6 September 2019

Javier Maquieira

6 September 2019

Good morning,
 
In an attempt to unwind after this week’s parliamentary delirium, I decided to take a look at home and catch up on Spanish politics. Spoiler alert: I should have known better.
 
Whilst Britons have been called to the polls to elect a national government twice since 2015, Spaniards have voted in a general election on three occasions over the same period – not that it’s a competition. But the most striking parallel between both countries is the prospect of new general elections by the end of the year.
 
In April, the socialist Pedro Sánchez, who a year earlier had ousted the conservative Mariano Rajoy in a no confidence vote, won the election with 123 out of the 350 seats in parliament. From the outset, it was clear that Sánchez would need the support of either the liberal Ciudadanos party or far-left Podemos group. However, disagreements over how to deal with independentist sentiment in Catalonia made a coalition between Ciudadanos and Sánchez’s socialist party (PSOE) very unlikely.
 
The summer months that followed bore similarities with political deadlocks taking place in other countries and polities. The Spanish acting prime minister failed in his first and second attempts to be elected in July, largely because of his government’s fractious coalition negotiations with Pablo Iglesias’s Podemos party. Differences between Iglesias and the Sánchez administration, however, are more about the ministries and budgets Podemos would control, rather than deep policy disagreement.
 
Although there is no limit to the number of attempts Sánchez can make, a government must be formed by September 23. Otherwise, Spain would head for its fourth election in four years on November 10. Confident that he can still persuade Podemos to support him, the caretaker PM this week unveiled 370 progressive policies where he proposes, among other things, tax increases on large companies, caps on rents, and new green laws.
 
Spain’s parliamentary system has never looked this fragmented since the return of democracy more than 40 years ago. Now, Sánchez’s last hope is the pressure that other parties may put on Podemos to change their position. Eventually, if Iglesias and Sánchez don’t reach a coalition deal and elections are repeated, the two traditional parties – PSOE and the People’s party – could come out stronger.
 
At the end of the day, countries like Spain and the UK are faced with two options: building consensus or falling into a chronic state of political instability and economic recession. Turns out the only thing I missed about home this summer was the sunny weather.

News

Jo Johnson, the younger brother of prime minister Boris Johnson, announced yesterday his resignation as an MP and business minister, following the removal of the Conservative whip from 21 fellow MPs for supporting plans to stop a no-deal Brexit. The younger Johnson brother, who voted Remain in 2016, declared that he is “torn between family loyalty and the national interest.” The PM called his brother a “brilliant minister” and said that he had a “different approach to me about the European Union.”
 
The leader of the House of Commons, Jacob Rees-Mogg, has said that the government will seek to resubmit the same motion to trigger a general election on Monday. The motion would need a two-thirds majority under the Fixed-term Parliament Act. If Johnson fails to secure a majority, he could still attempt another route ahead of Thursday, which is the deadline for the prorogation of parliament - a one line bill to amend the Fixed-term Parliaments Act or calling a no-confidence vote in his own government.
 
In related news, Labour leader Jeremy Corbyn met Ian Blackford, the SNP Westminster leader, yesterday to agree that a general election must take place only after the UK has secured another Brexit extension from the European Union. The pact could lead both the Labour Party and SNP uniting to call a confidence vote on Johnson as soon as Monday. (£)
 
Robert Mugabe, the leader of Zimbabwe for close to four decades, has died at the age of 95. Mugabe, who was deposed in a coup by members of his own party in 2017, had left office with a legacy of oppression and violence to maintain his power. He was also credited with driving into poverty a country once known as the breadbasket of southern Africa.

Business & Economy

The US and China have agreed to restart face-to-face negotiations in an attempt to deescalate their trade war. Top US officials said in a statement that deputy-level meetings would take place in mid-September to lay the groundwork ahead of the discussions. In Beijing, China’s commerce ministry said the visit to Washington would take place in early October. (£)
 
EU officials have warned that Boris Johnson’s plans to diverge from EU rules after Brexit, namely environmental and social standards, would hinder Britain’s chances of striking an ambitious trade deal with the bloc. EU trade deals require ratification from the European Parliament and the Council, which represents national governments. Any pact between the UK and the EU is also likely to require the approval of national parliaments. (£)
 
Researchers have found that a snack tax of 20% on biscuits, cakes, and sweets could cut obesity in the UK population from approximately 28% to around 25%. In an article for the British Medical Journal, they claim it would make the levy more effective than the current one on sugary soft drinks. The current government, however, took a stand against “sin stealth taxes” in July, opposing plans to extend the sugar tax to milkshakes.

Markets

What happened yesterday?

London closed in the red on Thursday following Boris Johnson’s defeats in parliament and the resignation of his brother as MP and business minister. The FTSE 100 ended down 0.6% at 7,271.17, while the pound was up against the dollar by 0.7% at $1.2338 and 0.6% firmer on the euro at €1.1170. In contrast, European markets rallied on Sino-US trade optimism, with the Stoxx Europe 600 up 0.72%.
 
In UK equity news, businesses with an international focus were hit particularly hard, with Diageo (-3.35%), AstraZeneca (-2.71%), GlaxoSmithKline (-2.49), and Unilever (-2.41) all lower. Miner BHP Group (-3.09%) and CYBG (-21.40%) – the owner of Virgin Money and Clydesdale and Yorkshire Banks – also lost ground. On the upside, turnaround specialist Melrose Industries (+8.79%) and media publisher Future (+9.23%) both surged.
 
The likelihood of a de-escalation in the trade war between China and the US put all three major US indices a step closer to their record highs. The S&P 500 was up 1.3% on its biggest one-day performance in three weeks, supported by gains in consumer, technology and financial stocks. The tech-heavy Nasdaq Composite rose 1.8%, while the Dow Jones Industrial Average was up 1.4%.

What's happening today?

Finals
Ashmore
 
Interims
International Public Partnerships
SIG
 
AGMs
Berkeley Group
Greene King

UK Economic Announcements
(08:30) Halifax House Price Index
 
Int. Economic Announcements
(07:00) Industrial Production (GER)
(07:00) Factory Orders (GER)
(10:00) Gross Domestic Product (EU)
(13:30) Unemployment Rate (US)
(13:30) Non-Farm Payrolls (US)

Columns of Note

Writing in The Guardian, Paul Twocock reflects on the last school year before the new regulations for teaching relationships and sex education (RSE) in English schools come into force in September 2020 – a landmark moment for LGBT families. Twocock celebrates the value of inclusive teaching, as it puts forward a message of acceptance for people from all backgrounds. However, he calls on the government to invest in training and resources in order to ensure effectiveness, and concludes we must remain vigilant to claims that perpetuate the myth that religious faith and LGBT inclusion cannot coexist.
 
The Financial Times editorial board argues that Carrie Lam’s concession to withdraw the controversial extradition bill in Hong Kong comes too late to quell the dissent, and only the implementation of other demands could eventually ease tensions. When it comes to China, a bigger step forward would be to offer Hong Kong universal suffrage, or otherwise tone down its vengeful approach to the protests. The editorial board further opines that the spiral of violence should come to an end if demonstrators aim to “regain the moral high ground.” (£)

Did you know?

During the Second World War, the Dutch would identify German spies by asking them to pronounce the seaside town Scheveningen. The name worked as a shibboleth, a Hebrew term for a word that, if pronounced correctly, distinguishes someone clearly as belonging to a certain group.

Parliamentary Highlights

House of Commons

No business scheduled
 
House of Lords
 
Legislation
European Union (Withdrawal) (No. 6) Bill - Committee stage and all remaining stages - Lord Rooker
 
Scottish Parliament
 
No business scheduled