Good morning. David Meyer here, filling in for Alan from Berlin.
The United Kingdom’s divorce from the European Union has always been a messy situation, but it’s just become even more tortured. And businesses operating across the U.K. and EU find their position more uncertain than ever.
In the last day and a half, both David Davis (the minister in charge of negotiating Brexit) and Boris Johnson (the foreign secretary) have resigned in protest against Prime Minister Theresa May’s so-called soft Brexit plans.
Johnson, let us not forget, is the man who responded to concerns about Brexit’s impact on companies such as Airbus and BMW by saying “F—k business”—this, from a leading light of the U.K.’s supposed pro-business party. He is being replaced by Jeremy Hunt, the former health secretary, who responded to the aforementioned companies’ warnings over Brexit’s impact by saying it was “completely inappropriate” for them to speak out, as doing so undermined the British government.
So if big business was already finding it difficult to make its voice heard in the conversations between the U.K. and EU, that’s unlikely to change.
Davis, meanwhile, is being replaced by Dominic Raab, formerly the housing minister. As Davis spent a mere four hours this year negotiating with his EU counterpart, Michel Barnier, his absence also may not make much of a difference. May’s Brexit advisor, Oliver Robbins, has been handling most of that load for a while anyway.
In the short term, May’s hand might be strengthened by the departure of two problematic individuals who think her Brexit plans don’t go far enough. But those plans are themselves a problem.
For businesses, the issue is that May’s latest proposal involves free U.K.-EU movement of goods, but not services. The U.K. economy is largely based on services these days. Even if the EU went for May’s proposal—which it will not, because it famously doesn’t allow cherry-picking when it comes to free movement—then most businesses would still face significant uncertainty.
And the U.K.’s continental rivals are not shy about taking advantage of the situation. Most recently, witness French President Emmanuel Macron’s success in tempting BlackRock and Citigroup to expand their Parisian operations, rather than investing in London. For large financial services concerns, that can’t have been a difficult choice to make.
It’s quite remarkable to have a shake-up as high-profile as the resignations and replacement of Davis and Johnson make the situation only slightly more shambolic than it already was.
More news below.
President Donald Trump’s pick for the Supreme Court is Brett Kavanaugh, an opponent of abortion rights, net neutrality, and the prosecution of sitting presidents. If confirmed—which is likely, given the Republicans’ current power—he would replace outgoing Justice Anthony Kennedy and take the Supreme Court to the right on many issues. Fortune
Xiaomi may have had a lousy first day of trading after its Hong Kong IPO, where its shares immediately fell by almost 6%, but its second day went a lot better. After news emerged that Xiaomi would be included in the Hang Seng index, alongside the likes of Tencent and China Mobile, its shares popped by more than 13%. CNBC
Uber and Lime
Uber has invested in the scooter and electric-bike-hire company Lime, whose vehicles will be available through Uber’s app as part of the new deal. Lime, which is just 18 months old, announced a new funding round of $335 million with Uber being one of the investors. Uber recently bought electric-bike-hire firm Jump for $200 million. Its arch-rival, Lyft, followed suit by buying bike-share outfit Motivate. BBC
Twitter’s share price fell 9% yesterday after it emerged that the company has suspended over 70 million fake accounts. Even though these are, well, fake accounts, Wall Street seems to have been fazed by the idea that Twitter will now make less revenue from advertisers. Counterpoint: maybe advertisers would prefer to be advertising to real people? Reuters
Around the Water Cooler
Trade War and Tesla
Tesla is the first automaker to raise its prices in China as a result of the trade war. Elon Musk’s outfit had to hike the prices of Model X and S cars in the country by 20%, thanks to China’s retaliatory tariffs against U.S. companies. Other car manufacturers are likely to be in the same boat, as it were, unless they shift more production to China. Of course, other car manufacturers aren’t losing money like Tesla is, so perhaps they can absorb more of the blow. Meanwhile, China is also slapping new tariffs on U.S. optical fiber. Reuters
A Los Angeles judge has turned down the Trump administration’s attempt to change longstanding rules—the so-called Flores settlement—so that asylum-seeking families can be detained together. These rules are the reason why the Trump administration decided to put migrant kids into separate facilities, provoking international outrage and causing parent-child separations that it’s still trying to undo. Judge Dolly M. Gee said the latest application (the Obama administration tried the same thing before) was “a cynical attempt…to shift responsibility to the Judiciary for over 20 years of Congressional inaction and ill-considered Executive action that have led to the current stalemate.” Wall Street Journal
Germany and Iran
The German authorities are in a bind. The Iranian government owns the European-Iranian Trade Bank, which is registered in Germany. The bank holds $350 million that the Iranians now want to extract, in order to help Iranians traveling abroad in this age of reimposed sanctions. So, do the Germans allow this transfer and infuriate the U.S., or do they block it and risk collapsing what’s left of the Iran nuclear deal, which the EU wants to see survive? Deutsche Welle
Martin Sorrell’s new ad firm, S4 Capital, has bought the Dutch digital production company MediaMonks for $351 million. Sorrell’s former company, WPP, which ousted him over alleged misconduct, also wanted to buy MediaMonks. WPP had warned Sorrell that his takeover attempt was “unlawful” due to his agreements in his former role. Expect fireworks. Guardian