Brexit Deadlock and Investor Uncertainty

Markets welcomed the European Union’s decision in April to push the Brexit deadline back to October 31 in order to provide the UK with more time to reach agreement on the terms of a withdrawal treaty.

The risk that the UK would fall into an unwanted “hard” no-deal exit appeared to be substantially reduced. However, since that decision, there has been virtually no evidence of progress in the talks between the two principal political parties, Conservative and Labour. Political paralysis in London is a main cause of what the head of the European Central Bank, Mario Draghi, has called the “persuasive uncertainty“ affecting European markets. Both parties are severely split between those wishing to leave the European Union and be free of all EU obligations and those wishing to remain a member of the EU or at least be in a close trading relationship, a customs union, along with the obligations that arrangement would entail.

Last week’s local elections in England have shown the voters’ frustration with this situation, with both of the leading parties suffering major losses. The BBC projects that the Conservatives lost 1300 councilor seats and Labour lost 80, whereas the Liberal Democrats gained 700 seats, the Independents 600, and the Greens 194. The wave of rejection rising against the two major parties looks likely to become more evident in three weeks, on May 23, when the UK participates in the election of members to the European Parliament. There will be an important new party contesting in that election, the Brexit Party, which is unconditionally for leaving the European Union. It will attract strong “leave” supporters from Labour and even more from the Conservative Party.

Some three years have slipped by since the referendum vote to leave the EU, yet we are still unsure whether Britain will finally be able to make its mind up by October 31. Many possible developments in the next six months, such as a change in leadership of the Conservative Party, a new general election, or even a second referendum, could affect the outcome. With the nation’s being split on the issue and feelings on both sides running high, a period of political turmoil and continued uncertainty looks likely. If a compromise deal is struck, it probably will be a “soft Brexit” including some form of customs union and perhaps an agreement to follow EU standards on workers’ rights and environmental standards. Should October 31 arrive with no agreed deal, the EU will be faced with the difficult choice of further extending the deadline or permitting the UK to fall into a no-deal “hard Brexit.”

The most important effect of the continuing uncertainty about the UK’s future relationship with the EU is its impact on investment decisions. The British economy is deeply integrated with the rest of the EU, with the UK’s closest trading partners in the EU being Ireland, the Netherlands, and Belgium. The Economist notes that every day “nearly 3,400 lorries are ferried between Rotterdam’s port and Britain.” Finance, direct investment, and migrant labor flows are also important elements of this integration. It is understandable that many firms are postponing investment decisions or in some cases assuming the worst and relocating some operations to other EU countries. The effects on the City of London’s business could be severe. For example, in March the EU regulators announced that if the UK should leave the EU without a deal, European banks and asset managers would have to trade a number of UK stocks, including major ones like Royal Dutch Shell and Vodafone, in the EU rather than in London.

Financial investors also are being affected by Brexit uncertainty. The Financial Times reports that Morningstar’s research reveals that investment funds based in the UK experienced outflows in the 12 months to the end of March totaling 30 billion pounds as investors switched out of UK assets and into EU-regulated products. These flows also included internal transfers from the UK to the EU by several asset managers in order to protect their EU business.

It is not surprising that UK stock prices have been underperforming. For example, over the past three years, when the SPDR S&P 500 ETF, SPY, gained an average annual return of 14.08%, the iShares MSCI United Kingdom ETF, EWU, gained an average annual return of just 4.79%. Thus UK stock valuations are becoming relatively attractive – but only if one does not consider the Brexit risk. The FTSE price/book ratio is now 1.7 times (compared with 3.5 times for the S&P 500) and has attracted the return of some international investors this year. At Cumberland Advisors, however, we continue not to include UK-specific ETFs in our International and Global portfolios because we consider the risks knit into Brexit uncertainties to be too high.

Bill Witherell, Ph.D.
Chief Global Economist & Portfolio Manager
Email | Bio


Sources: Financial Times, Wall Street Journal, The Economist, Goldman Sachs, etf.com, Morningstar


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International Stocks Off to a Strong Start in Q2 Despite a Heavy Fog of Uncertainty

Global stock markets are continuing to advance following one of the best first-quarter performances in years, with the global iShares MSCI ACWI ETF, ACWI, gaining 14.9% year-to-date April 5th.

Cumberland Advisors Market Commentary

That increase includes strong advances in US stocks. Excluding the US market, the gains in international stock markets have also been impressive. The iShares MSCI ACWI ex US ETF, ACWX, is up 12.9% on a total-return basis. This continued equity market strength is occurring in the face of the heavy uncertainty clouding the outlook for the second quarter and beyond. Important issues for investors include the outcome of the convoluted Brexit drama, the US-China trade talks and other trade disputes, and the dimensions of the moderation underway in global economic growth, in particular growth prospects for China, the US, and Germany. Positive outcomes for these issues would validate recent market gains and provide a tailwind to stocks. Downside risks, however, are significant. Until the fog clears, we can expect volatile markets.

We, of course, do not know how these matters will develop, but recently we have noted some favorable signs. The White House and Chinese sources are signaling that a trade agreement between the two countries may result during the coming weeks, with a signing event involving Presidents Trump and Xi looking increasingly likely. Both parties appear to want a deal. This agreement, which President Trump suggests will be “very monumental,” will most likely have to leave some of the more difficult issues to further negotiations. There are other trade disputes that create uncertainties for investors. The administration’s agreement with Mexico and Canada on revisions to NAFTA is under challenge in Congress, and the US and Europe have yet to resolve their trade disputes.

With respect to the economic outlook, concerns about the slowdown in China have been eased by some positive data. The Chinese government’s efforts to stimulate the economy appear to be having productive effects. If the Chinese economy, the globe’s second largest, does manage to advance at a still-robust 6%-plus pace, this momentum will deliver an important boost to the global economy. It would certainly help the largest economy in Europe, Germany, where the recent slowdown is due in part to weakness in exports to China. Concerns about the strength of the US economy, including some predictions for a recession, also appear to be overdone. Recent data suggest continued strength. Another reason for cautious optimism is the accommodative stance of US monetary policy, which is being followed by the world’s other major central banks.

No one knows how the three years of uncertainty since the June 2016 “Brexit” referendum in the UK will be resolved. The situation changes daily, and it now appears that this uncertainty will likely continue for months and maybe longer. The inability of United Kingdom’s politicians to agree how to leave the European Union has already seriously harmed the British economy. Investment decisions have been deferred or redirected. Britain’s reputation as a desirable host for foreign investment has been damaged, and financial institutions are moving staff and operations to other EU countries.

The date of April 12, when the UK could be forced by legal default into a no-deal departure, is getting perilously close. The effects of such a break would likely push the UK economy into recession, and European Union economies would also suffer. Realizing this danger, both sides are seeking to kick the can down the road. Prime Minister May has written to the EU requesting a delay until June 30. She indicates that this postponement will mean the UK will have to prepare to participate in the EU elections on May 23–26 with the provision that the UK could withdraw from the elections if a deal can be finalized earlier.

The European Council president, Donald Tusk, is proposing a much longer extension that would be “flexible” in that the UK could leave earlier if the UK Parliament reaches an agreement on a deal. Any such extension would have to be agreed by all 27 remaining EU members at their emergency summit meeting next Wednesday, April 10th. The EU has said they would need to see some real progress in the UK’s development of a separation deal to be willing to grant an extension. It is looking likely that an extension will be agreed. If indeed significant progress on reaching a deal can be demonstrated, the EU may be willing to agree to the shorter extension requested by the UK. Otherwise, the EU may insist on a longer delay. The possibility of a disagreement on this point presents an additional risk of an unintended no-deal Brexit.

It is difficult to follow the daily developments in the disarray in Britain’s Parliament over Brexit. This is particularly the case for most US readers who are unfamiliar with the UK’s parliamentary system, which is very unlike the US system, even though the inability to reach decisions may sound familiar. The European Union’s political system is also quite different from that of the US. The deadlock in the UK Parliament reflects sharp divisions within both major parties, the ruling Conservative Party and the opposition Labour Party. The lawmakers of both parties in the House of Commons include both strong proponents of leaving the EU (some of whom are willing even to suffer crashing out with no arrangements for what follows) and strong proponents of a “soft” Brexit that involves maintaining a close trade relation with the EU, perhaps in the form of a customs union. Some of the latter would like to cancel the decision to leave. Many would like to see a second referendum held to check the current preferences of the public. Efforts to find a plan that could gain a majority vote have failed, including the plan of Prime Minister Theresa May, which she had negotiated with the EU.

In desperation and against the wishes of some fellow Conservative Party cabinet members, May last week entered into discussions with the leader of the Labour Party, Jeremy Corbyn, attempting to find a compromise withdrawal deal that the House of Commons could support. Following an initial meeting between the party leaders, Conservative and Labour teams are engaged in intensive negotiations aimed at developing a compromise withdrawal agreement that will include a political declaration. It is the latter, nonbinding declaration that might contain the idea of a customs union or a Norway-model option. It may well also contain the idea of a second referendum. If these talks succeed, the plan would be presented to the EU at the Union’s emergency summit Wednesday, April 10th. If there is no progress before the April 10 summit, May will likely be forced to accept a lengthy delay to avoid a no-deal crash-out. Investors and businesses would then face an extended period of continued uncertainty about the UK’s future relations with the EU countries.

Despite the continued uncertainties about the eventual outcome of Brexit, which involves far more complexity than we could summarize above, investors appear to be increasingly optimistic. The iShares MSCI United Kingdom ETF, EWU, is up 2.4% over the past five market days and 15.1% year-to-date April 5th. This performance is better than the Eurozone’s, as the iShares Eurozone ETF, EZU, has gained 13.4%. We are more hesitant with respect to UK stocks at this time. The possibility of a no-deal exit still remains. In addition, the harm already done to the UK economy does not appear to be fully appreciated. The New York Times reports that economists estimate that the British economy is 1.0–2.5% smaller than it would have been without the referendum vote. One can question this analysis, but the 1% decline in business investment expected this year will be evident to all. The financial jobs already lost to Europe will not likely return. The longer Brexit uncertainty persists, the more damage will be done to the UK economy and its reputation. Certainly, a smooth separation process followed by continued strong trade relations would be an important plus for the UK and EU markets, but this outcome is not yet assured.

Bill Witherell, Ph.D.
Chief Global Economist
Email | Bio

Sources: Financial Times, New York Times, Action Economics, cnn.com, BBC News, CNBC.com


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Cumberland CIO Kotok on Where to Invest in the Muni Market

Cumberland CIO Kotok on Where to Invest in the Muni Market

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Cumberland’s Kotok Sees a Need to Expand Uncertainty Premium

Cumberland’s Kotok Sees a Need to Expand Uncertainty Premium

C:\Temp\Cumberland's Kotok Sees a Need to Expand Uncertainty Premium – Bloomberg TV

 

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European Growth Concerns Deepen

The latest economic indicators reveal that the economic slowdown in Europe persists. President Draghi of the European Central Bank (ECB) has underlined the continued weakness, expectations for softer near-term growth, and downside risks. The International Monetary Fund (IMF) has lowered its economic projections for the euro area. Political uncertainties in Europe add to the headwinds affecting investor sentiment.

 Cumberland Advisors Market Commentary by Bill Witherell, Ph.D.

The HIS Markit Flash Euro Area Composite Purchasing Managers’ Index (PMI) , which combines manufacturing and service sector data, fell to 50.7 for January, following a reading of 51.7 in December. The January mark was significantly weaker than the consensus expectation of 51.4. The moderation in the euro area’s economic growth, which began a year ago, is continuing in the first quarter of 2019.

The Flash Composite PMI for France fell unexpectedly to 47.9 because a sharp drop in the services component more than offset a pick-up in the manufacturing component. Conversely, the Flash Composite PMI for Germany recovered slightly to 52.1, following a 66-month low of 51.6 in December. A further decline in the manufacturing component was offset by a stronger performance in the services sector. Adding in the other euro area economies, we observe overall declines in both manufacturing and services PMIs for the region. Manufacturing new orders as well as services incoming new business fell in January.

The IMF, in the quarterly update of its World Economic Outlook, lowered its projection of economic growth in the euro area to 1.6% in 2019. Last fall, their projection was for 1.9% growth. They continue to expect 1.7% growth in 2020. Subdued external demand due to a projected global growth slowdown is one reason for this weaker outlook for the euro area, particularly for Germany. The IMF cites some country-specific factors affecting the near-term outlook: revised auto emission standards in Germany, weak domestic demand and higher borrowing costs in Italy, and demonstrations and strikes in France.

The ECB Governing Council at its January meeting also warned that near-term growth prospects have softened. While markets will have to wait until the Bank’s March meeting for new economic projections, the risk assessment guidance has “moved to the downside.” Mario Draghi, ECB president, said, “We were unanimous about acknowledging the weaker momentum and changing the balance of risk for growth.” The Governing Council cited the continuing uncertainties of Brexit and trade disputes as important downside risks for the region. While the ECB did not announce any change in policy, market expectations for a rate increase later in the year have weakened. On the other hand, a new round of long-term refinancing operations (TLTROs) is looking more likely.

Euro area equity markets have joined in the global equity market recovery in January but are down significantly over the past 12 months. The iShares MSCI Eurozone ETF, EZU, is up 6.0% year-to-date January 25 but is still down 20.5% over the last 12 months. Similarly, the iShares MSCI Germany ETF, EWG, is up 6.3% year-to-date but down 23.7% over the past 12 months. The iShares MSCI France ETF, EWQ, is up 4.1% year-to-date and down 17.2% over the past 12 months. In these and the other euro area markets, the moderation in the euro area’s economic growth appears to be largely priced in. Also, several of the negative factors are likely to prove transitory, including the new emission standards in Germany and the demonstrations in France. While the uncertainties relating to Brexit remain high, the tail risk of a hard or no-deal break of the UK from Europe appears to have been substantially reduced. Positive developments with respect to Brexit and/or an easing of trade disputes with the US would certainly be welcomed by investors. We remain cautious with respect to the euro area in our International and Global portfolios, monitoring developments closely.

William Witherell, Ph.D.
Chief Global Economist
Email | Bio


Sources: Financial Times, Markit Economics, International Monetary Fund, Goldman Sachs Research, BBH Global Currency Strategy


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The Global Economy Moderation & International Equity Markets

As 2018 draws to a close, economic growth in almost all economies, including that of the US, is moderating but is still expansionary and in most cases remains above long-term trends.

Market Commentary - Cumberland Advisors - The Global Economy Moderation and International Equity Markets 

For the year 2018 as a whole, global growth looks likely to be the same as for 2017, 3.7%, with advanced economies advancing at a 2.4% pace and emerging markets at a robust 5% pace. The recent moderation in growth appears likely to continue into 2019, but with annual rates for the year remaining very close to those for the current year. This outcome would be far better than the recession some are predicting. Downside risks, however, are growing.

Global equity markets, particularly those outside the United States, have significantly undershot these relatively benign economic prospects due to heightened uncertainty about a deepening trade war, slower growth in China, the Brexit negotiations in Europe and tighter global liquidity with higher interest rates as central banks around the globe, with the exception of the Bank of Japan are normalizing monetary policy (“withdrawing the punch bowl”). These uncertainties, together with leading indicators signaling slowing economic momentum, have undermined risk appetites, driving almost all international equity markets to painful losses for the year to date. Another factor was the generally elevated valuations at the beginning of the year.

The iShares All Country ex US ETF, ACWX, is down 15.6% year to date December 17th on a total return basis. Eurozone markets, as measured by the iShares MSCI Eurozone ETF, EZU, have lost 18.1%, with the iShares MSCI Germany ETF, EWG, down 23.1%; iShares MSCI France ETF, EWQ, down 14.7%; and iShares MSCI Italy ETF, EWI, down 19.9%. Elsewhere in Europe, the iShares MSCI United Kingdom ETF, EWU, has lost 18.5%; and the iShares MSCI Sweden ETF, EWD, is down a similar 17.5%. Advanced markets in Asia fared better this year. The iShares MSCI Japan ETF, EWJ, is down just 13%, perhaps in part because Japan’s expansionary monetary policy is being maintained. Also, the iShares MSCI Hong Kong ETF, EWH, has outperformed, with a loss of just 10.3%. Similarly, the iShares Taiwan ETF, EWT, is down 13.4%.

As is the case with advanced markets, emerging markets as a group are down some 17.5% year to date, as measured by the iShares MCSI Emerging Market ETF, EEM. Here also there are significant differences among the individual national markets. The economic slowdown in China, due in part to trade difficulties vis-à-vis the US and more importantly to the ongoing domestic credit crunch, is affecting other emerging-market economies. China’s equity market, as measured by the iShares MSCI China ETF, MCHI, fell 18.8%. The iShares MSCI Korea capped ETF, EWY, has lost 22.3%, while the iShares MSCI Indonesia ETF, EIDO, has performed better, losing 13.9%. In Latin America, the iShares MSCI Mexico capped ETF, EWW, has dropped 20%, while the iShares Brazil capped ETF, EWZ, has recovered from a steep fall to end up down only 5.2%.

Looking forward, while the base case economic outlook is for only a modest further slowdown in global growth, the important uncertainties present downside risks that will continue to affect market sentiment. In particular, failure of the US and China to lower trade tensions would have significant negative market and economic effects, as would a failure in UK-EU Brexit negotiations that results in the UK exiting the EU without a deal. The eventual outcome of US negotiations with North Korea is another important unknown. And investors will likely remain concerned about the possibility of a sharper economic slowdown, in particular one coming from slower growth in China. They also are seeking a clearer view of the likely pace of further monetary policy tightening by the Federal Reserve and by the European Central Bank. A positive factor is that the year will start with equity asset valuations that are more attractive than they were last January, due to a combination of price declines and positive earnings growth. Also markets are heavily oversold. If the major downside risks do not materialize, the outlook next year is for modest positive risk-adjusted returns. Close monitoring of developments and selectivity among markets will be desirable.

William Witherell, Ph.D.
Chief Global Economist
Email | Bio


Sources: Goldman Sachs Economic Research, Barclays, Financial Times, IMF, CNBC


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Cumberland’s Kotok Sees ‘Return to Normal’ in U.S. Markets

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Eurozone Equity Markets Face Political Headwinds

Eurozone equity markets have had a difficult year thus far, losing some 13.2% as of November 28, as measured by the iShares MSCI Eurozone ETF, EZU. While a slowing economy and a 6% weakening of the euro offer a partial explanation of the US-dollar return from these markets, a number of political uncertainties appear to have been more important causes.

Market Commentary - Cumberland Advisors - Eurozone Equity Markets Face Political Headwinds

These uncertainties include the outcome of the Brexit process, Italy’s budget conflict with the European Union (EU), trade war concerns, and the recent political turmoil in France and on the Zone’s eastern border, with the dangerous escalation of tensions between Russia and Ukraine. As the year end approaches, these headwinds to investor market sentiment have not eased.

With time running very short, there remains great uncertainty about Brexit. The EU governments have agreed to the draft agreement between the EU and the UK that provides the terms of the UK’s withdrawal from the EU and have indicated that they are not open to making any changes in it. Prime Minister May now has the very difficult task of seeking the approval of the UK House of Commons (one of the two houses of Parliament), which will vote on the subject on December 11. May now finds it necessary to argue against her past statements that no deal is better than a bad deal. She has emphasized that this is the best deal the UK can obtain and would be much better than exiting without a deal next March. However, there is great opposition to the deal from both May’s Conservative Party and from opposition-party MPs, including those strongly intent on leaving the EU, on the one hand, and those strongly preferring to remain in the EU, on the other. The deal, as structured, falls in the middle ground, not fully satisfactory to anyone; but a no-deal break would clearly be very damaging to both the UK and the EU. The Bank of England just released their analysis which indicates a no deal Brexit (a “disorderly Brexit”) would lead to a recession worse than the financial crisis. That possibility may lead some to reluctantly vote for the deal or to abstain. Nonetheless, it appears likely the Commons vote will be negative, if the vote is on the current text. It now appears there will be amendments to that text before the vote. What then will follow is highly uncertain.

Rejection by the House of Commons would leave the government with 21 days to put forward a further revised plan, which would go to a second vote in Commons. Any changes in the original draft agreement would require reopening negotiations with the EU. One amendment suggested as a solution adds a sunset provision to the so-called backstop provision in order to remove the possibility that the UK would be locked into the backstop customs union indefinitely. The most-mentioned proposal for a more extensive renegotiation of the deal is the “Norway option,” which would involve the UK’s joining the European Free Trade Association. But that option has a number of drawbacks: the UK would still have to make payments to the EU, would still have to find a solution to the Irish border issue, and would not gain control over migration.

A Commons’ rejection on December 11 could also very well trigger a challenge to Prime Minister May’s leadership, which could lead to a new Tory Prime Minister. There might also be a general election, which could possibly bring in a Labour government. Labour has had unclear views as to which way to move on Brexit but clearly intends to pursue policies strongly opposed by business. The likely second vote in Commons, either on the current deal again or on a revised arrangement, if affirmative, would then see the measure taken up by the European Parliament. A simple majority there would lead to consideration by the European Council, where approval requires the affirmative votes of 20 countries representing at least 65% of the population.

Should the second vote in the UK Parliament be negative or the agreement be rejected by the EU, the UK would likely exit the EU with no deal on March 29, 2019. But that outcome is not the only possibility. The EU could agree to extend the time limit and continue negotiations despite having said they would not do so. The UK could decide to hold a second referendum on Brexit, a step more likely should the Labour Party come into power following a general election. Another possibility would be a new referendum after the UK exits the EU. A positive vote on rejoining the EU would require agreement by the EU, which would be possible if an exit deal had finally been approved but very unlikely for many years in the case of a no-deal BREXIT. In view of all the various possible outcomes, uncertainty is weighing heavily on investor sentiment.

The budget stand-off between the new Italian government and the EU has escalated. The EU has announced that Italy’s proposed budget is in “particularly serious non-compliance” with previous commitments and EU regulations. This pronouncement signals the likely beginning of the EU’s formal enforcement process, which can lead to large financial penalties. There are reports that the Italian government is beginning to yield a bit on its budget, which may provide some room for Brussels to reach an agreement that avoids the most severe outcome.

The Bank of Italy has issued a warning that the rising bond yields caused by the government’s expansive spending plans could threaten the stability of Italy’s banks and insurers as well as add billions to the interest on Italy’s debt. Moody’s has cut Italy’s local and foreign currency ratings to Baa3 from Baa2. Foreign investors are shedding Italian bonds, while Italian retail investors do not appear eager to increase their participation in the government’s debt raising. The high interest rates and developing strains on the banks certainly will not help the Italian economy, the Eurozone’s third largest, to reverse the slowdown that has developed over the course of this year.

Trade uncertainties have had an impact on economies around the globe, hampering global economic growth. For the Eurozone economies, the uncertainties include those related to Brexit, to the US–EU trade conflicts, and to the widespread effects of the US–China trade war that have already emerged. The IHS Market Eurozone PMI for October, which showed that the Eurozone’s economic growth had slowed to its lowest pace in over two years, cited “an export-led slowdown, linked to growing trade tensions and tariffs.” The IHS Markit Flash Eurozone PMI for November then indicated that growth had dropped further to near a four-year low. It cites a further fall in new export orders across manufacturing and services. The drop in exports was the largest seen in the four-year history of this indicator.

The political difficulties of French President Macron do not yet appear to have seriously affected the French economy, which continues to grow at above-trend rates. His business-friendly economic reforms are a plus there. Spain’s economy also is recording firmer gains in activity. In contrast, the growth of the German economy, the Eurozone’s largest, slumped to a five-month low in October, and Italy’s growth turned negative in October for the first time since 2014.

Relative equity market performances year-to-date reflect these differences in economic activity. The iShares MSCI Germany ETF, EWG, is down 17.5%; and the iShares MSCI Italy ETF, EWI, is down 15.9%; while the iShares MSCI France ETF, EWQ, is down only 9.4%; and the iShares MSCI Spain ETF, EWP, is down 11.5%. A sustained recovery in the Eurozone markets would be possible should trade tensions ease. A final agreement between the UK and the EU on the terms of the UK’s withdrawal from the EU would also provide a substantial boost for these markets. In the current highly uncertain situation, caution and close monitoring of developments are warranted.

William Witherell, Ph.D.
Chief Global Economist
Email | Bio


Sources: BBC.com, Financial Times, Bloomberg, New York Times, The Economist


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A messy Brexit is the last thing Wall Street needs

A messy Brexit is the last thing Wall Street needs

By Matt Egan and Jordan Valinsky, CNN Business
Sunday, November 18th 2018, 2:32 AM HST

Cumberland Advisors William Bill Witherell Ph.D.

The odds of a messy Brexit, where Britain leaves the European Union without a transition deal, have increased significantly. Such an outcome would be destabilizing and create enormous uncertainty. And it would likely plunge the UK, the world’s fifth-largest economy, into recession.

The risk that parliament fails to agree to the Brexit terms sent the pound tumbling 2% on Thursday. UK banks fell sharply. Royal Bank of Scotland’s (RBS) US-listed shares lost 14% last week, while Barclays (BCS) shed 8%.

“Rejection of the deal would increase the odds of a no-deal Brexit significantly and would be strongly negative for markets,” Bill Witherell, chief global economist and portfolio manager at Cumberland Advisors, wrote to clients.

That’s the last thing Wall Street needs. A bout of volatility has knocked the S&P 500 more than 7% lower since hitting a record high on September 21.

Read the full article at www.kitv.com




Brexit turmoil: Here’s what’s at stake if U.K.’s May faces a leadership challenge

Excerpt below from: “Brexit turmoil: Here’s what’s at stake if U.K.’s May faces a leadership challenge”
Published: Nov 16, 2018 1:35 p.m. ET, by Anneken Tappe

Cumberland Advisors William Bill Witherell Ph.D.

In could be a tense weekend for currency traders and others keeping a close eye on the political turmoil surrounding the British government’s efforts to negotiate its exit from the European Union.

Prime Minister Theresa May faces a potential leadership challenge from within her Conservative Party after a draft agreement on terms of the country’s departure from the EU sparked multiple cabinet resignations, including the departure of Brexit Secretary Dominic Raab. He was replaced Friday with Steve Barclay, who will become the country’s third chief negotiator after Raab and David Davis, who resigned in July.

Others warned that May’s ouster would also raise the odds of a no-deal Brexit, leaving the U.K. to effectively crash out of the EU in March without any agreements on trade or other matters.

“Whatever their reservations about the draft agreement, the Tory party members would have to consider the implications of rejecting May and thereby the terms of this [Brexit] agreement,” wrote Bill Witherell, chief global economist and portfolio manager at Cumberland Advisors. “Doing so would mean that the prospect of a no-deal Brexit in which the U.K. is ejected from the EU with no transition period, becomes highly likely and would increase the likelihood of a new election and the threat of a Labor government.”

Market participants see eventual election victory by a Jeremy Corbyn-led Labor Party as a negative risk for the pound.

Read the full article at www.marketwatch.com