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MORNING DIGEST: July 14, 2016

Summary:
Britain’s new Prime Minister Theresa May unveiled her new cabinet on Wednesday, shocking many by putting former London mayor and Brexit campaigner Boris Johnson in charge of foreign policy. David Davis, also a Leave supporter, will become the new "Brexit minister," in charge of negotiating Britain's exit from the EU, while Phillip Hammond, who supported Remain, was named chancellor, replacing George Osborne. According to the Financial Times, Hammond “is not a natural fit” with the new prime minister’s aim to ease austerity but will bring business experience to the government table.  Hammond told the BBC on Thursday that raising taxes was not the best way to boost consumer confidence and said there was no need for an emergency budget, as Osborne had claimed prior to the June 23 referendum. The Bank of England Monetary Policy Committee meets Thursday and could announce the first cut in interest rates in more than seven years. Financial markets are expecting a reduction of 0.25% as the central bank attempts to boost the economy following the Brexit vote. A survey of estate agents, conducted after the EU referendum, showed a “marked drop in activity in the housing market,” the Financial Times reported. People are inquiring less about home buying, mainly in London and south of England and a large number of estate agents believe that prices will drop over the next quarter.

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Britain’s new Prime Minister Theresa May unveiled her new cabinet on Wednesday, shocking many by putting former London mayor and Brexit campaigner Boris Johnson in charge of foreign policy.

David Davis, also a Leave supporter, will become the new "Brexit minister," in charge of negotiating Britain's exit from the EU, while Phillip Hammond, who supported Remain, was named chancellor, replacing George Osborne. According to the Financial Times, Hammond “is not a natural fit” with the new prime minister’s aim to ease austerity but will bring business experience to the government table. 

Hammond told the BBC on Thursday that raising taxes was not the best way to boost consumer confidence and said there was no need for an emergency budget, as Osborne had claimed prior to the June 23 referendum.

The Bank of England Monetary Policy Committee meets Thursday and could announce the first cut in interest rates in more than seven years. Financial markets are expecting a reduction of 0.25% as the central bank attempts to boost the economy following the Brexit vote.

A survey of estate agents, conducted after the EU referendum, showed a “marked drop in activity in the housing market,” the Financial Times reported. People are inquiring less about home buying, mainly in London and south of England and a large number of estate agents believe that prices will drop over the next quarter. http://goo.gl/0glQUj

EUROPE WILLING TO GIVE CHINA MARKET ECONOMY STATUS: According to Reuters, the European Commission is going forward with the process of recognizing China as a market economy. Jyrki Katainen, vice president for jobs and investment, said the Commission was “willing to fulfil our legal commitment but we are not naïve.” He added that European authorities were working with China to find solutions to tackle overcapacity. http://goo.gl/kmaKXD

Commission President Jean-Claude Juncker said Wednesday that Chinese steel overcapacity was running at twice the level of the European production, which has further deepened a crisis in the sector, Politico reported. He added that from a European point of view, there is a correlation between the steel overcapacity and recognition as market economy.

RUSSIA PLEDGES TO FLY OVER BALTIC STATES MORE SAFELY: Russian authorities have said they would make their jets turn on their detecting devices when flying over Baltic countries, Reuters reported. The announcement appeared to be a concession to NATO, after two years of several near misses between Western and Russian planes. http://goo.gl/QfqYtK

FRANCE ASKS FORMER COMMISSION PRESIDENT NOT TO TAKE UP GOLDMAN SACHS ROLE: Harlem Desir, France’s minister for European affairs, said the decision by former European Commission president Jose Manuel Barroso to accept an advising role at Goldman Sachs was “scandalous.” Desir added that it was the “worst disservice” that a former president could do in the current difficult moment for the European project. http://goo.gl/FNkObm

INDUSTRIAL PRODUCTION FELL SHARPLY IN MAY: Data released Wednesday showed that industrial production in the euro area tumbled by 1.2% May from April, suggesting the economic recovery remains weak, the Wall Street Journal reported.  http://goo.gl/059B1Z

APPLE’S TAX PROBE EXPECTED LATER IN THE YEAR:  Michael Noonan, the Irish finance minister, said at a press conference Wednesday that the European Commission was unlikely to announce a decision on the state aid investigation into Apple’s tax arrangements until September or October, the Wall Street Journal reported. http://goo.gl/zQrPso

U.S. ASKS FOR INTEGRATED EU-UK RELATIONSHIP: At a press conference in Brussels, the US Treasury Secretary Jack Lew asked the EU to seek a “highly integrated relationship” with the UK in upcoming negotiations, which should be “smooth, pragmatic and transparent.” Lew also reiterated the US’ commitment to the trade agreement that is currently being negotiated with the EU.

According to Ansa, the German, French and Italian heads of state will hold a summit in Italy in August to discuss Brexit.

CALENDAR:

-- DORTMUND: Jens Weidmann, member of the ECB’s governing council, will speak at the Foundation of the new office of German Bundesbank at 0900GMT.

-- LONDON: The Bank of England's policy decision is due at 1100GMT, along with the minutes.

-- WASHINGTON: The IMF will hold their regular biweekly press briefing at 1330GMT.

MNI Euro Insight
MNI Euro Insight is an invaluable resource for financial professionals who are responsible for researching and developing investment strategy. Drawing on MNI’s extensive network of contacts and relationships with senior European policy makers - in Brussels, at the ECB, and Eurozone national capitals - Euro Insight is relied on by economists, strategists and fund managers for its unique and dependable analysis.

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