January 27, 2017: Japanese Prime Minister Shinzo Abe said that he would keep pitching a multinational trade pact that US President Donald Trump’s administration has vowed to exit. Abe added that he would like to strengthen US-Japan ties as the new administration takes over.

“I believe President Trump understands the importance of free and fair trade. So I’d like to pursue his understanding on the strategic and economic importance of the TPP (Trans-Pacific Partnership) trade pact,” Abe told a session of parliament’s lower house.

Donald Trump took office on January 20 and his new administration’s strategy is to protect American jobs, which would start with the withdrawal from the 12-nation Trans-Pacific Partnership (TPP) trade pact.

Trump signed an executive order in the Oval Office pulling the United States out of the 12-nation TPP. “We’re going to stop the ridiculous trade deals that have taken everybody out of our country and taken companies out of our country,” the President said as he met union leaders in the White House’s Roosevelt Room. “Great thing for the American worker,” Trump said as he signed the order on his third full day in office. The Republican says the trade deal would have damaged US manufacturing.

The TPP has been signed by America but is yet to be ratified. On the other hand, Japan has already ratified the TPP while New Zealand is in the process of completing domestic procedures for the pact. During his campaign Trump sparked worries in Tokyo and the rest of the Asia-Pacific with comments which included a pledge to make allies pay more for the security provided by US forces and opposition to the TPP trade deal.

“The Japan-US alliance has been is and will be the cornerstone of our country’s diplomatic and security policies. This is an immutable principle,” Abe said in his policy speech at the start of the regular parliament session. “I am aiming to visit the United States as soon as possible to further fortify the bond of alliance together with new President Trump.”

Trump is also in the process of renegotiating the North American Free Trade Agreement (NAFTA) in an attempt to make it more favourable for America.

Neighbour Mexico is preparing to discuss changes to trade rules about a product’s country of origin to try to avoid a disruptive fight with the United States over commerce. Mexico sees possible common ground with US President Donald Trump on the ‘rules of origin’ of the NAFTA that binds the two countries and Canada.

Rules of origin are regulations setting out where trade products are sourced from. Although formal negotiations about NAFTA have not begun, the rules could eventually be altered to favour US industry over competitors from outside North America, particularly in Asia.

During his electoral campaign, Trump expressed his strong desire to scrap NAFTA as he felt that the agreement was much more beneficial to other parties and not the US.

Mexican President Enrique Pena Nieto planned a visit to the US to discuss these developments. However, on Thursday Trump asked his Mexican counterpart to stay at home if Mexico is not willing to pay for the wall along their border that the US President plans to build.

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Housing Minister Gavin Barwell said the project is part of the government’s pledge to build 400,000 new affordable homes.

Work will begin early this year and will be available to buy from 2018. The project is designed to boost housing stock quickly to help tackle a shortage of homes.

May has promised to focus her efforts on helping those who are ‘just about managing’ to make ends meet, and those who are struggling to get on the property ladder or save enough for a deposit.

“This first wave of partnerships shows the strong local interest to build thousands of starter homes on hundreds of brownfield sites in the coming years. One in three councils has expressed an interest to work with us so far,” said Barwell.

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IFM Correspondent

November 24, 2016: European Parliament leaders told London’s Brexit negotiator on Tuesday that Britain should expect to be shut out of cooperation in areas it values once it leaves the European Union.

David Davis met Guy Verhofstadt, the EU legislature’s lead Brexit negotiator, and Manfred Weber, a conservative ally of German Chancellor Angela Merkel who leads the biggest bloc in the parliament.

The meetings are part of preparations before Prime Minister Theresa May starts negotiating in March under Article 50 of EU treaty.

Weber voiced impatience with a lack of clarity from May on what she will ask for.

He said a suggestion from Davis that Britain remain in or closely tied to the EU’s single market while rejecting free immigration by Europeans or the oversight of EU courts was not workable.

“Brexit means Brexit,” he said in Strasbourg, echoing May’s famously opaque definition of what her government will ask for following the June referendum vote to leave the Union.

“I see a British government that keeps saying where it wants to cooperate closely and not how it wants to leave the European Union,” he told reporters after meeting Davis.

He said Davis voiced an interest in maintaining economic ties and also close cooperation in areas such as justice and criminal affairs.

“So I must stress again: Brexit means Brexit, that means leaving the European Union, that means cutting off relations … and not cherry picking, not special relationships,” Weber said.

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IFM Correspondent

November 9, 2016: Most of India is confused and in a state of panic after Prime Minister Narendra Modi announced on November 8 that 500 and 1000 rupee notes will no longer be accepted as legal tender. They will be replaced by new currency of Rs 500 and Rs 2,000 denominations.

The move is a bold initiative by the government to fight corruption, counterfeit currency and unaccounted money.

The Reserve Bank of India (RBI) cited the abnormal rise in fake currencies of higher denominations and also high denominations facilitating black money circulation as the reasons for the move. India is cash based economy and this measure needed to be taken to control the rising incidence of fake notes and unaccounted money.

RBI governor Urjit Patel assured Indians that there has been no breach in security of the existing notes, but the fake notes in circulation look similar and could be difficult to identify by untrained eyes.

The announcement took India by surprise. However, the RBI had six months to prepare for this task. The information was kept highly confidential with only the finance minister and four senior officers aware of what was to come.

The implications of this announcement are huge. The people who will be affected the most are those who have hoarded money avoiding taxes and terrorists who are circulating fake currency. But even the general public will have to suffer on account of this move as they might not be able to meet their immediate needs.

Demonetisation of 500 and 1,000 rupee notes will compel people into using legal channels and consequently increase the amount of taxes in the hands of the government.

Arundhati Bhattacharya, chairman of the country’s largest lender State Bank of India, said demonetisation of high value notes won’t be a problem as the bank has done it before. “We have just now been advised of the government move to demonetise the current series of Rs 1,000 and Rs 500 notes. We have handled demonetisation earlier and will do so again,” she stated.

As a result of this ban, there has been a rise in the use of plastic money and a surge in demand for gold. Venkatesh Babu, owner of Venkateshwara Jewellery explains, “Many people now have more confidence in gold, which is driving up the demand of the precious commodity. People will start buying gold ornaments.”

The general consensus among businesses and bankers is that this measure will be beneficial to the economy in the long run, but might cause inconvenience to Indians in the next few days.

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IFM Correspondent

November 8, 2016: The Greek economy is recovering and stabilising after emerging from a six-year crisis. It is a crucial time for Greece and the world is closely watching every move.

At the EU-Arab World Summit held in Greece in early November, Prime Minister Alexis Tsipras accentuated the role of Greece as a pillar of peace, stability and security in the region. He pointed out that Greece is “a country with strong historical, cultural, economic and diplomatic ties with the Arab world (and) has been the port and bridge between Europe and the Middle East.”

The summit drew government representatives from the EU and several Arab countries, 15 investment funds, and more than 40 companies and financial institutions of the Arab world.

Mr Tsipras pointed out that Greece is strategically located and also noted the historical bonds linking Greece with the Arab world. Greece is ‘a country that systematically promotes, within the European Union and NATO, cooperation with Arab countries’.

He went on to explain how Greece is creating an environment that is ideal for investment by protecting investor interest of Arab participants in various sectors, as well as introducing pro-growth and business friendly reports. A new investment law has been introduced for this purpose, which will stabilise taxes and create smoother processes for permits.

“Greece is returning to growth,” Mr. Tsipras said.

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Don Smith

October 27, 2016: Despite a run of better than expected UK economic data since the Brexit vote – including 0.7% second-quarter expansion, beating estimates – financial markets are increasingly concerned about the outlook for the country’s economy and its currency.

This can be seen most dramatically in the sterling’s plunge on the foreign exchanges, which shows little sign of abating. On a trade-weighted basis, the pound declined 15% between the June 23 referendum and October 12, while it has moved from 0.76 to 0.90 versus the euro over the same period.

Some bounce back from this sharp slide appears likely, but there’s little doubt that the sterling’s underlying trend remains firmly downwards.

Although the UK economy should steer clear of recession, the anticipated broader effects of Brexit may soon become more evident. As a result, growth is expected to slow next year.

Consequently, the Bank of England (BoE) may cut interest rates further to provide additional support. The next move would likely be a decrease to 0.1% (from 0.25%), but this might not occur until mid-2017.

With interest rates already so low, and an uncertain path ahead for the economy, the BoE will exercise caution when deploying the dwindling number of arrows in its quiver. It will therefore likely attempt to influence interest rate expectations ahead of any actual move, continuing to issue a very dovish message to the markets.

While inflation is expected to keep rising, the BoE will continue to regard this as a short-term phenomenon, which doesn’t challenge the longer-term low-inflation outlook.

At the same time, the sterling’s steep fall was largely unexpected. The pound is being driven by psychological forces, technical moves and speculative reasoning, all of which can be especially volatile and therefore very hard to predict.

The significance of the UK’s decision to leave the EU, and very likely the EU single market, is immense. According to leaked Treasury documents, a so-called ‘hard Brexit’ could cost the UK up to €73 billion annually, leading GDP to underperform by as much as 9.5% in the coming 15 years.

It’s worth noting that the economy is highly dependent on trade and that, in contrast to the euro, the pound operates without the protection of a solid current account position. With the potential to fall a further 5-10%, sterling is thus left hugely exposed as we move into a period of major change for the UK’s network of trading relationships.

As far as its impact on the domestic economy is concerned, this is something of a double-edged sword: good for exporters but bad for consumers, whose spending power will likely weaken due to the effect of a short-term burst of higher inflation as import prices increase.

While there may be a backdrop of solid economic data, sterling remains vulnerable due to the current account position of the UK, which runs a deficit of about 7% of GDP – by far the largest in the G20 and, historically, the largest on record.

This deficit reflects, in the simplest terms, the fact that importers have to sell sterling in order to acquire the foreign currency that pays for goods and services sourced overseas.

As a result, a huge amount of sterling flows into foreign currency markets due to the sheer volume of UK imports in relation to exports. This, in turn, makes sterling’s value in the foreign exchange markets heavily reliant on the purchase of UK financial assets by overseas investors, who have to then swallow the loss.

Without these purchases, the value of sterling would fall even further. BoE Governor Mark Carney aptly captured this sense of vulnerability in his pithy comment about sterling relying on the ‘kindness of strangers’.

Sterling consequently now appears more vulnerable than any other major currency to investor sentiment.

In search of reasons for the pound’s recent plunge, the early October announcement by Prime Minister Theresa May that Article 50 of the Lisbon Treaty would be signed by the end of the first quarter of 2017 surely helped focus investor sentiment on the actual exit event.

Brexit now looks likely to happen no later than the second quarter of 2019 – although, subject to agreement with the rest of the EU, the deadline could conceivably be extended. Given the current rhetoric from key EU politicians, however, there are few signs that the bloc’s attitude to negotiations will soften.

It’s little wonder that markets are increasingly fearful.

Indeed, sterling’s recent plunge may prove just a harbinger. Today, the UK could well be enjoying the relative calm before the real storm that lies ahead.

Don Smith serves as London-based Chief Investment Officer at Brown Shipley, a member of KBL European Private Bankers. The statements and views expressed in this document are those of the author as of the date of this article and are subject to change. This article is also of a general nature and does not constitute legal, accounting, tax or investment advice.

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Lewis Crofts and Matthew Holehouse

October 20, 2016: Before UK and EU officials get down to the detailed work of unpicking laws and drafting the transitional measures to govern Brexit, they may first have to deal with the €40 billion the UK should pay into EU coffers to serve out its time as a full EU member.

The money is expected to become a negotiating chip with UK officials under pressure to curtail payments to a club it will no longer be a member of.

UK premier Theresa May is planning to start formal exit talks by the end of March next year, triggering two years to negotiate divorce terms. Those talks will have to resolve questions over UK businesses’ continued access to the EU market and restrictions on the movement of EU citizens on British soil.

Curbing immigration and ensuring full market access are often presented as a trade-off, forming the main axis to the negotiations. More of one means less of the other. But this misses the point.  A much more incendiary area will be the outstanding bill the UK has to pay.

MLex understands officials are working on a figure of potentially €40 billion covering the period to the end of 2019, when the country is expected to leave the union.

EU leaders have stressed that during negotiations, the UK will remain a full EU member, enjoying the same rights and being subject to the same obligations as other states. This clearly means it must pay its bills.

But in reality, the UK government could put the budgetary contributions at the forefront of negotiations, in the hope of gaining leverage. At least, that’s what Brussels officials are expecting.

The EU will be keen to obtain the funds, but May will come under public and political pressure to scale back payments.

According to a ‘landscape’ assessment from the EU’s Court of Auditors published in November 2014, the EU’s ‘debts’ — comprising undelivered spending commitments, purchases and staff pensions — ran to €326 billion. The spending is not covered by the current seven-year budget.

The UK’s contribution to the total EU budget is 12.3 percent, which puts its share at €40 billion.

There are two clear types of payment at stake: one to settle its outstanding liabilities up to the end of EU membership, and another that may feature future payments after Brexit.

The latter could cover the costs of access to the EU’s single market or the UK’s continued participation in certain European programs for, say, research and development or regional support.

In reality, negotiations are likely to blur the distinctions between those two pots.

A central plank of the Leave campaign in the referendum was the claim that EU membership cost UK taxpayers £350 million a week. Leaving the EU would mean UK ministers could themselves choose how to spend this money, the Leave camp argued.

To date, Theresa May and her ministers have conspicuously said nothing about whether the UK will continue to make payments to the budget.

Asked about budget payments, May’s spokeswoman said she would not give ‘a running commentary on all the minutiae’ of the negotiations, which will cover ‘a whole range of issues and angles to our relationship’.

But given the Leave campaign’s spending promise during the referendum, the prospect of continued payments of any size into EU coffers after Brexit could be politically unpalatable for many pro-Leave lawmakers.

May’s spokeswoman said that a pre-condition is that ‘the decisions on how British taxpayers’ money is spent should be a decision for the UK’.

That may leave on the table a scheme like Norway’s. Oslo pays billions into social reform and climate schemes in eastern and southern Europe as an entry fee for access to the single market. Unlike normal EU spending, however, the schemes are directly approved and audited by Norwegian officials.

And if the UK is prepared to pay its €40 billion bill, or commit to continued payments into some EU programs, it could win some leverage in exit negotiations.

Spending under the EU’s seven-year budget is pushed to its upper limits, with the migration crisis and terrorism producing lengthy bills. The hard truth is: Brussels needs the money and the UK is one of the largest net contributors to the EU budget.

Lewis Crofts and Matthew Holehouse are from MLex, the regulatory newswire

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October 11, 2016: Falcon Private Bank, a Swiss private banking boutique with 50 years of expertise in wealth management, has lost its banking licence in Singapore as a fall-out of the 1MDB case.

The Swiss Financial Market Supervisory Authority (FINMA) and the Monetary Authority of Singapore (MAS) have completed their investigation around Falcon Private Bank’s involvement in the 1MDB case and have notified the bank about their decisions. The investigation was into allegations of misappropriation from Malaysia’s state investment fund 1Malaysia Development Bhd (1MDB) and that the money made its way into Malaysian Prime Minister Najib Razak’s personal bank accounts. Prime Minister Najib Razak and the 1MDB have denied any wrong-doing.

Falcon Private Bank was among those embroiled in the scandal along with several other institutions and individuals. Falcon Private Bank and its shareholder Aabar have welcomed completion of the investigation. Since 2013, the bank has further enhanced its compliance, invested in additional resources as well as reviewed the organisational setup and relevant processes. Furthermore, based on the findings of the regulators, Falcon Private Bank has initiated additional measures to prevent future issues.

With its committed staff, strong capital base and high liquidity ratio, Falcon Private Bank will now concentrate on further growing its franchise. The bank provides financial services to private clients and wealthy families from its headquarters in Zurich and locations in London, Singapore, Abu Dhabi and Dubai.

But now, its Singapore banking licence has been withdrawn. The bank is currently in contact with employees, clients and partners and is committed to finding optimal solutions for all parties involved and guaranteeing an orderly winding down of the Singapore operation.

Walter Berchtold, Chief Executive Officer of Falcon Private Bank, said, “We have been in close collaboration with the regulators and welcome that the 1MDB case has been closed with the regulators. Falcon Private Bank adheres to all rules and regulations, is well capitalised, enjoys a strong balance sheet and the full support of our shareholder Aabar. The bank will now focus again on growing our businesses in the core locations Switzerland, Middle East and London. We are highly confident of our expertise to create a long-lasting, positive customer experience.”

Murtadha M. al Hashmi, Chairman of the Board of Directors, added, “I am pleased that the 1MDB chapter could be settled and very confident that the bank will develop positively on its way to long term growth. Aabar, as shareholder of the bank, remains fully committed to supporting Falcon Private Bank on this future path.”

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Suparna Goswami Bhattacharya

September 26, 2016: Though talks of the adverse after-effects of Brexit have been going on for a while, things have not been as bad for the country as was predicted, at least for now. In fact, the adverse impact in the short term has been lesser than initially feared.

Markus Kuger, Senior Economist, Dun & Bradstreet, expects the British economy to continue to grow throughout the 2016-18 period as the underlying pillars of growth remain intact.

“At the moment, the British economy is more price competitive in global markets, thanks to the depreciation of the pound. Hence, it does not come as a surprise that businesses selling abroad are doing well. However, the fact is that UK currently is still in the EU and if it were to lose access to EU markets, the introduction of tariffs and other regulations could counterbalance this development,” he says.

The UK economy will get a further boost on the policy front from the Bank of England (BOE). The BOE’s move to cut back interest rate alongside reviving quantitative easing and other measures will help the economy chug along for a while, says Howard Archer, Chief European and UK Economist, IHS Global Insight. “On the fiscal front, some stimulus measures will likely be announced later in 2016 now that the government has dropped its plans for a fiscal surplus by fiscal year 2019/20. This could include increased infrastructure spending,” remarks Archer.

In fact, London continues to enjoy its position as the preferred destination for businesses. A recent study by PwC states that London has maintained top spot as a centre for business, finance and culture — widening its lead over 30 international cities. London’s success is consistent across all of the indicators — city gateway, economic clout, intellectual capital and innovation categories, and technology readiness. There are ample reasons why London will not relinquish its financial hub status overnight. These include English language, the time zone, the pro-business and well organised regulatory environment, a relatively stable economy, efficient transport infrastructure, office space availability and its cosmopolitan and desirable lifestyle.

However, experts warn that the ambiguity surrounding the new rules and regulations post Brexit is hampering London’s image. “Financial services companies can’t afford to wait for negotiations to complete. They have to plan their strategy to develop their European operations,” opines Nigel Green, founder and CEO, deVere Group. There is a fear among UK banks of losing their passporting rights, which will mean that they would need individual country licences in order to operate in the EU.

While large scale redundancies are not expected, there will definitely be gradual downscaling in London with expansion occurring in Frankfurt, and the new emerging hubs like Dubai. Negotiations are also not expected to settle soon.

“The EU refuses to hold informal talks before Article 50 is invoked and negotiations won’t begin until early next year. Both the UK and EU will have two years of limbo with the outcome largely unknown,” says Kuger.

Article 50 of the Lisbon treaty sets out how an EU country might voluntarily leave the union.

There will also be vast political uncertainty with the parliamentary elections due in France, Germany and Holland, to name just a few.

Kuger adds that the EU will not allow the UK to have their cake and eat it too. The situation for the EU is easy – access to the single market is impossible without the UK agreeing to free movement.

“The UK on the other hand faces a tough balancing act: they cannot have access to the single market while also restricting migration. While it’s in the EU’s interest to maintain and continue trading with the UK, the EU holds the upper hand in the upcoming negotiations,” feels Kuger.

The EU is transparent in saying that you can’t cherry pick between passporting rights and free movement of labour. If the UK does not want unlimited migration from the EU, it cannot have financial passporting rights.

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Suparna Goswami Bhattacharya

September 15, 2016: Recently, the German economy minister had remarked that Britain must not be allowed to ‘keep the nice things’ that come with EU membership without taking responsibility for the fallout from Brexit. In fact, he warned that if the issue is not handled properly, other members in the European Union may follow Britain’s lead.

“If we organise Brexit in the wrong way, then we’ll be in deep trouble, so now we need to make sure that we don’t allow Britain to keep the nice things, so to speak, related to Europe while taking no responsibility,” Sigmar Gabriel had said.

Economists agree with him. Since the June 23 referendum, all eyes have been on Germany to figure a way out for other members of the EU.

Jan Hatzius from Goldman Sachs says that France, the Netherlands, and the Czech Republic are already clamouring for referenda of their own. If Brexit proves less painful than expected, this might make Frexit, Nexit, or Czexit look more appealing. “In turn, such campaigns could raise renewed questions about the future of the Euro area that might necessitate much more aggressive ECB intervention,” says Hatzius.

Danae Kyriakopoulou, head of research, Official Monetary and Financial Institutions Forum (OMFIF), says, “Gabriel’s remarks echo the sentiment of many European leaders who want to avoid a situation whereby the UK is allowed to keep those parts of the EU arrangement that suit it without making any concessions in return. Such an approach would set a dangerous precedent for the cohesion of the EU and the future dynamics within the union.”

UK Prime MInister Theresa May is not likely to begin talks with EU before the end of the year. EU leaders do not want to give Britain the freedom to choose what it wants, like access to the bloc’s single market of 500 million consumers, while dispensing with EU principles, such as the free movement of people.

German Chancellor Angela Merkel’s receding power further complicates the European Central Bank’s growth policies and strengthens Britain’s negotiating leverage in the psychological and economic battle over the UK’s European Union withdrawal. The anti-immigration, anti-euro Alternative for Germany (AfD) forced Merkel’s ruling centre-right Christian Democratic Union into third place in elections in the eastern state of Mecklenburg Vorpommern.

Merkel’s humiliation in her electoral home region, especially the rejection of her liberalism on refugees, gave victory to the Social Democrats, the chancellor’s Berlin coalition partner, who are gearing up to oppose her in next autumn’s general election.

Kyriakopoulou says euro-scepticism across Europe will play a very important role in shaping the EU’s attitude towards the UK in the Brexit negotiations. “This is particularly the case in Germany and France, with the clouds of the Alternative for Germany (AfD) and the National Front hanging over the forthcoming elections in the two countries in 2017,” she says. And, the rise of euro-scepticism is probably going to strengthen Britain’s negotiating hand. Results of the local election in Germany show voters want EU reforms, including immigration curbs, adds Kyriakopoulou.

David March from OMFIF states that Merkel’s defeat provides Theresa May with a chance to warn European leaders that they will be dislodged by voter unrest unless they bring in reforms, including immigration curbs.

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