8 February

Lyle Hill

8 February

Good morning,


As we look to leaked government documents and negotiating positions, in Germany the long wait to form a government is finally over.

Angela Merkel has managed to secure the deal that will keep her in power for another term, but it has been struck with major concessions that make Europe's longest serving leader look far weaker than her years in office suggest.

The inconclusive results of elections in September have plagued Merkel for over four months, as potential coalition partners came to the negotiating table and quickly retreated, forcing the chancellor to appeal to the centre-left Social Democrats.

The SPD had repeatedly stated throughout the election that there would be no continuation of the 'grand coalition' that had kept Merkel in power during the last parliament, but with fears about its own strength if Germany went back to the polls, and the prospect of the far right Alternative for Germany party picking up more seats, leader Martin Schulz entered into discussions.

The deal, still to be formally approved by SPD members, sees the party claim six ministries, including foreign affairs and finance, severely weakening the influence and power of Merkel in the top job.

Meanwhile, in Italy, there is more coalition wrangling in the run up to countrywide elections set for the 4th March. Former prime ministers Matteo Renzi and Silvio Berlusconi are at pains to rule out any formal coalitions following the election, claiming if the results do not give a stable government Italy will be heading back to the polls.

However, in recent days stances have been softening on the issue, as the Five Star Movement led by 31 year old Luigi Di Maio looks set to become the largest party. Di Maio has also ruled out any formal coalition, but as we've seen from Germany, when power beckons it can often become too irresistible to pass up.

 

NEWS

A leaked government document has highlighted that Leave voting areas will be hardest hit by Brexit. The 15 year forecasts show that the North East of England and the West Midlands would slump by 16% and 13% respectively in the case of no deal. The government argues that the leaked memo does not represent policy or take into account its negotiating position.
 
Following weeks of wrangling the US Senate has agreed a final bipartisan budget deal that will see spending caps lifted and the government funded for a further two years. The deal is expected to pass through the Senate on Thursday, but may face a more difficult time in the House, where Democrats have been critical of the proposal for failing to address the issue of undocumented workers.

According to research conducted in England, nine out of ten counties will be millions of pounds over budget and facing the prospect of large tax rises to cover costs by the end of the financial year. The UK's richest county, Surrey, faces a £105 million funding gap, and Northamptonshire banned all new spending earlier this week, worrying government ministers.

 

BUSINESS AND ECONOMY

The Financial Conduct Authority has been given a deadline of next week by the Treasury Select Committee to publish the full and unedited report into the RBS Global Restructuring Group, after it was accused of "losing control" of the investigation. The deadline comes as a blow to Andrew Bailey, the FCA chief executive who is widely tipped to become the next governor of the Bank of England.

Emma Walmsley, the chief executive of GlaxoSmithKline, has urged the government to secure a transition deal within the next two months in order to secure medicine supplies. Following Brexit, Walmsley has called for minimal customs procedures and zero tariffs to allow medical supplies to be moved freely and quickly.

SoftBank, the Japenese conglomerate, is in early stage discussions with Swiss Re to take a minority stake in the Swiss insurer. Such a move would represent a significant expansion into financial services for the acquisitive firm, but the Swiss firm was quick to issue a statement highlighting that “there is no certainty that any transaction will be agreed”.

 

MARKETS

What happened yesterday?
The FTSE 100 closed up yesterday, bouncing back from the fall on Tuesday. At close, the market was up 1.94%, or 138.21 points, at 7,279.61.

Across the world markets are set to calm down following the volatility induced drops of the last couple of days. European markets are expected to open slightly down today but will follow the trend of a more typical trading day, as yesterday highlighted. 

Asian markets have continued this trend today, rising higher on the back of volatility easing off. The Topix in Tokyo is up 0.8 per cent, marking a recovery of 3.2 per cent from the four-month intraday low on Tuesday.

The S&P ended down 0.5 per cent yesterday and is still more than seven percent lower than its record high set on 26th January.

On the currency markets, the pound was up 0.08% against the dollar at $1.38930.

Finals
Beazley
Millennium and Copthorne Hotels
Smith & Nephew

UK Economic Announcements
(00:01) RICS Housing Market Survey
(12:00) BoE Interest Rate Decision
 
International Economic Announcements
(07:00) Balance of Trade (GER)
(07:00) Current Account (GER)
(13:30) Continuing Claims (US)
(13:30) Initial Jobless Claims (US)

 

 

COLUMNS OF NOTE

Tony Barber, writing in the Financial Times, takes aim at Angela Merkel's new coalition, arguing that it is a triumph for caution and moderation over innovation. He believes the weakened partnership may struggle for stability as the unhappy bedfellows tend to their bases rather than govern.

Simon Tisdall, writing in the Guardian, looks at Vladimir Putin's rigging of the Russian election and calls out the silence of Western leaders to Putin's blatant attempt to tamper with democracy. He argues that if a similar poll was held in Iran or Zimbabwe, British politicians would be quick to condemn them as outrages.

 

DID YOU KNOW?

Italy has had 65 governments since January 1st 1946

 

PARLIAMENTARY HIGHLIGHTS

TODAY 

House of Commons

Oral questions
Digital, Culture, Media and Sport (including Topical Questions)
Attorney General

House of Lords

Oral questions
Size of the prison population and conditions within prisons -  Lord Lee of Trafford

Debate
Report from the Economic Affairs Committee 'Brexit and the Labour Market' -  Lord Forsyth of Drumlean

Scottish Parliament

General Questions

First Minister's Questions

Stage 1 Debate: Islands (Scotland) Bill


TOMORROW

House of Commons

No business scheduled.

House of Lords
No business scheduled.

Scottish Parliament
No business scheduled.