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Brexit divorce bill: an opening shot?

Ahead of British PM Theresa May’s much-awaited Florence speech on Friday, the Brexit noise is inevitably growing louder.

After the Boris Johnson palaver of the past few days, the FT is out today with a so-far unconfirmed report that May will offer at least 20 billion euros to fill the EU budget hole it will be leaving behind. That is well below the total settlement being eyed in Brussels but at least it would signal the start of a more focused negotiation.

Emmanuel Macron’s government will today outline the savings it expects to make on various housing support schemes — some 40 billion euros worth.

A widely enjoyed housing allowance is a likely target in what could generate more controversy around Macron’s plans to shake up the French economic and social model. France‘s CGT union managed to bring hundreds of thousands onto the streets last week against Macron’s labour reforms and is hoping to mobilise even more on Thursday.

With four days to go until the German election, an Oxford University study has found that the far-right is making the most noise on Twitter during the campaign but far less fake news is being spread in Germany than was the case during the U.S. presidential election. One contributing factor, it appears, is quite simply that Germans use Twitter less than their counterparts in the U.S. or Britain …

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It’s all small increments in extremely low volatility, but world equity markets continue to grind out new records as traders await the latest policy steer from the U.S. Federal Reserve tonight.

MSCI’s index of world stock markets set a new all-time high early on Wednesday and looks set to record its 11th consecutive month of gains — its longest winning streak since 2003.

With Wall St clocking up new records again and the Vix equity market volatility gauge probing below 10 percent, you’d be forgiven for think it was a serene week.

U.S. President Donald Trump’s warnings on Tuesday of destroying North Korea if it threatens the United States barely registered in market pricing. Neither have the latest hurricanes in the Caribbean nor Mexico’s earthquake overnight.

The euro took only a brief knock on Tuesday’s Reuters report of splits within the European Central Bank on the timing of withdrawal of monetary stimulus and expected tapering of its massive bond buying programme. ECB sources say many on the council are worried about the fallout from euro strength, some are seeking a delay on the tapering announcement and insist all options should be left open in 2018. However, euro/dollar climbed back above $1.20 early Wednesday.

Sterling flickered on Tuesday on speculation that the UK foreign secretary and “hard Brexit” supporter Boris Johnson might resign, but the pound settled back down following a stream of denials and as investors eye Friday’s keynote speech on the Brexit negotiations from PM May.

But with the Bank of England flagging a likely UK interest rate rise in the coming months, today’s release of UK retail sales and the BoE’s regional agents report may be just as sensitive.

Otherwise, the Fed vigil has set in — with all eyes on how the central bank will start gradually running down its bloated balance sheet of bonds and whether it will give any clues to the rate horizon.

Ten-year U.S. Treasury yields hit their highest since mid-August on Tuesday before settling back this morning. The dollar index is flat so far today. Interest rate futures markets put the chances of a third Fed hike by year-end at roughly 50-50 going into tonight’s decision and press conference.

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