Various bits re Brexit and Economics

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guardian

Senior Tories press May to abandon Brexit deal talks with Labour 
 
With a poll yesterday suggesting the Brexit party is on course to get more than three times as many votes in next week’s European elections as the Conservatives, one senior Tory has called for the two parties to form a pact at the next general election. This is what Crispin Blunt, a former chair of the foreign affairs committee, told Newsnight last night.

 

In my judgment, we are going to have to come to an accommodation with the Brexit party. The Conservatives, as a Brexit party again, being very clear about their objectives, are almost certainly going to have to go into some kind of electoral arrangement with the Brexit party, otherwise Brexit doesn’t happen.

Blunt said his preference would be for a pact involving the Tories standing in the seats they hold, and the Brexit party standing in all the other seats. He claimed that, if they united, the two parties could win handsomely.

 

Listen to what Nigel Farage said; he would “do a deal with the devil” to get Brexit over the line. The Conservative party is very far from being the devil in this. Eighty per cent of the membership of the Conservative party are very keen to make sure that Brexit happens, will be in a position to enthusiastically support leaving the European Union with no deal. If we are then able to agree a position to put to the country, I think we would hit the ball out of the park.

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https://www.irishtimes.com/opinion/life-after-theresa-may-fraught-with-danger-for-dup-1.3900756

Life after Theresa May fraught with danger for DUP
Renewing pact with hard Brexit leader would see it blamed for ensuring chaos in North
about 3 hours ago
 
Newton Emerson



 
There is no choice but to marvel at the confluence of complications now imminent in UK politics, the punchline to which will be the DUP-Conservative confidence-and-supply agreement.
British prime minister Theresa May has promised to bring her EU withdrawal bill to the Commons in early June, where it will almost certainly fail, triggering a Tory leadership contest. Such a contest typically takes two months, although most of that time is allowed for a ballot of party members, which could be shortened by several weeks.
June is also when the current parliamentary session ends, having been extended from its customary one year to two due to Brexit.
With no Commons majority for any form of Brexit, the likeliest outcomes ahead are no deal or no Brexit
There had been talk of extending it further but every other Commons party – including the DUP – has said that would be an outrage if done for Tory management purposes. So a new session needs to start, marked by a new programme of legislation set out in a queen’s speech, despite no new legislation being planned as Brexit has consumed everything.
Scheduled slap bang in the middle of all this is renewal of the confidence-and-supply agreement, without which the government cannot function. The agreement was signed on June 26th two years ago with an effective two-year lifespan. That was the deadline for spending most of its £1 billion of funding, nearly all of which has since been disbursed – the only delay is with £150 million for broadband.
There must also be a review of the agreement at the end of the parliamentary session. It can safely be assumed more funding will be demanded. The health and education sectors in Northern Ireland are already putting in unsubtle bids.
The DUP has always stressed its agreement is with the government, not the prime minister. May will linger on just long enough to renew the deal under her tenure, although her authority will be slipping away.
•   A new direction of travel for the UK and Ireland
•   Newton Emerson: Stormont faces direct rule with Dublin input if talks fail again
•   Newton Emerson: DUP must offer more than tribalistic flag-waving
Another complication
She might want to press on regardless, and give the DUP cause to co-operate, thanks to another complication. Stormont talks will conclude at the end of this month with a review by the British prime minister and the Taoiseach. May is reportedly keen to see devolution restored on her watch, if only to depart on one positive note. A scenario can just about be imagined where solid progress is announced, with more funding for Northern Ireland the icing on the cake. DUP gloating at this will be hard for other Stormont parties to stomach but they can hardly turn the money down.
However, the DUP might be forced by timing or tempted by circumstance to seek renewal under May’s successor. This would not be about money – it would be about Brexit. The confidence-and-supply agreement committed the DUP to supporting the government on Brexit, budgets, confidence votes and the queen’s speech. After the DUP fell out with May over the backstop, it reneged first on budgets and then on Brexit, claiming the government had reneged on its commitments to unionists.
Breakdown in relations
Renewing the agreement will require repairing this breakdown in relations. That will be most plausible under a prime minister who pledges to ditch or water down the backstop, as all the leading contenders – chief among them Boris Johnson – have promised to do.
What the next prime minister eventually ends up doing, or being able to do, is another matter. However, that is a problem for the next breakdown in DUP-Tory relations.
Keeping the Conservatives in power at the expense of the backstop is not something most other Stormont parties will be able to stomach, menacing what hopes there are of restoring devolution in the short to medium term. Johnson in particular seems guaranteed to antagonise nationalists.
The DUP, which badly wants Stormont back, will have to weigh that risk in the balance but the scales are heavily tipped. On one side is the kudos and influence on offer at Westminster for the next three years of the Conservative mandate; on the other, a northern Assembly that may never return.
Of course there are bigger risks to consider than the timescale for restoring devolution.
With no Commons majority for any form of Brexit, the likeliest outcomes ahead are no deal or no Brexit.
The DUP does not want the hard Brexit a no deal would involve and has consistently said so, but that has become the implication of demanding withdrawal without the backstop.
Renewing the confidence-and-supply agreement around this demand, as the party is politically trapped into doing, means it will appear instrumental in pushing for no deal and will get the blame for that outcome or no Brexit, either of which will place the union under strain, as the latter will antagonise nationalist England.
The DUP has been criticised for overplaying its hand by trying to kill the backstop. That is nothing to how badly it will have overplayed its hand if it succeeds

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https://www.telegraph.co.uk/business/2019/05/23/fed-warns-will-not-ride-rescue-wall-street/

The Fed has spooked markets with an ice-cold warning

 Fed Chief Jerome Powell has a difficult decision to make   
•   Ambrose Evans-Pritchard
23 May 2019 • 7:21pm
The US Federal Reserve has sent markets a sobering message. It will not bail out the Trump administration as the trade war expands; nor will it come to the rescue quickly if Wall Street wilts.
The proverbial “Fed Put” is a long way out of the money at this juncture. The outlook for the US economy will have to take a nasty turn before the Powell Fed cuts interest rates or halts quantitative tightening altogether.
“The hurdle for cuts is very high,” said Tom Porcelli, US strategist for RBC Capital and a former Fed official.
The Fed minutes released late on Wednesday are something of a shocker for investors who thought they had a monetary comfort blanket for the rest of this year. Futures contracts show markets have been pricing in 50 basis points of rate cuts.

The text revealed that “many” members of the voting committee had dismissed the recent soft patch in inflation as “transitory” and largely caused by “idiosyncratic factors”. This amounts to a warning by the world’s hegemonic central bank that it may raise rates. It is an ice-cold douche for fragile markets.
Markets reacted with alarm yesterday. The Dow Jones fell 1.6pc and the S&P 500 slid by 1.7pc. The US dollar index (DXY) climbed to a two-year high of 98.2. This has set off further tremors through Asian bourses already reeling from the contraction in global trade.
The Shanghai composite index is now down 15pc from highs just a month ago. The MSCI index of emerging markets is off almost 11pc. Secondary fallout is starting to reach Europe. “A rising dollar tightens global funding conditions,” said Hans Redeker and Gek Teng Khoo from Morgan Stanley. Offshore dollar loans and bonds have reached $12 trillion (£9.5  trillion) with further liabilities hidden in derivatives, according to the Bank for International Settlements.
Morgan Stanley said it is “increasingly bearish” as dollar liquidity dries up, warning financial markets have become unhinged from fundamentals. It has advised clients to retreat to the safe haven of the Japanese yen.


Much of the dollar debt is owed by Asian, Latin American, and Middle East corporations. It is often on short-term maturities – typically three months – and has to be rolled over at a higher cost on offshore funding markets as the dollar creeps up. The Fed’s broad dollar index is testing a 17-year high.
“We are going to get a crisis and when that happens the capital flows will reverse,” said William White, the BIS’s former chief economist. “It reminds me of what happened in 2008 to 2009 when European banks were financing long-term assets in the US with short-term dollar debt. They had a huge liquidity problem. This time the trouble is in Asia, and I am afraid that Asian banks might have to sell a lot of assets in fire-sale conditions.”
The Fed saved the day in 2008 by extending emergency dollar liquidity to fellow central banks through swap lines. “It is not clear whether Trump and Congress would let the Fed do that again,” said Prof White. “They think it is lending trillions to untrustworthy foreigners.”

What is raising eyebrows is the continued fall in the Chinese yuan. It has been sliding relentlessly over the last three weeks as relations between Washington and Beijing reach rupture. The yuan hit Y6.92 to the dollar yesterday. The Chinese authorities have defended this level in past episodes but there is concern this time that they may let the exchange rate break through the psychological line of Y7 – perhaps judging it too risky to squander foreign reserves trying to defend the currency. China’s $3 trillion reserves are not as big as they look under the International Monetary Fund’s adequacy rule.
Hong Kong regulators say foreign funds have been withdrawing money from the Chinese mainland at a torrid pace through the Shanghai-Hong Kong Connect pipeline. The net exodus has been $42bn (£33bn) so far in May. “Steady inflows have converted into sharp outflows,” said Mr Redeker.
Chinese companies have also been scrambling to raise dollars pre-emptively to cover $900bn of hard currency debt.
It is possible that China is orchestrating a stealth devaluation in order to claw back trade competitiveness and retaliate against the US. Any evidence that China is deliberately steering down its currency would further enrage US president Donald Trump.
Mr Redeker said such manipulation is highly unlikely. Beijing was traumatised by the exchange rate scare in 2015-2016 when the People’s Bank burned through $1 trillion of reserves trying to hold the line. The authorities will probably defend the exchange rate aggressively if turbulence sets in.

Mr Porcelli said the Fed is right to take a tough stand on rates. It is faced with “super tight labour markets” and capacity constraints in the US. There is a risk that cost-push inflation will become lodged in the system. The Fed may have to raise rates regardless of mounting stress in the rest of the world.
Yet the voting committee is starkly divided. Doves fret that the greater danger is a lurch downwards for the economy as Mr Trump’s fiscal stimulus fades and the profit cycle rolls over.
They fear a repeat of mistakes made last December when the Fed misjudged the severity of the global trade slowdown and raised US rates into the teeth of a market squall. The Fed was quickly forced to make the most dramatic policy about-turn since the late Nineties.
The US data is sending a blizzard of mixed signals, as often happens at key turning points in the cycle. Consumer optimism is running high and truck tonnage soared 7.4pc in April.
Yet trade wars have begun to hit capital expenditure by companies. Major appliance shipments in the US fell 17pc last month from a year ago, comparable to falls seen during the onset of the subprime crisis in 2008.
Fed chairman Jay Powell has a treacherous judgment call to make. Nobody ever said central banking was easy.