Although time seems to be standing still for us in Australia as vote counting from the Federal Election at the weekend continues, Powell Tate’s offices in Beijing, Brussels and Washington have been tracking political and economic developments in their markets. Below is a summary of what Australians need to know from around the world.
The view from Brussels … breaking up no easy thing
British Conservative MPs are voting today to determine their leader. The winner of the vote will be the nation’s Prime Minister charged with overseeing Britain’s exit from the EU (“Brexit”) after David Cameron’s resignation following the plebiscite. The leading contenders for the top job are both women, which would make them the country’s second female Prime Minister after Margaret Thatcher. Theresa May, the Home Secretary, is in pole position with 199 votes. Energy Minister Andrea Leadsom had 84 votes on the second round count that saw Justice Secretary Michael Gove eliminated from the race. The final ballot to determine who will become the UK’s second woman prime minister will be made by Conservative Party MPs on 9 September.
In the meantime, the EU itself continues to be largely absorbed by the “Brexit” decision and its impact across the continent. The UK is seeking to commence negotiations with the EU on providing reciprocal rights of EU citizens in the UK and UK citizens in the EU. Chancellor George Osborne also gave a joint statement with prominent UK banks, promising to do whatever possible to ensure the UK remained an attractive destination to do business. In Europe, the risk of economic contagion hitting other EU economies has increased with fears about the solvency of Italian Banks. European capitals, however, are already drawing up plans to attract business away from the UK, with French Prime Minister Manuel Valls announcing measures to do just that.
The UK is looking to secure bilateral trade deals with Canada, New Zealand and Australia. And China has indicated it will commence negotiations with the UK on a bilateral trade deal as it becomes increasingly frustrated by the EU.
Legal and accounting firms and management consultancies have all commenced establishing “Brexit teams” in preparation for a rush of Brexit work. These teams will look at business strategy, supply chains, tax positions, regulation and growth opportunities amongst other areas.
Bloomberg claim that the “Brexit effect” is already being seen on profits with Allen and Overy reporting a drop in pretax profit by 1.4%. The recently released UK Mergers and Acquisition rankings demonstrated a transaction slowdown in the first half of this year, alongside predictions that the post-Brexit deal value will fall even further. This could be disadvantageous for insurers if no equivalent UK exemptions are introduced.
The view from Washington … a heart beat away from the presidency
Ahead of their national nominating conventions in the second half of July, Hillary Clinton and Donald Trump are both focusing their attention on selecting their Vice Presidential running mates. Both candidates want to use their selection to unify their party after a divisive primary season that has not yet produced real unity in either party. Traditionally, Vice Presidential selections are designed to solidify their respective party’s ideological base and, if possible, provide a geographic or demographic balance.
For Republican Donald Trump, the decision offers particularly high stakes. He must select a running mate who offers assurances to his party’s leadership about his ability to appeal to the broader American electorate without alienating his core supporters. Mrs. Clinton’s task is less difficult but still consequential. She will be looking for a candidate who can help preserve her strengths in the Democratic base – African-Americans, Hispanics, women, urbanites and young voters – while appealing to more moderate Democrats and independent voters who may determine the outcome of the election.
Vice Presidential choices rarely have any lasting impact on the election. But they can be important to the public’s perception of the presidential candidate and both the selection process and the choice must be handled skillfully. The first rule in choosing a running mate is: do no harm.
In the United States, public opinion in support of free trade has declined, and both Hillary Clinton and Donald Trump are advocating significant changes in US trade policy if elected. Later this year, President Obama will ask the US Congress to ratify the Trans Pacific Partnership (TPP), a comprehensive trade and investment agreement that includes 12 Pacific markets. Both Mrs. Clinton and Mr. Trump oppose the agreement.
The view from Beijing … all at sea
Shanghai hosted the G20 Trade Ministers meeting on 9 July to discuss ways to boost global tade and investment cooperation. The G20 members held in-depth talks on topics including trade and investment mechanisms, global trade expansion and multilateral trading system development. Global trade has slowed in recent years, with the WTO reporting five consecutive years of sub-standard growth. This is the result of multiple factors, including weak import volumes in large emerging markets, a deceleration of growth in China, sluggish global economic activity, continued geopolitical tensions and an increase in protectionist sentiment in Europe and the United States.
The G20 leaders meeting will take place in the Chinese city of Hangzhou in September. China is hosting this event for the first time, and this will represent a good opportunity for the Chinese leadership to leave an imprint on a group of the largest emerging and developed markets. China’s Ministry of Foreign Affairs has already outlined the country’s agenda for this summit, with discussions to be centered on international development, trade, and climate change.
The outcome of the U.S. Presidential elections in November will also have implications on the nature of the bilateral relationship between the two economic giants. It is unclear how Chinese officials feel about statements made by both candidates to get tough on China while on the election trail. This could after all, be mere election rhetoric. However publicly available commentary suggests that if Hillary Clinton wins the presidency this may cause more concern for China. This is because of previous comments she made before and during her time as Secretary of State. These include criticisms about China’s record on human rights, women’s rights, and the South China Sea.
In the meantime China is awaiting a ruling by the Permanent Court of Arbitration in The Hague on 12 July over its long running dispute with several southeast Asian nations over competing territorial claims in the South China Sea. China has refused to take part in the case – which was filed by the Philippines – and is not obliged to abide by the ruling. Nonetheless ahead of this ruling, China has been vocal about its stance with the Foreign Ministry releasing a statement in mid-June that at least 47 countries support China’s position. It has also warned the United States not to “act blindly or make trouble out of nothing” because even though the U.S. is not a claimant it has sought to uphold freedom of navigation.
If you are interested in more detailed information about any of these markets, or anywhere else in the world, email firstname.lastname@example.org. We will put you in contact with the relevant office.