Good morning. David Meyer here, filling in for Alan from Berlin.
Much is rightly made of the paralyzing political division in the United States, but—in terms of sheer chaos—it’s arguably outdone by the discord tearing apart the U.K. right now.
Last night the British Parliament rejected Prime Minister Theresa May’s negotiated Brexit deal by 230 votes—the greatest defeat for a government initiative in the country’s democratic history. Today, there will be a vote of no confidence in May’s government, brought about by the opposition Labour Party. The government will most likely survive that vote.
So what happens then? Nobody knows for sure.
A couple of months ago, there were three options: May’s deal with the EU; an economically catastrophic no-deal Brexit; or a cancellation of Brexit. That first option is now off the table, rejected by the British Parliament by more than two votes to one. While some British politicians claim the EU will now be panicked into making further concessions to the Brits, they are wrong. The EU has always held the winning hand in this game and won’t fold now.
That leaves a no-deal Brexit or no Brexit. Judging by sterling’s boost after last night’s vote, the markets believe the latter is more likely.
“Currency traders took an optimistic view, looking past the news to what could ultimately be a better result for the U.K. economy,” London Capital Group said in a note this morning. “Rather than seeing this as a step closer towards a no-deal Brexit, as Theresa May had originally threatened, traders are seeing this as a move towards… delaying Brexit. The perceived probability of a no-deal Brexit [is] diminishing, which is pound positive.”
I fear the currency traders are wrong—though, as someone with a British passport living in Berlin, I hope they’re not. The problem is, as always, division. And unlike in the U.S., where the split runs broadly along partisan lines, the U.K.’s main parties are opposed to one another while also being desperately riven themselves.
Part of May’s Conservative Party really does want to leave without a deal; part believes another deal is possible; part wants to stay in the EU. And Labour also fails to speak with one voice on Brexit—the membership wants a second referendum, but leader Jeremy Corbyn implausibly claims he can secure a better deal than May could.
Could there really be another referendum—a so-called People’s Vote? Only if lawmakers face reality and risk reprisals from constituents who voted for Brexit and still expect it. And thus far, courage and honesty have been in short supply.
In short, it seems there is no possible majority for anything, and therefore the country is skidding toward the default outcome, which is a no-deal Brexit at the end of March. The least-worst-case option would be a delay of a couple months, giving businesses more time to prepare. As I say, I hope I’m wrong on all this. But right now, barring a sudden outbreak of leadership in Westminster, the markets and everyone else should brace themselves.
More news below. Though first a quick note about yesterday’s Gillette essay. K.C. writes to say the gender imbalance on P&G’s board means “it’s tough to believe their message.” Given the board’s male-female ratio of 9:4, point taken. But I still believe the message is meant in earnest, as the ferocity of the backlash must surely have been anticipated.
Shutdown Hits Fan
President Trump’s solution to the impact of his government shutdown is to order thousands of furloughed federal employees to come back to work, for no pay. The workers include plane and food inspectors and IRS employees. The justification? The law barring agencies from spending money they haven’t been allocated contains exceptions for “emergencies involving the safety of human life or the protection of property.” Bloomberg
Snap took on Tim Stone as CFO eight months ago… aaaand he’s gone. Why? Per a memo from CEO Evan Spiegel to staffers, it has nothing to do with disagreements about Snap’s finances. Spiegel: “Tim has made a big impact in his short time on our team and we are very grateful for all of his hard work. I know we have all benefitted from his customer focus and the way he has encouraged all of us to operate as owners.” TechCrunch
Netflix’s prices are going up again, with the cheapest plan jumping from $7.99 to $8.99 and higher tiers rising by $2 each. It’s Netflix’s biggest price increase ever, and Wall Street responded by sending the company’s share price up by 6.5%. NPR
China’s central bank just pumped a record $83 billion into the country’s banking system, allegedly to boost liquidity at a time when businesses have to pay their taxes while keeping their operations going. Whatever the case, it indicates a stressed economy. CNBC
Around the Water Cooler
AOC vs. Wall Street
Alexandria Ocasio-Cortez is reportedly set to join the House Financial Services Committee, as is presidential hopeful Tulsi Gabbard. AOC is, of course, a democratic socialist New Yorker who has much to say about income inequality, so Wall Street is in for a fun time. Bloomberg
The CEO of the British consumer goods group Reckitt Benckiser, Rakesh Kapoor, will step down by the end of this year. Kapoor has been with the company for three decades, serving as its chief executive for eight years. In the last couple years, he has presided over slowing growth. Financial Times
The lead scientist on China’s moon mission has claimed that, a few years ago, NASA asked permission to put a U.S. beacon device into the Chang’e 4 spacecraft, so the U.S. could plan its own lunar landing strategy. South China Morning Post
Fortune‘s Jen Wieczner has a fascinating profile of Brendan Kennedy, whose firm Tilray is one of the big beasts on the nascent legal-weed scene. Kennedy, who does not partake himself, has successfully brought on board partners such as Anheuser-Busch InBev, but says “we were caught off guard” by the frenzy that met Tilray’s U.S. IPO. Fortune