoing sanctions from the west.
German online classified-ads company Scout24 AG is exploring a sale that could see it taken private. The firm has hired banks and advisers to help with the potentiall sale, which would be one of Germany’s largest leveraged buyouts for a number of years. Private equity investors such as Silver Lake are rumoured to be interested in the deal.


What happened yesterday?

In the US, the S&P 500 ended the day flat, whereas the Dow Jones Industrial Average edged up 0.3%, and  the Nasdaq Composite fell 0.4%. The generally cautious performance came as investors watched for signs of progress in trade negotiations between the US and China.
In Europe, the Xetra Dax and FTSE 100 were both down, with the pan-regional Stoxx 600 falling 0.2%. The announcement from the European Central Bank that it would end its net asset purchases programme was likely a driver in this slight underperformance.
However, the pound rallied, performing better against the euro, following the past few days of volatility amid Brexit uncertainty. The euro was down 0.3% against the pound, at £0.8970.

Jersey Electricity ‘A’ Shares
ReNeuron Group
CQS New City High Yield Fund
Northern Venture Trust
Up Global Sourcing Holdings

International Economic Announcements
(13:30) Retail Sales (US)
(14:15) Capacity Utilisation (US)
(14:15) Industrial Production (US)
(15:00) Business Inventories (US)

Columns of Note

The Financial Times’ Alphaville commentary service looks at what it describes as the end of an “era of easy monetary policy”, summed up by the announcement yesterday that the European Central Bank will end the asset purchases programme that began shortly after the financial crisis of 2008. Since then, central banks have bought up lots of government bonds and other assets as a way of supporting various economies. With governments themselves now stepping in to fill the void, Alphaville believes that “a synchronised, global fiscal expansion may be able to moderate the pace of an eventual slowdown by some degree, or put it off longer than otherwise would have been the case”.
In The Times, Philip Collins suggests that Theresa May has been somewhat liberated by her acknowledgment that she will not fight another election as Prime Minister, because it has concentrated her power on the single issue of Brexit. He argues that she should reach out to the many Labour MPs who want a second referendum and offer them a chance to vote for this issue in parliament. If she was successful in achieving this then Mr. Collins believes she would come out well in either scenario – if the plan was voted down in the House of Commons then it makes her own deal more likely to be supported, whereas if it passed then a second referendum could adopt a markedly different tone from the one of 2016.

Did you know?

Research from Tel Aviv University in Israel has found that bats have regional dialects.

Parliamentary highlights


House of Commons

No business scheduled

House of Lords

Debate – The role of reconciliation in British foreign, defence and international development policy, led by the Archbishop of Canterbury

Scottish Parliament

No business scheduled