Making sense of trends and data

Brexit, German elections and more

Published 3.27.2017
Mondays are the days when LWRAS focuses on broader economic and political issues that can affect market analysis and predictions.

Brexit breaks banks’ bridge to the British government. Banks have begun to move jobs out of Britain as a hedge against Brexit changes. Prime Minister May has left Bankers in the cold as far as Brexit planning goes, which surprised Bankers because they are huge tax payers in Britain.

Loss of its position as a premier financial center was part of the peril of Brexit the Remain camp often touted. However, the government has apparently decided the risk is overblown. Bankers are unused to be being ignored by people in power.

The government is making two calculations, these people say. The first is that bank executives are bluffing over moving jobs. The second: The EU is so dependent on London to service its debt that EU negotiators will give UK financial services a special deal to continue to operate unrestricted across the single market. EU officials counter that finance is mobile and business will move to other locations.

Banks have also overplayed their hand, claiming that there are some outcomes they will not be able to adapt to, and this is simply false and was revealed to be false.

A potential problem for Britain is that after Thatcher's deregulation, many financial companies were bought up by U.S. or European rivals. These firms lack national loyalty to Britain. Neil Dwane, a global strategist at Allianz Global Investors, said most of the big decision makers in London, outside of insurance, are American or Swiss.

Zurich is a lovely city.

The Scots are not the only ones eying Brexit with concern. The border restrictions almost certain to result may upend the hard earn peace in Norther Ireland.

The issue is primarily one of borders. It is often unappreciated just how important a role the EU played in facilitating peace as the U.K. and Ireland’s joint membership of the EU’s single market and customs union removed any economic need for a hard border with the Irish Republic, leaving only a security border to be dismantled as an impediment to peace.

The Irish do not want a hard border, but Brexit makes it necessary. The Brits don’t want to make any special case for Ireland, because the Scots will demand the same. Polarization in Northern Ireland is on the rise, but no one wants a return of violence.

Merkel’s party wins passes its first test of the election season. Merkel’s been in power for over a decade. With the power vacuum in Washington, Merkel is considered the true leader of the free world in some quarters. Certainly Merkel is not shy about correcting Trump when need be.

More evidence that the future of manufacturing is automated, but the robots are not from the US. The choice fro factory owners is between German and Japanese robots.

Commerce Department data show the U.S. last year ran a trade deficit of $4.1 billion in advanced “flexible manufacturing” goods with Japan, the European Union and Switzerland, which lead the industry. That is double the 2003 deficit. It was down from $7 billion in 2001, but much of the decline came from foreign equipment suppliers expanding in the U.S., not from an American comeback.

The Afghan war continues. The US military is concerned that the Russians are getting involved.

The insurgent advances come as Russia prepares to host a meeting of regional nations next month to discuss trying to encourage peace talks between the Afghan government and the Taliban. The United States has reportedly also been invited and there are reports of outreach to try to persuade the insurgent group to attend.

The Exxon Tillerson left behind. The world is awash in oil, and Exxon is still aggressively looking to exploit it. Unabashedly, and without any plan for a pivot to renewables. Obviously, low oil prices hurt Exxon too. But with Tillerson at State, Exxon is poised to benefit.


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