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Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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RBS falls 2% after failing BoE stress test

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China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Categorized | Financial

Theresa May’s pre-Brexit split with City

Posted on October 4, 2016

Theresa May, U.K. prime minister and leader of the Conservative Party, listens to speeches on the second day of the party's annual conference in Birmingham, U.K., on Monday, Oct. 3, 2016. Business groups and foreign capitals pressed May for more detail after she said she'll start pulling the U.K. out of the European Union in the first quarter of 2017, and hinted that she's tending toward a so-called hard Brexit. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

EC2, we have a problem. City delegates stranded on Planet Tory for the duration of the party conference report the atmosphere has turned toxic. New Conservative administrations usually swing out of big business’s gravitational pull, returning later. However, the settlement this government reaches with Europe over the next couple of years may endure for many years.

That creates difficulties for the UK’s financial services sector. Lobbyists lost in the deep spaces of Birmingham’s convention centre believe Theresa May and her ministers will cut no special deal for the City during Brexit talks. As a result, banks, brokers and insurers could lose streamlined access to the single market, reducing exports to the EU that stood at a net £14bn in 2014.

    David Cameron and George Osborne went in to bat for the City in Europe even when the City did not want them to. Their hostility to banks reflected expediency and internecine sympathy for hedge funds. Mrs May and new chancellor Philip Hammond are different. They identify with small businesses based in Maidstone rather than Mayfair.

    You cannot blame Mrs May for ignoring special pleading from the Square Mile and the corporate sector. Big business’s lack of influence was painfully revealed when the electorate ignored its prophecies of economic doom and voted to leave the EU.

    Post-referendum demands from City grandees for the government to guarantee full access to EU markets show they remain out of touch, critics say. “The government is unmoved by the fear that a relatively small number of people will end up with relatively smaller yachts,” says one Tory spinner. Staunching immigration matters more to Mrs May. That will win her credit with the Tory right and voters. She knows invoking Article 50 by March will weaken her hand in Europe, as foreshadowed by the plunging pound. But it will demonstrate her resolve.

    One City lobbyist predicts subsequent Brexit talks could resemble an “antitrade negotiation” in which each side bids up regulatory barriers as the two-year exit deadline looms. The worst outcome for manufacturers is that exports to the EU are governed by default World Trade Organisation rules. In financial services, market access could be lost altogether.

    Mrs May should adjust her priorities. There is no shame in showing a comparative preference for the one sector in which the UK wields comparative advantage. The City’s clustering effect makes it strong, not invincible. Mrs May is often compared with Margaret Thatcher because she is a woman. She should beware lest history judges there is another parallel. Mrs T’s policies hollowed out manufacturing. Mrs M must not do the same to financial services.

    Trade FX like a CEO

    The internet is awash with adverts urging the public to “trade forex like a pro”. The real winners from the slide in the pound are not day traders, though. They are bosses of large UK-quoted businesses, who stand to make millions if bonus schemes pay out in response to surging share prices.

    That depends on the stock market continuing to play keepy-uppy. On Tuesday the FTSE 100 closed at 7,074, almost 14 per higher since the new year. The main propellant was a fall in sterling to a 31-year low in response to expectations of a hard Brexit, driving up shares in businesses with hefty dollar earnings. Stimulatory monetary and fiscal policies are also responsible, according to Panmure’s Simon French.

    Company bosses cannot claim any credit. Yet their long-term incentive plans are typically configured to deliver ”rewards” when total shareholder returns or earnings per share beat set targets, Manifest research shows. Bosses may thus benefit from a translational increase in profits earned in dollars but expressed in pounds. Companies where this might apply include BAT, Reckitt Benckiser and Vodafone.

    Ironically, a government determined to rein in executive pay may have inadvertently given fat cats an extra helping of sardines.


    We are in the thick of the non-reporting season for the Big Four accountants. Deloitte revealed almost nothing about its performance last month. PwC and EY are taking their turn this week. KPMG is scheduled not to disclose its earnings in December.

    Sure, multinational abacus rattlers reveal revenues – PwC’s were up 7 per cent at $36bn. They tell us little else, a feat in this era of transparency and accountability.

    The accountants presumably calculate their own profits and tax liabilities as adeptly as those of clients. But as networks of partnerships, they have no obligation to publish them.

    Here, then, is one way smart, highly numerate people get rich and stay that way. Talk eloquently about everyone else’s business. When the conversation drifts towards your own, zip it.