16th January 2020

Written by Javier Maquieira, Associate

Edited by Iain Gibson, Associate Partner

Good morning,

The year ahead couldn’t look more daunting for European Union officials. If trying to get Boris Johnson to rethink his position on reaching a trade deal with the single market before December 2020 wasn’t challenging enough, Brussels surely is feeling the tension at all levels. Fifteen days away from Brexit, Johnson has finally conceded that the chances of concluding a trade agreement with the Union are not as certain as he had made us believe when he excluded any extension to the standstill transition period. Meanwhile, the president of the European Commission, Ursula von der Leyen, insisted on Tuesday that the UK’s market access would depend on its willingness to align with EU law and standards, which include areas such as environmental protection, state aid, and labour law. The head of the Commission used a speech yesterday in Dublin to add that a Brexit extension is ultimately up to Britain. Such a comprehensive trade agreement would certainly take more than one year to complete, especially if Johnson decides to sign new deals with countries that have no existing EU agreements after 31 January, like the United States, which could delay negotiations. But some of the EU’s biggest challenges are also coming from within the bloc. To begin with, the Commission’s proposals for a €1 trillion, 10-year European Green Deal Investment Plan aimed at turning Europe into the first carbon-neutral continent by 2050 have been met with scepticism at the European Parliament, as member states try to negotiate the next long-term budget. The costs of the EU Green Deal are staggering and will require dozens of laws to be enacted and amended. Balancing the interests of all member states will be no easy task on that front. Same goes for von der Leyen’s plans to introduce an EU-wide minimum wage. In their opposition, Nordic member states such as Denmark and Sweden, which do not have a statutory minimum salary, fear Brussels’ intervention could undermine existing employer-worker negotiations and lead to lower wages among their workforce. Von der Leyen’s ambition of a green and social market economy for Europe is indeed commendable. At the end of the day, however, it is up to member states to decide if they want the EU to realise that ambition.

News

Russia’s prime minister and government have resigned in full after president Vladimir Putin proposed changes to the country’s constitution, limiting the power of a future president. The suggested amends include tightening residency requirements for presidential candidates and letting parliament choose candidates for prime minister and the cabinet. Following the government’s resignation, Putin has nominated Mikhail Mishustin as prime minister, in a move seen to allow him to occupy a more powerful role as PM if he steps down in 2024. Thomas Markle, the father of the Duchess of Sussex, could testify against his daughter in a potential court battle between her and the Mail on Sunday newspaper. According to the Daily Mail, court documents filed by the publication reveal that Thomas Markle has been co-operating with the defence team, making him a likely witness. The decade ending in 2019 has been confirmed as the warmest on record by Nasa, Noaa, and the UK Met Office. While 2016 remains the hottest year in a record dating back to 1850, the Met Office has pointed out that 2020 is likely to continue the warming trend whereby each year has been more than 1C warmer than pre-industrial levels.

Business and economy

The US and China have signed the first phase of a new trade deal following two years of tensions that have led to global economic uncertainty. This first phase will further open the Chinese market to American firms and secure around $200bn in Chinese purchases of US goods and services. However, it will keep much of the duties imposed by the US on Chinese goods and the threat of further sanctions if the terms are not met. The signing came hours after Democrats in the US House of Representatives named the team prosecuting president Donald Trump in the Senate. The owner of British Airways, International Airlines Group (IAG), has issued a complaint with the EU over the UK government’s decision to rescue Flybe. IAG has argued that the bailout constitutes illegal state aid under EU law and is a “blatant misuse of public cash”. Environmental campaigners have also criticised the deal, which includes a deferral of Air Passenger Duty (APD) payments, saying that it goes against the UK’s climate obligations. The UK’s inflation rate fell from 1.5% in November to 1.3% last month – its lowest since December 2016. The drop is partly due to a decrease in the price of women’s clothes and hotel room costs. Analysts have pointed out that it increases the chances of an interest rate cut by the Bank of England, with inflation below its target of two percent.

Columns of note

In his analysis of the latest political developments in Russia, CNN International’s James Griffiths offers a comparison of Vladimir Putin’s attempt to hold on to power for the foreseeable future and Xi Jinping’s 2018 move to drop term limits on the Chinese presidency. According to Griffiths, while Xi has managed to gain the support of the Chinese Communist Party and the people after paving his way to serve for life, Putin’s 2012 job swap already attracted large street protests and the discontent of top Russian officials. The author concludes that with absolute powers come absolute responsibility and blame, which, given fundamental differences between the Chinese and Russian states, will require Putin to tread carefully if he is to follow Xi’s model. In City A.M., Edwin Morgan argues that good corporate governance should not be about following a given set of steps that could end up replacing critical thinking and careful strategy. Even when the boards of British companies tend to follow the recommendations of the Financial Reporting Council’s Corporate Governance Code, which combines both high standards and flexibility, Morgan opines that current plans to implement a new regulatory body with stronger statutory powers and a wider range of sanctions could lead businesses to just comply with the law and forget about the spirit of corporate governance.

Markets

What happened yesterday?

London stocks finished on a mixed note on Wednesday, with the FTSE 100 up 0.27% at 7,642.80 as investors eyed the latest UK inflation data and the signing of a US-China trade agreement. In equity markets, housebuilders Persimmon (+0.39%) closed in the green after spending more money fixing poor-quality homes and despite reporting a fall in full-year revenue. Provident Financial (+6.97%) was also up as it said profits for 2019 would meet market expectations, Hochschild Mining (+2.68%) closed higher backed by forecasts. On the downside, Royal Bank of Scotland (-2.51%) closed lower following a downgrade to “underweight” at Barclays. Across the pond, the S&P 500 climbed to a record high as Donald Trump signed a trade deal with China, closing 0.2% higher.

What's happening today

Interims Theworks.co.uk

Trading Announcements Whitbread

AGMs

Cardiff Property Mineral & Fin

Int. Economic Announcements (07:00) Consumer Price Index (GER) (13:30) Continuing Claims (US) (13:30) Import and Export Price Indices (US) (13:30) Philadelphia Fed Index (US) (13:30) Initial Jobless Claims (US) (13:30) Retail Sales (US) (15:00) Business Inventories (US)

Did you know?

The Netherlands has so few prisoners to fill its prisons that it rents spaces out to Belgium and Norway.

Parliamentary highlights

TODAY House of Commons Oral questions Digital, Culture, Media and Sport (including Topical Questions) Attorney General Business Statement Business Questions to the Leader of the House of Commons - Mr Jacob Rees-Mogg Debate on the Address Health and Social Care Adjournment Protection for new home buyers - Kate Green House of Lords Oral questions Home Office policy on the processing of an asylum claim when an applicant says they have been the victim of child trafficking - Baroness Doocey Completion of the England Coast Path - Lord Greaves Following the 40th anniversary of the adoption of the Convention on the Elimination of all Forms of Discrimination Against Women, what plans the Government have to put forward a representative to the Committee - Baroness Burt of Solihull Legislation European Union (Withdrawal Agreement) Bill - Committee stage (day 3) - Lord Callanan Short debate Implications of the use of drones to assassinate Qasem Soleimani for existing agreements on the use of drones - Lord Hodgson of Astley Abbotts Scottish Parliament First Minister’s Questions Members' Business — S5M-20261 Lewis Macdonald: Sustainable Development Goals in Scotland, On Target for 2030? Portfolio Questions Stage 1 Debate Disclosure (Scotland) Bill Financial Resolution Disclosure (Scotland) Bill TOMORROW House of Commons No business scheduled House of Lords No business scheduled Scottish Parliament No business scheduled