Good morning,

When Boris and Ursula sit down for dinner this evening, we really hope a deal is on the menu… The PM is travelling to Brussels for the meeting, which is a good sign and yesterday Michael Gove announced that the government have omitted any items in the Internal Market Bill that would break international law (just one day after they voted to put those items back in the bill), which is another good sign. The problem as we see it is that the talks are at an incredibly technical stage and Boris really doesn’t strike us as a details man. As such he and Ms. Von der Leyen are going to have to agree some more general compromises and then once again send it back to the negotiators… and the problem with that is we’ve seen this before: Last week when we were optimistic that there was a deal in the offing was when Michel Barnier was self-isolating and Ms. von der Leyen was in charge. During this time she was more agreeable to the UK’s terms than the other negotiators had been, but when Mr. Barnier got back and the French heard what had been going on, they rolled back on her agreements and pressed home their original demands, hence we’re back where we are. So what’s different this time? We don’t know.

This week really is the last week where we’d get an agreement and there would be no disruption come the 1st of January and already, we’re hearing that UK ports are experiencing delays as companies try and stockpile products and components to enable them to weather the delays. Honda has announced that it is stopping production at its Swindon plant whilst it struggles to get the stock it needs to keep the assembly line moving. Their ultra-efficient assembly process means that not only do they get parts ‘just in time’ but they also use a ‘just in sequence’ model, which means specific parts have to arrive at specific times in order to keep production volumes optimised. Reports from some trade associations say that it’s taking up to four weeks to get stock through the ports and customs process and its not clear whether stock that is landed ahead of December 31st but not cleared through customs would be in line for tariffs in the event of a no deal – which would be a double blow to businesses who have been utilising additional resources to build up stockpiles to avert exactly that risk. The BBC has a great article on the impact to business and consumers as prices start to rise because of this chaos.

On the note of automotive manufacture: The Times is reporting that Sir Jim Ratcliffe is scrapping his plans to build his version of the old Land Rover Defender in South Wales and is instead taking over an old Mercedes factory on the French German border. He had been looking at sites in Bridgend to manufacture most of the car, with the chassis being built in Portugal. This would have created up to 500 jobs in the area, but the ex-Benz factory will provide a much bigger facility and allow the entire vehicle to be made in one place and will create 1,300 jobs on the continent.

Michael Gove’s announcement that we won’t be breaking any laws in the Internal Market Bill has been brought about by agreement between Ireland and the UK over how goods are handled at the only land border between the UK and Europe. The government has agreed to let the EU have a permanent station of customs officials in Northern Ireland. Additionally it has been agreed that some goods flowing from the UK to Northern Ireland would have tariffs applied, as there is a risk that they would then be sold into the EU. However those tariffs would be refunded if goods remained in Northern Ireland. The deal has met with opposition from some members of the DUP and conservative parties, who question the need for the EU to be stationed within Northern Ireland and what that means for British sovereignty.

The EU aren’t just negotiating on Brexit this week. Their other big challenge is trying to get their 2021-2027 budget and stimulus package agreed at the summit which starts tomorrow. The deal was looking good until Poland and Hungary threatened to veto it over the inclusion of clauses that access to funds is linked to observance of the European rule of law. In the EU’s mind, both countries are heading in the wrong democratic direction and this was seen as a good lure to get them back into line. However, Hungary and Poland aren’t playing ball and though they are saying there are discussions on how to overcome this, they aren’t giving away any details. Other EU member states are saying that the countries could simply be cut out of the stimulus package and that the other 25 member states will be able to create a package just for themselves, but this will create all kinds of headaches for law and policy makers who would have to get this written up and approved without breaking any number of laws that would prevent certain member states being treated differently to others.

The UK has disclosed plans to drop tariffs against the US in a bid to put the Boeing-Airbus dispute to bed. Both the US and EU recently imposed punitive tariffs against each other over the WTO rulings that both had engaged in unfair subsidies of the companies. The UK has taken the view that opting out of these tariffs will garner favour with the incoming US administration and put us on a better footing to get a trade deal post-Brexit. Interestingly, we probably wouldn’t be able to keep these tariffs up on the US after Brexit anyway, because they were imposed by the EU, however the US would have been able to continue with the tariffs against the UK, as their legal complaint specifically names the countries that collectively own Airbus, the UK being one of them. The FT has the story.

The other news out there is that the US FDA has approved the Pfizer vaccine for use in America. They did note that the second dose can cause quite intense symptoms, but there are no “specific safety concerns”. The US will begin the rollout of the vaccine within days but won’t be able to solely rely on the Pfizer vaccine as it has only purchased enough to inoculate 50 million people and Pfizer can’t guarantee they’ll have any more available until the end of 2021 as almost all of their future supply has been bought up by other governments.

The data calendar is reasonably light today, but Sterling has coiled back up into its tight trading range, so if we get a breakthrough out of tonight’s dinner date, we’d expect an outsized move in the currency.

Have a great day

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