Morgan Stanley: Brexit, No Clarity Yet

Morgan Stanley note that "while the two sides have agreed to keep talking, agreement remains elusive. The talks are reportedly intense – in a sign the two sides are not just going through the motions – but they have not bridged the key difference over the level playing field, with PM Johnson stressing the need for the UK to be outside the EU's regulatory orbit and European Council President Michel the need to protect the integrity of the single market. Going into the endgame, we thought the chances were weighted 80:20 towards a free trade agreement ('Canada') over moving to WTO terms of trade ('Australia') from January 1. Now, while we still think an FTA remains more likely, the risk of a WTO outcome appears to have risen… We see a conditional agreement on trade: the UK agrees for now to follow a core set of level playing field provisions, and while it does so, it gets enhanced no tariff access to the EU market in goods. But the UK reserves the right to diverge, and the EU the right to impose tariffs or other restrictions if this divergence undermines fair competition. On fish, the parties likely agree that the UK has sovereignty over its fishing waters, while the UK announces modest changes in practice."