16 October

@AdamDShaw

16 October

Good morning, 

Theresa May will fly to Brussels alongside Brexit Secretary David Davis today to hold talks with Michael Barnier, the EU’s chief negotiator, and European Commission President Jean-Claude Juncker. This comes after May phoned German Chancellor Angela Merkel on Sunday to urge an end to the deadlock in Brexit negotiations ahead of the European Council summit later this week.
 
Downing Street claims that these meetings have been in the diary for a while and therefore "it would be wrong to say it represents any view on negotiations". However, this was questioned by journalists who pointed to theabsence of an operational note to the media which would usually accompany such a trip.
 
The UK position is that negotiations cannot progress unless they move beyond the current talks on a divorce settlement. The government is anxious to progress talks amid rising fears that UK-based businesses could begin relocating assets and employees to the EU out of fears that a transition agreement will not be reached.
 
However, France and Germany are reported to be hardening their stance and have lobbied for changes to a paper being drafted for Thursday’s summit to avoid giving the impression that the EU will agree guidelines on a transition period as soon as “sufficient progress” has been made regarding the divorce agreement.
 
With the rhetoric regarding a possible “no deal” scenario in recent days, it appears that Ophelia is not the only gathering storm on the horizon.

NEWS

The Met Office has issued Northern Ireland with an amber weather warning – meaning that there is “potential danger to life” – and the government of the Republic of Ireland has called a national emergency meeting as Hurricane Ophelia approaches. The category one Hurricane is currently blowing winds of 90 mph in the Atlantic and is gradually weakening, but parts of the UK are set to experience winds of 70 mph. All schools and colleges in the Republic of Ireland will be closed on Monday and three army battalions have been put on permanent standby to deal with major incidents in the UK.

Sebastian Kurz is due to become the Austrian chancellor and the world’s youngest national leader after Sunday’s election. The 31-year-old, dubbedwunderwuzzi or “wonderkid” by the Austrian media, rebranded his Austrian People’s Party (ÖVP) as the “New People’s Party” and moved it to the right to win back voters who had migrated to the populist, far-right Freedom Party (FPÖ). Kurz’s party is on course to win more than 30% of the vote meaning the ÖVP will have to enter coalition talks, either with its previous coalition partners, the centre-left SPÖ, or the FPÖ.

At least 276 people have been confirmed dead after a double car bombing in Mogadishu. With the death toll expected to rise and 300 being treated in hospital, the attack is the deadliest incident in Somalia’s modern history. No group has claimed responsibility so far.

 

BUSINESS AND ECONOMY

Philip Hammond is considering cutting tax relief for older, better off workers in order to fund tax breaks for workers in their 20s and 30s in next month’s budget. According to a source quoted in The Telegraph, the chancellor of the exchequer is examining ways to promote intergenerational fairness and this measure would be a “bold” attempt to “restack the deck for the next generation”. This comes as Andrew Bailey, chief executive of the FCA, warned of a “pronounced” build up of debt among young people and the “clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age”.

Vauxhall is to shed 400 jobs at its Ellesmere Port car plant as it moves from two production shifts to one in early 2018 in order to combat falling sales. The car manufacturer employs 4,500 people across the UK, with approximately 1,800 of those based at Ellesmore Port. A spokesman for Vauxhall said the move was nothing to do with Brexit uncertainty but about maintaining competitiveness – pointing out that sales of so-called sports utility vehicles have grown rapidly whilst the popularity of five-door estates and saloons made at Ellesmere Port has fallen.

Profits were down at half of Britain’s law firms last year, with pay rises and hiring costs reducing margins. According to research published by PWC, revenue rose by 2.3% and 3.7% on average but firms have been forced to increase salaries to retain and attract lawyers. The problem is reported to be particularly acute in the City of London due to the aggressive recruitment strategies of the more than 100 US law firms in London who have been accused of paying well above market rates to secure the best talent.

MARKETS

The week ahead
Today, the Catalan President Carles Puigdemont faces a deadline imposed by Madrid to confirm whether his ambiguous statement last week constituted a declaration of independence from Spain. Puigdemont finds himself in a difficult position; either he climbs down and dismays the supporters to whom he owes his presidency, or he confirms that Catalonia will seek its independence and faces Madrid revoking Catalonia’s autonomy by invoking Article 155 of the constitution.
 
The IMF has called for a negotiated solution, warning that Spain’s robust recovery could be put at risk by the continued constitutional uncertainty.
 
Meanwhile, the EU’s new relationship with the UK is at the top of the agenda at a two-day European Council summit in Brussels beginning on Thursday.
 
Further afield, two Asian leaders should extend their tenures this week. On Wednesday, China’s President Xi Jinping is expected to secure a second five-year term as party chief at the 19th national congress of China’s ruling Communist party. And on Sunday, Japan goes to the polls in a snap election, with Prime Minister Shinzo Abe forecast to win a third consecutive term.
 
In company news, Morgan Stanley, Harley-Davidson, Goldman Sachs, IBM, United Airlines, Nestlé, Unilever, BNY Mellon, Paypal, General Electric and Procter & Gamble are amongst the organisations reporting quarterly figures.

Trading Announcements
Acal, Schroders (Non-Voting)
 
AGMs
Bluejay Mining, Zibao Metals Recycling Holdings

GMs
Eckoh
 
International Economic Announcements
(11:00) Balance of Trade (EU)

COLUMNS OF NOTE

Writing in The Sunday Times, Kevin Pringle looks at the taxation powers recently devolved to the Scottish Parliament. He argues that with the range of choices available to the Scottish government in this area, there must be ways to make the tax system more progressive without damaging economic performance

In The Financial Times’ Big Read, Tom Mitchell looks at what we might expect from the next five years of President Xi Jinping’s rule of China.

 

DID YOU KNOW?

To “pinky promise” or “pinky swear” is thought to stem from Japan where, in times gone by, a person who broke a promise had to cut off their pinky finger.