A big step for Brexit

This is an audio transcript of the FT News Briefing podcast episode: ‘A big step for Brexit’

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, February 28th, and this is your FT News Briefing.

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Shell toyed around with the idea of moving to the US. The European Union and the UK took a huge step towards trading after Brexit. And the FT’s Rob Armstrong says the dance between investors and central banks has gotten kind of dull.

Robert Armstrong
We’ve been watching this television show either forwards or backwards now for well over a year.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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Back in 2021, the energy giant Shell decided to leave the Netherlands and settle in London. But that almost didn’t happen. The FT has learned that two years ago, Royal Dutch Shell explored moving the company’s headquarters to the US. Sources say the company thought about a public listing in the US too. The FT’s Derek Brower explains why Shell considered such a mammoth change.

Derek Brower
They look at Exxon and Chevron in particular, their two super major rivals in the US, and they see these two companies that frankly have much higher share prices and are doing much better in the eyes of the investor community. And the US has this huge investor base, this huge pool of capital on Wall Street. And at the time when it was considering whether to move, I think the . . . that was an attractive proposition, the idea that they could access the same pool of capital that Exxon and Chevron were. And the other thing to bear in mind is that it’s not just that they considered this move to the US at one stage. It’s also that now under the new chief executive, Wael Sawan, Shell is thinking about pulling back a bit from some of its energy transition plans and may be looking a bit more like Exxon and Chevron, which are much more committed to a long-term future for oil and gas.

Marc Filippino
So that’s the business reason, Derek. Were there any other reasons why Shell considered moving to the US?

Derek Brower
There is actually, Marc, and that’s just the attitude, I think, to oil and gas investment and oil and gas companies in Europe versus the US. And in particular, Shell, of course, in 2021, same year they were having these discussions, lost a huge court case in the Netherlands that required it to speed up its emissions reduction plan. So in the background to these discussions was concern about the litigation threat that Shell, and I guess other companies also faced, and they didn’t face, or at least that’s what some executives thought at the time, they didn’t face the same kind of threats in the US. So it’s a slightly more friendly environment, both from the investor point of view and especially the legal one.

Marc Filippino
Derek Brower is the FT’s US energy editor.

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Rishi Sunak
The United Kingdom and European Union may have had our differences in the past, but we are allies, trading partners and friends. This is the beginning of a new chapter in our relationship.

Marc Filippino
That was British prime minister Rishi Sunak. And this new chapter he’s talking about began yesterday when the UK and the EU agreed on new trading rules for Northern Ireland. This has been one of the biggest stumbling blocks coming out of Brexit. The deal struck yesterday reduces trade frictions between Great Britain and Northern Ireland, while ensuring that Northern Ireland still gets the benefits of being in the European Union. The FT’s Sam Fleming explains.

Sam Fleming
The Brexit deal that Boris Johnson, former prime minister, struck left Northern Ireland inside the European Union’s single market for goods. And the result of that was that checks were imposed on goods moving from Great Britain to Northern Ireland. And the key change — well, a number of important changes — one of the key changes is to do with the creation of two sets of classifications, effectively, of goods moving from Great Britain to Northern Ireland. There’ll be two classes. One will be destined only for Northern Ireland. These goods would go in a green lane and be subject to very low amounts of checks. And those which are intended to move on into Ireland and the single market of the European Union will be red lane goods as such, and these would be subject to much higher scrutiny and paperwork.

Marc Filippino
So what comes next, Sam? Is this a done deal?

Sam Fleming
Well, the big question now is whether Rishi Sunak will manage to sell this deal to Northern Ireland’s DUP, as well as to Eurosceptic Tory MPs. And there were certainly initial signs on Monday evening that he was managing to limit the size of any rebellion against this deal. On the EU side, ambassadors were starting to pore over the text in Brussels on Monday evening. This could require, will require some legislation on the EU side as well as other implementing steps, so it all requires some process. This isn’t a done deal which suddenly springs into force overnight. But I think nonetheless this does appear to be a very important step indeed in terms of burying the deep divisions between the UK and the EU over the Northern Ireland protocol, which really poisoned relations ever since it came into force. And you certainly saw with Rishi Sunak and Ursula von der Leyen, the European Commission president on Monday, a genuine attempt there to set a new tone in terms of relations between the EU and the UK and suggest the two sides can move forward in a much more positive spirit.

Marc Filippino
Sam Fleming is the FT’s Brussels bureau chief.

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The markets story over the past year has become kind of boring. Boring in the sense that it’s become predictable. The Federal Reserve raises rates to fight inflation. Markets go down because they’re worried about a recession. A little while later, inflation looks like it’s under control and markets go up only to then dip again when investors learn through some piece of data that the economy is still running hot and the Fed still needs to keep raising rates. Wash, rinse, repeat. The FT’s Rob Armstrong has been writing about this and he joins me now. Hey, Rob.

Robert Armstrong
Hi, Marc.

Marc Filippino
OK, so we’re in a bit of a rut here. And you wrote about this. You wrote in your Unhedged newsletter that at the end of 2022, interest rate expectations were starting to stabilise and you thought this cycle would end. But that is not what happened.

Robert Armstrong
Well, it may have just been a deluded fantasy. The Groundhog Day aspect to all of this, Marc, is that we’ve been watching this television show either forwards or backwards now for well over a year. And we just whipsaw along trying desperately to predict what the next leg of the cycle is gonna be without much success. And we just feel like we’re living the same day again and again and again, like Bill Murray.

Marc Filippino
Butch, thank you for the reference. It’s a movie I love. When do we start paying attention, Rob? Because right now it seems like every time a Fed speaker speaks and floats the possibility of a higher interest rate hike, markets get jittery. So when do we and investors really start paying attention?

Robert Armstrong
Well, the unfortunate fact is that as repetitive as this show is, you just have to keep watching.

Marc Filippino
No, Rob, no.

Robert Armstrong
Yeah, I’m afraid so, because at some point there will be a moment when the Fed has done enough and inflation is on its way back down to target. And at that time, investors will want to be alert enough to say, to use yet another metaphor, it’s safe to get back in the water, right? You want to be participating in markets when, you know, at that point in the cycle.

Marc Filippino
Yeah. And that point is really hard to predict. The saying is you can’t time the market. Now, Rob, the Fed has been very straightforward about their intention to keep hammering away at inflation. And I do wonder if this is just the markets, I don’t know, kind of cherry picking the news that they like versus the news that they don’t. And that’s why we’re seeing the bear market rallies.

Robert Armstrong
Well, what is the single most important thing that the Fed has said? I think it’s the Fed saying appropriately, we will follow the incoming economic data to decide whether policy has to be even more restrictive. But for the, from the point of view of someone whose job it is to protect, predict the future we will be data dependent is a very disappointing kind of answer because that means the Fed is just in the same lousy position that you are. I think many investors succumb to the temptation to try to read more and more closely into real or imagined signals being sent by the Fed.

Marc Filippino
Rob Armstrong is the FT’s US financial commentator. He writes The FT’s Unhedged newsletter. We’ll have a link to that in the show notes. Thanks, Rob.

Robert Armstrong
Thank you, Marc.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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