3 Sept 2018

Juan Palenzuela

3 Sept 2018

Good morning, 

The NAFTA renegotiation has been a painfully uncertain process and, with the latest developments, there seems to be no end in sight.

On Monday last week, the mood was different. The signing of a bilateral treaty between Mexico and the US strengthened the likelihood of a revamped, tripartisan North American Free Trade Agreement. Canada had until Friday to ratify the arrangement, a deadline imposed by the US administration.
 
But despite everyone’s best efforts – not to mention President Trump’s bluffing – on Friday the negotiations stalled even further. Not only did the Canadians fail to sign up to the deal, as expected, but leaked comments by the American president will only have served to decrease the willingness of the Canadians to compromise. In an interview for Bloomberg, Trump told reporters that he is not planning to compromise at all with Canada, apparently believing that he was speaking off the record. It only took a couple of hours for the comments to be reported in the Canadian newspaper The Star. Trump later confirmed the statement, by tweeting that “at least Canada knows where I stand”.
 
Now what? There is no new deadline for the Canadians to meet, although the final text of a treaty needs to be handed in to Congress by the end of September for its review. Three critical points in particular are keeping the Canadians from signing a new deal: intellectual property rights, Canada’s import controls on dairy, and Chapter 19 of the original NAFTA deal, which stipulates an independent dispute-solving mechanism to resolve disagreements related to “anti-dumping and countervailing duties”.
 
The increasing threat of significant tariffs on key industries may deter the Canadians from walking away. Could the three countries reach agreement before the end of the month? If Canada abstains, then Mexico will likely walk away, which puts pressure on the US to compromise somehow.
 
Even then, if a route is found through all these difficulties and the three countries agree on a quick deal, there is a growing risk that it may not be approved by the US congress in 2019, after the congressional elections. Trade deals – or, more accurately, a lack of them – are all the rage these days.

News 

A Brazilian court ruled on Friday that Lula Da Silva, the country’s president from 2003 until 2011, cannot run for office. Da Silva was convicted on bribery charges in July, and attempted to run for office while appealing the decision. Under Brazil’s clean records law, approved by the president himself in 2010, candidates with a criminal conviction cannot run for office for a period of eight years. Da Silva is expected to endorse Fernando Haddad, a former mayor of São Paulo, as the Workers’ Party candidate. He will likely face Jair Bolsanaro, a right wing former army captain.
 
Mark Carney has apparently signalled a willingness to stay on as Bank of England governor beon next year, as reported by the FT, as he faces mounting pressure to reveal his intentions. MPs on the Commons Treasury Select Committee said he would be challenged on Tuesday to clarify whether he would extend his term.
 
The US Government cancelled $300m in military aid to Pakistan on Saturday. The administration had previously announced the cancellation of $2bn in security assistance, as the US accuses Pakistan of sheltering militants who pose a threat to Afghanistan and to the US itself. The announcement was made ahead of a trip to the region by Mike Pompeo, secretary of state, who is expected to meet Imran Khan, the new Pakistani prime minister, in Islamabad.

Business & Economy

Turkey’s statistical authority will publish August’s inflation figures today, which are expected to be high, meaning more bad news for the country’s economy. A credit boom and a deepening currency crisis have already pushed inflation to nearly 16%, the highest rate since 2004, with analysts expecting that to rise further still, to around 20%. Turkey’s government and the central bank have done little to control inflation or to reassure markets. Investors are concerned that Erdogan’s growing control over monetary and fiscal policy, and tensions with America, will worsen the situation. (£)

 Argentina’s government is expected to announce a package of austerity measures today in an effort to control the country’s currency crisis. The peso fell by more than 16% against the dollar last week, making it the world’s worst-performing currency this year. In a radical measure, the central bank raised interest rates from 45% to 60%. Investors are doubtful of the government’s ability to meet its financing needs, despite the $50bn loan secured from the IMF in June.
 
Mark Read, the chief operating officer of WPP, has been selected to fill the chief executive role vacated by Sir Martin Sorrell, the group’s founder. Sir Martin resigned in April after allegations of misuse of company assets. (£)

Markets 

What happened yesterday? 
The trade feud between America and China will continue to develop over the week. After the two countries imposed 25% tariffs on $16bn worth of imports on each other, the US administration threatened to impose further tariffs on all $500bn worth of Chinese exports to the US, an amount Beijing cannot reciprocate.
 
The Co-operative Bank releases its results today, after a summer of senior job changes. In August, Tom Wood, the bank’s third CFO in three years, announced he is stepping down, less than a year after joining. His replacement will report to Andrew Bester, the bank’s fifth chief executive in seven years, who was appointed in July.
 
A report on Britain's key services sector will be published on Wednesday. The Bank of England raised interest rates last month, but signalled it was in no hurry to lift them further as Britain heads for Brexit next year with no clear plan in place for leaving the European Union.
 
On Thursday, Dixons Carphone will present a trading update at an annual shareholder meeting, after a huge data breach saw 5.9m bank card details compromised. The company is at high risk of being penalised by the ICO, Britain’s data regulator. The fine could be as high as £18m under the terms of the new Data Protection Act implemented last year. 
 
China will be releasing trade figures on Friday morning. The report is expected to show that the country’s trade surplus increased to $39.3 billion last month from $28.1 billion.

Exports are forecast to have climbed 10% from a year earlier, while imports are expected to rise to 18.7%. In addition, the country will also publish a report on foreign exchange reserves.

Finals
Dechra Pharmaceuticals
 
Interims
ADES International Holding (DI)
Biome Technologies
Gamma Communications      
Glenveagh Properties
Microsaic Systems
Tissue Regenix Group

AGMs
Redcentric

UK Economic Announcements
(09.30) PMI Manufacturing
 
International Economic Announcements
(08.55) PMI Manufacturing (GER)
(09.30) PMI Manufacturing (EU)

Columns of Note 

Writing for the FT, Chris Deerin warns of the cracks that the recent scandal concerning Alex Salmond has caused in the SNP. Deerin acknowledges Salmond’s contribution to the independence movement as  the man who led the party into government in 2007, but says he now risks leading his party into an existential crisis by forcing SNP members to pick a side. This poses an immense risk to the party’s otherwise stable unity and Deerin suggests that if the rift continues the SNP could be irreversibly damaged. (£)
 
In The Telegraph, Dia Chakravarty argues against a ban on energy drinks. Chakravarty cites a report by the Financial Times that shows that the growth rate of energy drinks has plummeted to zero in 2017. She opines that laws banning their sale to under-18s will achieve very little other than satisfying the cravings of politicians looking to extend a “nanny state”.

Did you know? 

Even though the US Civil War ended in 1865, the US government paid a pension to the widow of a Civil War veteran up until 2003. Gertrude Janeway married John Janeway, a Unionist soldier, in 1927 when she was only 18 and he was 81. When John passed away in 1937, she started receiving his military pension of $70 every two months until 2003.

Parliamentary highlights 

House of Commons
In recess until September 4, 2018.
 
House of Lords
In recess until September 4, 2018.
 
Scottish Parliament
In recess until September 4, 2018.