Negative comments from EU Brexit negotiators ‘could trigger sterling fall’

UK Secretary of State for Exiting the European Union David Davis, left and the European Commission's Chief Brexit Negotiator Michel Barnier. (Reuters)
Updated 18 July 2017
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Negative comments from EU Brexit negotiators ‘could trigger sterling fall’

LONDON: Negative comments from European Brexit negotiators could trigger a decline in the value of the British currency, analysts warn, as talks between the two sides kicked off on Monday.
The UK Brexit commissioner, David Davis, began the first full round of negotiations with EU chief negotiator Michel Barnier, with the Brussels-based talks set to include issues including citizens’ rights, the ongoing EU budget commitments, and Northern Ireland issues.
Market analysts are watching the Brexit talks closely to see how they could affect their investment decisions. Harry Thompson, a market analyst at PhillipCapital UK, told Arab News that “these next few days will be an eye-opener for future trade negotiations, meaning the extent to which each party is willing to concede on certain areas may be the key driver for sterling.”
Due to the result of the UK election in June, it is possible that the UK government can no longer take a hard-line stance and David Davis’ hand in negotiations has been negatively impacted, Thompson added.
“Should we see evidence that Davis’ hand has truly been dented, we could see (the) sterling rise as the UK looks set to avoid a hard Brexit,” he said.
“For now, both parties may continue to hide behind their poker faces, with a lack of cooperation likely to send sterling lower as investors fear the possibility of a hard Brexit.”
Thompson added that investors would also be keeping a close eye on UK inflation and retail sales data this week. “The recent change in rhetoric from the Bank of England (BoE) has meant sterling has pushed to fresh highs as investors increase their bets on higher rates in the UK. Should CPI this week confirm that inflation remains at four-year highs, we could see sterling climb higher, with Brexit negotiations (taking) a back seat to the eventuality of a near-term rate-hike from the MPC.”
The pound has slumped since the Brexit referendum in June 2016, but predictions of immediate doom have not proved accurate with the UK economy estimated to have grown 1.8 percent in 2016, second only to Germany’s 1.9 percent among the world’s Group of Seven (G-7) leading industrialized nations.
Chris Beauchamp, chief UK market analyst at IG agreed that sterling has gained recent strength, with BoE Gov. Mark Carney “turning his tone on interest being enough to change the market sentiment.”
Beauchamp told Arab News he would be looking out for comments from the European contingent this week: “We would look more to the European spokespeople — they seem to have the upper hand in the conversations. So there is a risk that their comments could negatively affect the sterling,” he said.
As Britain prepares to leave the EU, the government has been eyeing closer relationships and special ties with regions outside Europe. According to Beauchamp, it is the UK’s “lynchpin” strategy to make sure it has international arrangements in place and to give the impression that it is open for business with regions like the US and the six-nation Gulf Cooperation Council (GCC).
In March, it was reported that Gulf Arab states are pressing for an early deal on free trade with Britain to secure preferential arrangements after Brexit, and could have a draft agreement ready within months, Gulf officials say.
One of the first agreements could be with the GCC. Trade between Britain and the GCC totals about £30 billion ($39.1 billion) annually.
GCC states are trying to diversify their economies and boost non-oil trade after more than two years of low global oil prices that have hurt their finances. They export mainly oil, gas and related products to Western economies while importing a wide range of goods and services.
Jason Tuvey, Middle East economist at Capital Economics, told Arab News: “In aggregate, it is unlikely that a weaker pound would have a significant impact on trade with the GCC. Trade ties are relatively small and most exports from the region to the UK are hydrocarbons, demand for which tends to less affected by swings in exchange rates.”
“That said, a weaker pound would make UK goods relatively cheaper and this could support UK industries, particularly defense, which are heavily reliant on demand from the Gulf. When it comes to discussions over trade agreements, the UK government is likely to put the defense industry front and center of talks with the GCC,” Tuvey added.
— With input from Reuters


EU to respond to any US auto tariff move: report

Updated 23 June 2018
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EU to respond to any US auto tariff move: report

  • Trump threatened to impose 20 percent tariff
  • Shares in carmakers slip on trade war fears

PARIS: The European Union will respond to any US move to raise tariffs on cars made in the bloc, a senior European Commission official said, the latest comments in an escalating trade row.
US President Donald Trump on Friday threatened to impose a 20 percent tariff on all imports of EU-assembled cars, a month after his administration launched an investigation into whether auto imports posed a national security threat.
“If they decide to raise their import tariffs, we’ll have no choice, again, but to react,” EU Commission Vice President Jyrki Katainen told French newspaper Le Monde.
“We don’t want to fight (over trade) in public via Twitter. We should end the escalation,” he said in the comments published on Saturday.
The European Autos Stocks Index fell on Friday after Trump’s tariff threat. Shares US carmakers Ford Motor Co. and General Motors Co. also dropped.
“If these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the US Build them here!” Trump tweeted.
The US Commerce Department has a deadline of February 2019 to investigate whether imports of automobiles and auto parts pose a risk to US national security.
US Commerce Secretary Wilbur Ross said on Thursday the department aimed to wrap up the probe by late July or August. The Commerce Department plans to hold two days of public comments in July on its investigation of auto imports.
Trump has repeatedly singled out German auto imports to the United States for criticism.
Trump told carmakers at a meeting in the White House on May 11 that he was planning to impose tariffs of 20 or 25 percent on some imported vehicles and sharply criticized Germany’s automotive trade surplus with the United States.
The United States currently imposes a 2.5 percent tariff on imported passenger cars from the EU and a 25 percent tariff on imported pickup trucks. The EU imposes a 10 percent tariff on imported US cars.
The tariff proposal has drawn sharp condemnation from Republican lawmakers and business groups. A group representing major US and foreign automakers has said it is “confident that vehicle imports do not pose a national security risk.”
The US Chamber of Commerce said US auto production had doubled over the past decade, and said tariffs “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.”
German automakers Volkswagen AG, Daimler AG and BMW AG build vehicles at plants in the United States. BMW is one of South Carolina’s largest employers, with more than 9,000 workers in the state.
The United States in 2017 accounted for about 15 percent of worldwide Mercedes-Benz and BMW brand sales. It accounts for 5 percent of Volkswagen’s VW brand sales and 12 percent of its Audi brand sales.