BREXIT: PAINFUL NEGOTIATIONS WITH A MODEST RESULT AHEAD

In a recent high level meeting, PM Johnson notified the EU that the UK will not ask for an extension of the Brexit transition period. In accordance, he opted to forego the end of June deadline. This decision does not come as a surprise.

Highlights:

  • The UK deliberately missed the end-June deadline to seek an extension of the Brexit transition period. Thus, by the end of this year at least a rudimentary agreement will be necessary or trade will fall back to WTO rules.
  • Both sides agreed to intensify stuck talks. The stalemate is due to opposing underlying views: While the UK sees its Brexit dividend in breaking free from EU rules, the EU fears that the UK will undercut its regulations to get a competitive advantage. The implementation of the Northern Ireland backstop could also further complicate talks.
  • We see a (weak) compromise still more likely than not as a hard Brexit shortly after the Corona crisis would be detrimental to both parties, and most so to the UK. However, both sides need to substantially move which is by no means guaranteed.
  • Chief EU negotiator Barnier issued a deadline for a deal by end-October in order to get it ratified by year-end. PM Johnson is pushing for much progress to be done in July, but we see the “hot” phase to truly start after the summer break in August, creating additional uncertainty for markets.

Download the full publication below

BREXIT: PAINFUL NEGOTIATIONS WITH A MODEST RESULT AHEAD

RELATED INSIGHTS

COVID-19 FACTS & FIGURES
According to the IMF’s Managing Director, strong international cooperation on coronavirus vaccine could speed up the world economic recovery and add $9 trillion to global income by 2025. A WHO trial found that Remdesivir, Hydroxychloroquine, Lopinavir and Interferon have little or no effect on hospitalized Covid-19 patients. Gilead Sciences has questioned the findings of the WHO study saying data appeared inconsistent.
INCORPORATING QUANT SIGNALS INTO EU EQUITY SECTOR/STYLE STRATEGY: MAINTAIN A TILT TO CYCLICALS AND VALUE
We present an update of our proprietary equity valuation tool, based on quant models. It provides indications of over- or undervaluation for different sectors and styles of European equities, which is further enriched by our qualitative analysis. Currently, among European equity sectors, financials, energy, telecoms, and autos look undervalued while Pharma, utilities and software appear overvalued.
CHINA’S RECOVERY CONTINUED BUT A BIT SOFTER THAN EXPECTED
China's economic recovery continued in Q3 2020, although a bit softer than expected. Real GDP growth rose to 4.9% yoy, slightly below the Reuters consensus expectation of 5.2% yoy, but still a substantial upturn from the 3.2% yoy in Q2. On a quarterly base, growth dynamics softened to 2.7% qoq, after 11.7% qoq and -10% qoq in the two previous quarters.