EUR 9.28 For Business Accounts Only

The Morning Track ocha

- The Morning Track – Ocha by Bob Savage
http://track.com/articles/the-morning-track-ocha/

The UK officially starts the process of exiting the European Union today with a ceremony as Prime Minister May signs the Article 50 letter, followed by EU Tusk press conference upon receipt. Ceremonies happen after the fact and generally don’t matter but for their symbolism. Sometimes they are living things like the Japanese Ocha – or tea ceremony – as they become a way of life. That is apt for the markets - Traders love to buy facts and sell events and perhaps GBP is going to see that too today but not yet - there is more to this story and more to ceremonies. Funerals happen after someone dies, marriages happen after a couple falls in love….you get the point – some facts are bigger than others – some are “huuuge.” The market has its own ceremony function, calling a recovery after any “bad” event – like the failure of Trump to get a healthcare repeal and replace through Congress. Of course, the case of the UK is different as we hope to see in the
ceremonies some inkling of whether the Brexit is hard or soft, long or short, complicated or simple – like an egg and its cooking, perhaps even messier. Headlines will focus on the E50-E70bn that the EU wants in payment for the separation agreement. The already GBP fell on the Brexit vote 15% The UK Gilt markets have already price the pain trade after the BOE easing last July. What isn’t priced is the vitriol and the next 2 years of talks – as this will test the UK May government and the EU resolve to hold back others. This isn’t a ceremony but a reality. Focus on 4 key points for this split – 1) trade and the exit cost – E60bn before a trade deal or after; 2) Ex-pats – there are 4mn immigrants in UK and 1mn UK citizens in the EU – this may supersedes trade deals; 3) Transition periods – how do you stop trade before you have a deal – and will this need to be worked out first; 4) Law – the courts are likely the place that suffer the most with European
Courts holding less sway in UK and elsewhere making for legal arbitrage for some. There is a lot at stake for both Europe and the UK here and the battle for money seems appropriate to focus on with EUR/GBP ready to break out of its 7-month down trend. This may restart the talk about the US as a safe-haven trade but for now enjoy the tea.