3 January


3 January

Good morning,

And a very happy new year from everyone at Charlotte Street Partners.

As my colleague Stuart pointed out in the final daily briefing of last year, 2018 has plenty in store across the global geopolitical arena. In some instances, we can be fairly sure of the outcome – the likely result of the Russian presidential “election” being one example. The “known knowns”, as Donald Rumsfeld might refer to them.

Then there are the “known unknowns” – events that we know will happen, but not the result, such as progress with regards to Brexit. We know a deal (possibly only a transitional one) regarding the UK’s future relationship with the European Union needs to be concluded by October 2018 to allow time for it to be ratified by the European Parliament, and a “meaningful” vote to take place in the House of Commons ahead of the March 2019 deadline. However, we do not yet know what that deal, if struck at all, will look like.

Similarly, the US mid-term elections take place in November, but the results are difficult to predict. Will Republicans hold firm in the midst of a growing economy, or cede control of either/both houses to Democrats riding the crest of an anti-Trump wave?

Finally, there are the “unknown unknowns” – the rocks lying beneath the surface of a choppy sea. Will President Trump make it to the end of the year in post? With stock markets continuing to rack up record highs, are we facing an asset bubble on the verge of bursting? Can a peaceful resolution be reached with North Korea?

Those hoping that 2018 will be a quieter year on the world affairs front may be disappointed.


NHS England’s National Emergency Pressures Panel (NEPP) has advised hospitals in England to cancel all non-urgent operations and in-patient treatments until February, in an attempt to ease pressure on A&E departments. Hospitals have seen an increased number of patients attending A&E with complex conditions as well as a rise in flu cases. A ban on mixed-sex wards has also been lifted. Sir Bruce Keogh, chair of the NEPP, said that the NHS “needs to take further action to increase capacity and minimise disruptive last minute cancellations”.

Thousands of homes lost power and roads were blocked as Storm Eleanor hit the UK. The Met Office has issued a yellow warning, with winds of up to 80mph hitting Wales, England, most of Northern Ireland and southern Scotland. Roads have been closed and some public transport disruption is expected. The Environment Agency has also said that flooding is a possibility – more than 90 flood warnings are in place across the country.

President Trump has taunted North Korean leader Kim Jong-un over the size and reliability of his nuclear arsenal. In a tweet, the president said: “North Korean Leader Kim Jong Un just stated that the ‘Nuclear Button is on his desk at all times.’ Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!” This comes amid hopes of a possible meeting between officials from North and South Korea to discuss North Korean participation at the Winter Olympics in Pyeongchang this year.

In a separate US foreign policy development, Trump has threatened to cut US funding for the United Nations Relief and Works Agency for Palestine Refugees (UNRWA) unless the Palestinian Authority recommences peace talks. This follows his official recognition of Jerusalem as Israel’s capital last month.

Business & Economy

The UK has held informal talks about joining the Transpacific Partnership (TPP), the flagship Pacific trade initiative, post-Brexit. The TPP had been negotiated under the administration of President Obama, but President Trump withdrew from the agreement last January. The 11 remaining members have agreed to continue with the successor deal and plans for UK membership been developed by the Department for International Trade. However, the UK would be the only member that does not border the Pacific Ocean or South China Sea and ascension would almost certainly have to wait until the UK’s post-Brexit relationship with the EU has been agreed.

The City has been warned that it is not “mission accomplished” just because the deadline for compliance with Mifid II has been reached. EY has said that it expects large asset managers to be “substantially compliant” today, but significant uncertainties remain with the potential for further guidance and possible inaccuracies. Meanwhile, Andrew Glessing from Alpha FMC has said “concerns remain over the challenges presented and how the regulator will assess implementation”.

The US government has blocked the £1.2 billion sale of Moneygram to China’s Art Financial, an arm of Alibaba, with reports suggesting that the Committee on Foreign Investment had security concerns. It is the latest high profile Chinese deal to be blocked by the Trump administration and represents a blow to the ambitions of Alibaba executive chairman Jack Ma, who had promised Trump that he would create a million US jobs.


What happened yesterday?
The FTSE 100 ended the day down 39.67 points at 7648.10 – 0.52% lower than the all-time closing high recorded on the last day of trading in 2017. This was dubbed by analysts at The Share Centre as the market “feeling the effects of the party from the day before”.

International Airlines Group (IAG), owner of British Airways, bucked the trend, climbing 2.73% after Merrill Lynch upgraded its rating to “buy” on the back of near-term trading hopes.

Motor insurers performed poorly, with Admiral shedding 2.67% and Direct Line falling 2.54% due to concerns about the cost of reinsurance ahead of the new year policy renewals and potential exposure to the fire at the Liverpool Echo Arena car park, which destroyed around 1,400 vehicles.

British American Tobacco, Diageo and Unilever were amongst the other fallers, dropping 1.55%, 1.72% and 1.95% respectively.

On the currency markets, the pound gained 0.6% against the dollar to $1.359 and was up 0.2% against the euro at €1.127.

Trading Announcements

Applied Graphene Materials

UK Economic Announcements
(09:30) PMI Construction

International Economic Announcements
(09:00) Unemployment Rate (GER)
(12:00) MBA Mortgage Applications (US)
(15:00) Construction Spending (US)
(15:00) ISM Manufacturing (US)
(15:00) ISM Prices Paid (US)

Columns of Note

In The Telegraph, Tom Harris sets out his view on why the rail companies are not to blame for the largest annual fares rise in years, which he acknowledges will be an unpopular view. Citing the case of the East Coast mainline, he argues that the real problem is that the “train companies have failed to meet their own expectations – not least because governments of both parties have encouraged them to over-bid and raised expectations to unrealistic levels”.

Writing in The Times, Daniel Finkelstein discusses Lord Adonis’ decision to resign from his government position in order to fight against Brexit. Finkelstein says that he agrees with Adonis that Brexit is an act of self mutilation, but disagrees with the view that Parliament can simply abandon it due to the strong sense of betrayal this will generate.

Did you know?

Research suggests 80% of new year resolutions fail by the second week in February.

Parliamentary highlights

House of Commons

In recess until 8th January

House of Lords

In recess until 8th January

Scottish Parliament

In recess until 8th January