Brexit Bulletin: What Does Trump Mean for Brexit?

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Will the arrival of Donald Trump in the White House affect the departure of the U.K. from the European Union?

Yes, according to analysts speaking at a Bloomberg BNA conference yesterday in London.

To Stephen Adams, a partner at Global Counsel, Trump’s victory means EU governments will try to “squeeze the U.K. harder to contain domestic populism” by showing there is nothing to be gained by leaving the EU. The Netherlands, France, Germany, Austria and Italy all hold elections or referendums in the next 12 months.

Only if Trump’s transition to power is messy enough to spook financial markets could the U.K. and EU agree to better “choreograph” when and how to start the talks, he said.

Trump’s unexpected win four months after the Brexit surprise means European leaders will be even more focused on ensuring their own re-elections, forcing engagement with Britain down the pecking order of importance, said Rupert Harrison, chief macro strategist at BlackRock and a former U.K. Treasury official.

He’s betting that even if Prime Minister Theresa May opens negotiations by the end of March as she intends, her counterparts in Europe are unlikely to focus on them until this time next year when other elections are over. That will eat into the two years May has to strike a deal.

“European leaders facing election over the next year are going to be focused even more on the risks in those elections than they were before,” said Harrison. “It’s going to be difficult to get traction.”

Andrew Benito, a European economist at Goldman Sachs, argued that European economies are more likely to pursue some fiscal easing to appease their electorates than they are to weaken the rules of EU membership, such as the freedom of labor movement that Britain want to escape.

Separately, Erik Kauffman of Birbeck College argues it wasn't economic issues that led people to back Trump and Brexit. 

Trump Card?

However, Trump’s win has potentially given May some new leverage in the talks.

On the campaign trail, the president-elect cast doubt on the U.S.’s commitment to NATO, meaning Britain’s military might and intelligence capabilities may now be in more demand from EU countries worried about terrorism and Russian expansion.

Officials in May’s government, speaking on condition of anonymity, say they now see an opportunity to win goodwill with EU nations in the Brexit negotiations, especially among Eastern European countries. The U.K. has the second-largest defense budget in NATO and can use its skills to help battle terrorism and enforce cyber-security.

“Within the negotiations on exit terms is going to be a negotiation on common security policy,” said Crispin Blunt, chairman of Parliament’s Foreign Affairs Committee. “It’s an obvious common interest that we should be fully engaged.”

Where’s Next?

With Brexit and Trump in the bag, populists are now setting their sights on new targets in continental Europe, according to Bloomberg’s John Follain.

The first tests comes Dec. 4 when Italians vote in a constitutional referendum that Prime Minister Matteo Renzi says will make government more stable and streamline legislation. He has promised to resign if he loses.

Austria votes the same day for a new president. March 15 sees parliamentary elections in the Netherlands before France starts voting for the presidency with the result on May 7. Germany then holds federal elections in the fall of next year.

“Polls always under-report the extremist, nationalist candidate,” Bob Janhuah, senior independent client adviser at Nomura, told Bloomberg Television.

For his part, JPMorgan CEO Jamie Dimon said in a note to staff on Wednesday that the Brexit and Trump votes reflect frustration with a lack of economic opportunity, a sentiment that shouldn’t be ignored.

“We are going through a period of profound political and economic change around the world, and American citizens showed that deep desire for change in voting to elect Donald Trump as the 45th President of the United States... We need to listen to those voices.”

Brexit Bullets

• Britain holds talks with China to seek post-Brexit investment
• French lawmaker calls for security of LSE-Deutsche Boerse deal
• Sainsbury says it will “encourage” suppliers to mitigate costs
• U.K. housing market strengthens as supply shortage worsens
• ITV CEO says debate about hard or soft Brexit is affecting advertisers
• Shake Shack says U.K. stores suffering after vote to leave EU
• Beazley seeks Irish permission for unit to become European
• Financial Conduct Authority to study property funds after Brexit suspensions
• Dubai billionaire Khalaf Al Habtoor looking at U.K. properties after sterling’s drop

On the Markets

Gold, commodities and other markets yesterday witnessed their greatest volatility since the aftermath of the Brexit referendum in June.

Trump’s win tested trading limits on broker and trading platforms just as the Brexit vote did, although trading was more interrupted then than it was yesterday, according to Bloomberg’s John Detrixhe.

“We had a dress rehearsal with Brexit,” said Rob Boardman, chief executive officer for Europe of Investment Technology Group,  an electronic broker and market operator.

And Finally?

Two passports, no home. That’s what some American citizens living in London felt like yesterday after Trump’s victory came close on the heels of the Brexit vote. Bloomberg reporters spoke to expats in the U.K. capital, a quintessentially international city where business meetings can involve citizens of half a dozen countries.

“I was guardedly optimistic and am now massively depressed,” said David Saenz, a 40-year-old native of Los Angeles who has lived in London for four years working on Internet startups.

“It’s the worst decision we could have come to as a country.”

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To contact the author of this story: Simon Kennedy in London at skennedy4@bloomberg.net.

To contact the editor responsible for this story: Emma Ross-Thomas at erossthomas@bloomberg.net, Andy Reinhardt