ISQ - January 2021
Key Takeaways
A Brexit deal has been agreed and now ratified by both the UK parliament and by EU authorities. A disorderly no-deal departure, in the midst of the pandemic, has been avoided.
Financial market reaction to confirmation that a deal had, at last, been struck was muted.
By leaving the EU customs union checks and other procedures will be required, adding to disruption and delay at the border.
Visitors to the EU planning on staying for more than 90 days in a 180 day period, will require a visa. European Health Insurance Cards (EHIC) will remain valid until expiry.
The deal does not cover financial services. Negotiations around “equivalence” continue.
In Europe, any adverse impact associated with Brexit is likely to be much more muted and concentrated more in those countries with strong trading links to the UK, or geographic proximity.
The Brexit deal should help reinforce the belief that 2021 might be a year of two halves.
Has anything changed? Inevitably, COVID-19 has stolen the show. The pandemic set the narrative throughout 2020 and has dominated the conversation again as the New Year gets underway, relegating Britain’s departure to the inside pages. For the intrepid traveller, braving the Eurostar from London St. Pancras to Paris Gare Du Nord (even overseas visits once regarded as routine) now feels like a trip into the unknown.
The first sign of change comes upon arrival in the French capital. No longer can one stroll, expectantly, onto the station concourse. Now, one queues with one’s fellow-subjects on the platform before being directed to a customs door. Papers are required before being ushered through by somnambulant officials. This, for many, will likely be the first clear indication of Brexit in action. Financial market reaction to confirmation that a deal had, at last, been struck was muted.
Financial market reaction to confirmation that a deal had, at last, been struck was muted.
In large part, this had to do with the fact that agreement (on trade at least) had been struck on Christmas Eve when the European stock and bond markets had closed. The pound’s reaction proved underwhelming too, this a reflection of the widely, if not firmly, held view that a deal of some description would be reached before the clock ran down at 23.00 GMT on 31st December. Prior to the deal’s confirmation, sterling had risen from $1.33 to $1.37 and from €1.09 to €1.11. Arguably, the best news of all, for those responsible for crafting the agreement, is that there has been no “sell the news” reversal, or at least nothing outwith the dismal news relating to yet another national lockdown.
The document itself runs to well over 1,000 pages of densely worded legalese and attempts to establish an outline as to how the relationship between the two parties might operate in the future. Last-minute hitches appeared to concern fisheries, a hugely contentious issue on both sides. An indication as to who gave what ground in negotiation might be gleaned from the belief that the UK initially wanted an 80% reduction in the value of the fish caught by EU trawlers in UK waters, but ultimately settled for a mere 25% cut, and phased in over a five-and-a-half-year period, a much shorter period than that which the EU originally bargained for. Once over, the UK will fully control access to its waters, but any exclusion will result in compensation for losses either through tariffs on fish (or other goods) or through the prevention of UK trawlers fishing in EU waters. Dispute resolution, needless to say, will likely take years of negotiation to work through.
More generally, the deal covers a wide range of issues, from law enforcement to transportation. Tariffs and/or quotas will not be imposed immediately upon goods moving between the UK and EU, maintaining the existing arrangement. However, by leaving the EU customs union checks and other procedures will be required, adding to disruption and delay at the border.
In terms of individual travel, visitors to the EU planning on staying for more than 90 days in a 180 day period, will require a visa. European Health Insurance Cards (EHIC) will remain valid until expiry. Both sides have agreed to cooperate regarding international mobile phone roaming charges, but there is nothing stopping UK travellers from being charged by providers for using phones in the EU, and vice versa.
Notably, the deal does not cover financial services. The issue of “equivalence”, relating to UK rules governing financial services as roughly equivalent to those in the EU, would make it easier for UK financial firms doing business abroad to continue to do so. The European Commission is seeking additional clarification from the UK before reaching a decision on this matter.
Notably, the deal does not cover financial services.
Following agreement on Brexit, the UK economy had been expected to deliver real GDP growth of around 1.0% on the quarter. However, the impact of the third UK lockdown will muddy the water. Given that the latest lockdown will remain in place until at least 22 February, UK real GDP is now thought likely to contract by around 3.5% points over Q1.
Whilst not as severe as the impact of the first lockdown (factories and construction sites will remain open and many service sector employees can now work from home), the level of GDP will still be adversely impacted, especially through the impact of school closures.
In Europe, any adverse impact associated with Brexit is likely to be much more muted and concentrated more in those countries with strong trading links to the UK, or geographic proximity.
Indeed, the EU has moved swiftly to negate any long-term negative consequences announcing, with great fanfare, a bilateral investment treaty with China. This latest pivot away from decades of interdependence with the US, whilst celebrated in Beijing will likely be poorly received in Washington DC.
The US is thought likely to need European support if it is to strong-arm China into some sort of acquiescence.
In conclusion, notwithstanding the adverse impact that COVID-19 is wreaking in both the UK and Europe, the Brexit deal should help reinforce the belief that 2021 might be a year of two halves, with a strong economic recovery evolving as the year progresses.
Issued by Raymond James Investment Services Limited (Raymond James). The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance is not a reliable indicator of future results. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. The taxation associated with a security depends on the individual’s personal circumstances and may be subject to change.
The information contained in this document is for general consideration only and any opinion or forecast reflects the judgment of the Research Department of Raymond James & Associates, Inc. as at the date of issue and is subject to change without notice. You should not take, or refrain from taking, action based on its content and no part of this document should be relied upon or construed as any form of advice or personal recommendation. The research and analysis in this document have been procured, and may have been acted upon, by Raymond James and connected companies for their own purposes, and the results are being made available to you on this understanding. Neither Raymond James nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such research and analysis.
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APPROVED FOR CLIENT USE
Black MondayOn 19 October 1987, the stock markets experienced a dramatic plunge that prompted many firms to shut down their trading desks and turn off their phones to minimize internal losses. Raymond James refused to do the same. Our desks stayed open to help meet clients’ needs, resulting in our first and only unprofitable quarter since the firm went public in 1983. |
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Who was Raymond James?The Raymond in our name is actually from Edward Raymond, owner of a 15-employee mutual fund sales group, Raymond and Associates, along Florida’s west coast. He sold his company to Bob James on 15 July 1964, on condition that the surviving firm be called Raymond, James & Associates. Three days after the sale, Ed Raymond was involved in a near-fatal automobile accident and never joined the firm. Nonetheless, even after Raymond had passed away, Bob James insisted that his name remain on the door – ahead of James’ own. That was a promise he made to Ed Raymond three days before the accident, and Bob James was a man who kept his promises. |
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Bear market of 1974The severe bear market of 1974 threatened the existence of Raymond James, which was bleeding capital by the day. Tom James, his father and other leaders took extreme measures to keep the firm afloat, slashing costs, forgoing pay checks and even attempting to sell the firm for just enough capital to protect client assets and retain as many associates as possible. The story could have ended very differently if not for a sharp upturn and continued rebound in the stock markets late in the year. |
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Taking Raymond James PublicWhen consideration was being given to taking Raymond James public, Tom James penned a letter to shareholders (largely employees at the time). ” … the public offering should be considered as a statement of our independence. While this is a psychological rather than an economic rationale, it is nonetheless very important. We have asserted for some time that we are not interested in becoming a small part of a very large corporation. That assertion results mainly from the inclinations of management rather than the economic benefits associated with either alternative. The public stock offering affords us the opportunity to enjoy a little bit of the best of both worlds. While shareholders will be given liquidity at fair market value, we will still have the ability to control our own destiny.” After 40+ years of Tom’s leadership, upon becoming CEO, Paul Reilly was often questioned about whether the company might ultimately surrender its cherished independence and be acquired by some larger entity. His response: “Not while I’m around.” It’s a theme that continues today. |
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