Beaufort Analysis No. 244 – Kicking the can down the road…

Brexit negotiations have showed no further signs of advance in the last few weeks. Whilst initial discussions lead us to believe that a divorce bill would be agreed first, David Davis, the UK’s chief negotiator, is pressing for their EU counterparts to recognise that future trade relations are impossible to separate and should be broached earlier. It is now unlikely that sufficient progress will be made by October, when trade talks were due to begin. The UK government have been widely criticised by EU officials for delaying discussions and it is thought that trade negotiations will be pushed back to December. UK markets remained resilient in the face of this continued uncertainty; the FTSE All-Share has returned +0.90% during August thus far and closed in positive territory as we approached the bank holiday weekend. 

The Jackson Hole symposium took place last week and is one of the longest standing central bank conferences in the world. The event brings together US government representatives, academics, economists and the media to discuss long-term policy issues of mutual concern. Over the last decade the importance of central banks has grown significantly; especially The US Federal Reserve (The Fed) and Europe’s ECB who initiated quantitative easing (QE) to stabilise markets and subsequent tapering, when markets and economies demonstrated signs of sustained recovery and growth respectively. Chairman of The Fed, Janet Yellen and President of the ECB, Mario Draghi are headline speakers at this years symposium and what many are hoping to garner from their speeches, is how they plan to negotiate the economic landscape, given the elevated levels of debt in both the US and Europe. It is worth noting that whilst both are effected by debt, the circumstances are different. The US have tapered but must avoid a policy misstep in terms of increasing rates too quickly, this could have a knock on effect to US asset prices, which the market generally perceives as well valued. Europe is still in the process of tapering which must be completed before the ECB can return to normalised monetary policy. However, akin to Brexit negotiations, neither Yellen or Draghi provided a roadmap as to how these objectives might be achieved, instead, both remonstrated what has worked well during the preceding years. Leaving many questions unanswered, we believe that central banks will remain dovish on monetary policy in the near-term.

It appears from Brexit negotiations to global economic symposiums that policymakers are in a state of inertia. However, with the spectre of the two-year Brexit deadline looming, the can cannot be kicked down the road forever.