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Pound jumps as Barnier eyes Brexit deal within weeks

The pound has jumped to a five-week high against the dollar, weighing on the FTSE 100, as chief European Union negotiator said it was ‘realistic’ to expect a Brexit deal within ‘six to eight weeks’.

The pound jumped a cent against the dollar to trade at $1.302 while the euro fell a third of a penny against sterling to 89.1p.

That weighed on the FTSE 100, which gave up the morning’s gains to trade seven points in the red at 7,271.

A stronger pound tends to weigh on the UK blue-chip index, whose stocks rely on overseas markets for around three-quarters of their earnings.

‘Once again a Brexit-inspired movement from the pound came to dominate an otherwise quiet afternoon session,’ said Connor Campbell, analyst at Spreadex.

‘If one person can shift sterling at the moment it is Michel Barnier. The currency is desperate for any signs of good news from the EU’s chief negotiator.’

Banks have jumped to the top of the FTSE 100 amid investor hopes that Italy will avoid a clash with European Union rules as the country prepares its 2019 budget.

The UK blue-chip index rose 24 points, or 0.3%, to 7,301, with lenders leading the way.

Royal Bank of Scotland (RBS) was up 2.2% at 250.4p, Barclays (BARC) added 1.4% to 177p and Lloyds (LLOY) rose 1.3% to 59.5p.

Bank stocks were among the beneficiaries of reassurances from Italy’s government that the upcoming budget would respect EU fiscal rules.

Investors had fretted that the government, featuring the anti-establishment Five Star movement and far-right League, would push for higher spending in their first budget.

But economy minister Giovanni Tria said yesterday measures such as a minimum income, pension reforms and tax cuts, would be implemented ‘gradually’.

Banks were joined at the top of the index by Morrisons (MRW), as analysts at HSBC raised their rating on the supermarket to ‘buy’ from ‘hold’.

On the FTSE 250, shares in RPC (RPC) soared 17.2% to 801p as the plastics group said it was in talks over a possible sale to private equity investors Apollo Global Management and Bain Capital.

‘The next month will be pivotal for RPC,’ said Peel Hunt analyst Harry Phillips.

‘If there is no bid, the bears will take hold, while if there is a bid we expect it to come at a healthy premium to Friday’s close of 684p.’

Among ‘small-cap’ stocks, Debenhams (DEB) tumbled 10.6% to a record low of 11.5p on reports the embattled retailer had asked KPMG advisers to assess its options.

Reports claimed possible measures included a company voluntary agreement, a form of insolvency proceedings that can be used to close stores and renegotiate rents.

In response to the reports, chairman Ian Cheshire said the board ‘continues to work with its advisers on longer term options, which include strengthening our balance sheet and reviewing non-core assets’.

‘This activity is in order to maximise value for shareholders and protect other stakeholders, including our employees.’

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German businesses reluctant to invest in UK over Brexit uncertainty

German business leaders have issued a strongly worded statement warning they are reluctant to invest in Britain because of Brexit uncertainty.

The intervention from German Industry UK (GIUK), which represents firms including carmakers BMW and Mercedes-Benz as well as the Lufthansa airline, came as the UK’s largest carmaker, Jaguar Land Rover (JLR), said a bad Brexit deal would put £80bn of investment and 40,000 jobs at risk.

Amid mounting anxiety from some of the UK’s largest manufacturers, politicians from both sides of the House of Commons lined up to criticise the government’s attitude towards business concerns during Brexit negotiations.

The Liberal Democrat leader, Vince Cable, accused the government of treating major employers with “complete contempt” by failing to listen to their concerns. Cable said he knew JLR boss Ralf Speth from his tenure as business secretary and that the German boss of the carmaker was “not bluffing” when he said on Wednesday that the firm’s place in the UK would be untenable in the event of a hard Brexit.

The shadow business secretary, Rebecca Long-Bailey, warned that Tory infighting over the nature of the UK’s departure from the European Union was putting jobs and investment at risk.

“They cannot continue to spar with each other and play ideological games whilst British jobs and industries are being pushed off the edge of a cliff,” she said.

The cabinet is due to meet at Chequers on Friday in an effort to thrash out disagreements among ministers about the right Brexit plan to pursue.

Just 24 hours before the summit, representatives of German firms employing 400,000 people in the UK joined JLR in issuing a dire warning about the impact of ongoing uncertainty. GIUK, whose members also include the train and bus operator Arriva – owned by the Germany’s state-owned rail company – and the steel producer ThyssenKrupp, said it needed “certainty and clarity about the way forward sooner rather than later”.

Bernd Atenstaedt, the chairman and chief executive of GIUK, said: “There is some reluctance from German business to invest in the UK with projects on hold because of the uncertainty about the future and, with only nine months left before the UK leaves the EU, time is running out.”

GIUK said German business would like continued free access without tariff and non-tariff barriers – such as customs checks – for exports to the UK, plus continued free access to the EU for exports from the UK, which is one of Germany’s most important export markets.

Atenstaedt told the Guardian that many GIUK members would not go as far as aerospace company Airbus, which has threatened to cut back their operations in the UK in the event of a hard Brexit.

JLR, the UK’s largest automotive business, this week became the latest manufacturing powerhouse to say it could be forced to withdraw investment from Britain in the event of a hard Brexit.

The warning sparked renewed criticism of the government’s attitude to industry, just days after the foreign secretary, Boris Johnson, was reported to have said “fuck business” when asked about employers’ Brexit concerns.

Cable said: “I got to know Ralf Speth well enough to know that he’s not bluffing when he says JLR’s position is that a hard Brexit would make the company’s position in the UK untenable.

“The Conservatives should listen. But there’s no evidence that they are willing to treat major employers with anything other than complete contempt.”

A spokesperson for the prime minister said the government took the views of the business community seriously. The spokesperson added: “We also know the importance of providing certainty as we leave the EU. We’re looking forward to providing further details in the white paper. But I would also make the point that we have already successfully negotiated an implementation period, so firms will be able to trade on the same terms as now until the end of 2020.”

Conservative MP Owen Paterson attracted criticism after brushing off JLR’s concerns in an appearance on the Radio 4 Today programme, claiming the company would be in a “wonderful position” and could buy car parts more cheaply.

Labour MP Alison McGovern, whose Wirral South constituency includes Vauxhall’s Ellesmere Port plant, said Paterson did not understand the automotive industry, particularly its use of “just-in-time” supply chains that require precision timing.

“It is quite stunning that Owen Paterson thinks himself better placed to comment on Jaguar Land Rover’s future than their own CEO. Perhaps even more striking is his obvious total ignorance of the just-in-time supply chains which make the car industry profitable and the fact that it is not tariffs but non-tariff barriers which would be the major obstacle to manufacturers in a no-deal Brexit.

“People in manufacturing towns across Merseyside, the north and the Midlands know all too well what it feels like when Tories show they just don’t care about our communities and our families’ livelihoods and they will not stand for it.”

A senior figure at one manufacturing trade body with strong ties to the automotive sector said: “I don’t think we’d dignify Owen Paterson’s remarks with a response because they’re not worth anything.”

Maria Eagle, whose Garston and Halewood constituency includes JLR’s Halewood plant, said the company was rightly concerned about the “appalling effects of the extreme Tory hard Brexit supported by half the cabinet and a hard-line cabal of Brexit extremists”.

She said: “It’s about time this appalling government put the interests of the people of this country above their own manoeuvring to stay in office. Otherwise, our manufacturing industry faces total destruction.”

The EEF manufacturers’ trade body said: “This is not just an issue for big companies, however, but those SMEs who are also heavily exposed in the major supply chains and, as yet, are unable to know what scenario they are planning for. Time is now running out to secure the frictionless and tariff-free relationship we need with the EU if there are not to be serious consequences right across UK industry.”

Meanwhile, a survey by Scottish Engineering has found that just 1% of its members were positive about Brexit. Its chief executive, Paul Sheerin, said the organisation was worried about “a deeply concerning stance to business coming from parts of the UK government”.

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Italy’s next prime minister could be a mostly unknown law professor

Italy’s Five Star Movement (M5S) and Lega party have reportedly agreed on who the next prime minister should be — taking another step closer to implementing their governing coalition and restoring a political structure to the country.

Speculation is rife that M5S and Lega’s leaders, Luigi Di Maio and Matteo Salvini, have chosen a private law professor Giuseppe Conte as the new prime minister. Relatively unknown in political and public life, even Italian newspapers are publishing profiles and biographies on the professor to give the country’s voters the lowdown on their next possible leader.

The 54-year-old comes from the Apulia region of southeast Italy and graduated from La Sapienza University in Rome after studying law, before “perfecting” his studies at places like Yale, Duquesne, the International Kultur Institut in Vienna, La Sorbonne in France, Cambridge and New York University, according to a profile page.

But the Corriere della Sera newspaper stated that while Conte has “a very long curriculum (vitae)” he doesn’t “have a clue about politics.” The newspaper did concede that Conte “is certainly a technician” and has experience in business and administrative, financial and civil law. La Stampa newspaper added that he has been the director of “numerous legal journals.”

In addition, the paper noted that Conte is a member of the Scientific Committee of the Italian Notary Foundation, was a part of the Board of the Italian Space Agency and in 2013 the Parliament appointed him as a member of the Board of Directors of Administrative Justice.

Meanwhile, La Repubblica newspaper noted that Conte’s CV states that he is also an expert on “managing large companies in crisis,” which the paper noted “will be useful in events such as Ilva or Alitalia.” Ilva is an Italian steel company going through a pollution scandal and Alitalia is national airline that recently went bankrupt.

Conte has taught extensively in Italy and currently lectures in private law at universities in Florence and Bologna.

A friend of M5S

Conte’s name was initially flagged up by M5S just ahead of the election in March when the movement’s leader, Di Maio, stated that the professor would be nominated as minister for public administration and simplification (a ministry charged with simplifying laws and regulations) in any M5S-led administration.

During the election campaign, Di Maio had called Conte a “sburocratizzatore” — akin to a “de-bureaucratizer” — while Conte himself declared during the campaign that Italy needs to “abolish useless laws” (he said there were more than the 400 indicated by Di Maio) and that Italy’s anti-corruption laws need to be strengthened. He also stated that reforms to transform poorly-performing schools must be introduced.

Ahead of the election, Di Maio denied that a cabinet featuring experts and academics like Conte (and other professors then tipped to lead various ministries) would represent a technocratic cabinet, arguing instead that people like Conte “know what they are talking about,” Reuters reported.

Now, with M5S’ all-but certain coalition with the Lega party, Di Maio and Salvini are expected to present Conte as their candidate for prime minister, as well as a proposed cabinet formed of M5S and Lega ministers. They will seek approval from Italy’s President Sergio Mattarella Monday.

Salvini, leader of the anti-immigrant, euroskeptic Lega party, confirmed the deal over the leadership on Sunday, posting a message on Facebook stating, “We’ve closed the deal on the prime minister and ministers this morning.”

The Lega leader did not give the names of the candidates but Conte is expected to be premier with Salvini taking the interior minister post and Di Maio becoming a minister for economic development or labor (and a possible melding of the two posts), according to Italian newspapers. The economy ministry would reportedly go to Giancarlo Giorgetti.

Inconclusive election in March

Di Maio and Salvini’s decision to elect a prime minister rather than take the role themselves comes after a delicate process of negotiation in a bid to form a coalition government in Italy after an inconclusive election in March. Obstacles have been presented by political alliances and antipathies along the way.

M5S was the single most popular party in the election but Lega was the most popular party in a coalition of far-right and center-right parties, which included former Prime Minister Silvio Berlusconi’s Forza Italia party.

After multiple insults traded between Berlusconi and M5S’ Di Maio, however, a possible coalition between M5S and the center-right coalition looked unlikely, leaving Lega’s Salvini to take the lead and Berlusconi and other coalition partners seemingly out in the cold.

The alliance between Lega and M5S has yet to be tested, however, and could spell trouble for Europe with the maverick parties announcing Friday plans to increase public spending. They are also expected to call for an end to sanctions on Russia and want to renegotiate how much Italy pays into the EU budget — all plans that could create headaches for the European Union and euro zone.

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Foreign firms doing business in Iran may face sanctions, US warns

President Donald Trump’s decision to pull out of the Iran nuclear deal has left foreign firms with a choice: Stop doing business in Iran or run the risk of US sanctions.

Multinational companies have billions of dollars tied up in Iran.

In 2016, the European Union exported more than €8.2 billion ($9.7 billion) worth of goods to Iran, while importing almost €5.5 billion ($6.5 billion) from there, according to the European Commission.

But Richard Grenell, the US ambassador to Germany, warned firms that continue to do business there would face consequences.

“US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” he tweeted Tuesday night.

The Federation of German Industries said any attempt to prevent firms from dealing with Iran is contrary to international law. It called on the European Union to “effectively protect European companies from the effects of illegitimate and one-sided implementation of US sanctions.”

Carl Bildt, the former leader of Sweden who is now co-chair of the European Council on Foreign Relations, highlighted that the sanctions would have the biggest impact beyond America’s borders.

“US Iran sanctions are hardly hitting any US companies, but aim primarily at European ones,” he said in a tweet.

Under the nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), the United States committed to ease a series of sanctions on Iran and has done so under a string of “waivers” that effectively suspend them.

Virtually all multinational corporations do business or banking in the US, meaning any return to pre-pact sanctions could torpedo deals made after the 2015 agreement came into force.

“It’s a huge challenge,” said Dr. Sanam Vakil, a professor in the Middle East studies department at the Johns Hopkins School of Advanced International Studies in Bologna, Italy. “The US economy is 10 times that of Iran in terms of size and value, so it makes more sense to do business with the US than the Islamic Republic [of Iran].”

Among US companies, the plane-maker Boeing has signed the biggest deals, and Treasury Secretary Steven Mnuchin said Tuesday that its existing licenses — as well as those of its European competitor, Airbus Group — would be invalidated.

In December 2016, Airbus signed a deal with Iran’s national carrier, IranAir, to sell it 100 planes for around $19 billion at list prices. Boeing later struck its own deal with IranAir for 80 aircraft with a list price of some $17 billion, promising that deliveries would begin in 2017 and run until 2025. Boeing separately struck another 30-plane deal with Iran’s Aseman Airlines for $3 billion.

Boeing has yet to deliver any aircraft to Iran under those deals and said that it will “continue to follow the US government’s lead.”

Airbus, which is subject to the US license because it makes at least 10 percent of its aircraft components in the US, says it will abide by the new US sanctions but it could take “some time” to determine the full impact on the industry. It has already delivered two A330-200s and one A321 to Iran.

French oil company Total SA has been the most aggressive Western oil company to move back into Iran, signing a $5 billion, 20-year agreement with Iran in July. A Chinese oil company also has a deal to develop the country’s massive South Pars offshore natural gas field. Total did not respond to requests for comment.

Adam Smith, a Washington-based lawyer with Gibson Dunn and former Treasury official, agreed that if sanctions are imposed then companies will essentially be forced to choose between the US and Iranian markets.

“It’s a cost-and-benefit question for EU companies,” he said, explaining that firms would find themselves in the same situation as they were in before sanctions were lifted. “It’s a back to the future situation. It would be a world which we have been in before.”

The Treasury said there will be a “wind-down period” of 90 to 180 days to allow companies to complete transactions with Iran to avoid future US sanctions.

However, the Treasury warned that sanctions will come back into full effect after this grace period.

On Aug. 6, the US government will re-impose sanctions on activities such as the acquisition of US dollar banknotes by the Iranian government, Iran’s trade of gold and precious metals and the country’s automotive sector.

On Nov. 4, the US will re-impose sanctions on other activities including Iran’s oil and shipping industries and its energy sector, as well as on transactions by foreign financial institutions with the Central Bank of Iran.

Despite Trump’s announcement, France’s foreign minister insisted that the nuclear deal was “not dead,” adding that French President Emmanuel Macron was scheduled to speak with his Iranian counterpart Hassan Rouhani later Wednesday.

In a joint statement on Tuesday, France, Germany and the UK did not specifically address the issue of US sanctions on European companies, but said their governments remained committed to ensuring the “continuation of the economic benefits of the agreement for the benefit of the world, economy and the Iranian people.”

The UK government updated its guidelines on exporting to Iran shortly after Trump’s announcement Tuesday, saying the re-imposition of the US sanctions against Iran “may have implications for UK businesses and individuals dealing with Iran.” It advised companies to seek legal advice where necessary.

Smith said it was unclear whether Trump would actually impose sanctions on EU companies that continue to deal with Iran, adding that the threat may be strategic, and that the administration could eventually end up granting exemptions.

Vakil said it was now up to Europe to keep the deal alive and protect investment in Iran. “The ball is in the EU’s court,” she said. “I’m skeptical that companies are going to stay in Iran because the risks are so high.”

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94% of SMEs say the Government is ignoring their concerns about Brexit

Just 6 per cent of small and medium-sized businesses say that the Government is listening to their concerns about Brexit.

Of 653 businesses polled by accountancy firm Moore Stephens, 612 said they felt their views on Brexit were being ignored.

Moore Stephens said that this highlights just how much work the Government must do to convince the SME community that the deal to exit the European Union protects the interests of UK businesses.

More than half of owner-managed businesses also said that their single biggest concern for 2018 was how Brexit negotiations will affect them – far ahead of other issues such as skills shortages (41 per cent), cyber attacks (29 per cent) and increased regulation (28 per cent).

When asked about their specific Brexit-related worries, 38 per cent of businesses said that the introduction of trade tariffs was their biggest concern, 30 per cent fear a loss of EU labour, while 23 per cent are concerned about loss of European customers. Only 33 per cent said that they had no concerns around Brexit.

“Whilst banks and other big businesses have the influence to lobby the Government for their own special Brexit clauses, there are concerns that small businesses will be forgotten about,” said Mark Lamb, a partner at Moore Stephens.

“Business owners are hugely concerned about what Brexit might mean for them. The Government must take their needs seriously when negotiating the exit deal.

“Brexit could potentially impact on an enormous number of issues affecting owner-managed businesses in the UK, from import and export costs, to access to labour, and grants and subsidies. Businesses have been given very little clarity so far on what effect Brexit might have on any of these issues.

“Businesses thrive on certainty – it allows them to invest, scale up, take on more orders and expand their workforces. If the Government does not give them clear indications of what they can expect once the UK has left the European Union, it will be very difficult for many of them to invest in their growth.”

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Breaking News: A quarter of managing partners voted for Brexit

An overwhelming 82 per cent of UK-based lawyers voted to remain in the EU in the referendum, new data collected by Advisory Excellence shows.

However, a new survey of our readers also shows that over a quarter (26 per cent) of managing and senior partners voted for Brexit. This is a higher percentage than the average leave vote in the legal market of 18 per cent.

These results show how the vote in the legal market differed strongly from the general public’s attitude towards Brexit.

Within the professional services market, lawyers are the least likely to see the primacy of UK courts as important regardless of their vote in the EU referendum. Instead, they claim that the highest objective for Brexit negotiations should be free trade with the EU.

But that was not the only difference. Only 30 per cent of legal readers agreed that “we just need to get on with Brexit”, compared to a majority of 54 per cent of the general public. Some 56 per cent of readers disagreed with the statement compared to 14 per cent of the general public.

Two out of three of those surveyed by Advisory Excellence claim to want a second referendum to determine whether Brexit should go ahead. Of these, 19 per cent have already said that they would vote to leave should that referendum occur.

Advisory Excellence’s survey has also revealed that one in four readers voted for the Lib Dems in the last election. Lib Dem leader Vince Cable is the politician with the most popular views on Brexit within the legal sector, contrasting with the least popular views from Labour leader Jeremy Corbyn and Jean Claude Juncker.

The survey was conducted at the end of 2017, collating opinions from almost 3,000 respondents. Of these, 22.4 per cent worked in-house, 70.5 per cent worked in private practice and 5.6 per cent worked at the Bar.

Next month Advisory Excellence will release an exclusive report in collaboration with Thomson Reuters that explores how Brexit will impact firms in the UK and across Europe.

The in-depth analysis includes insight from over 300 senior lawyers in private practice, detailing how their clients and their own businesses will be impacted and their strategy to respond to Brexit.