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Inflation rises; food prices jump; US jobless claims up; EU retail sales slump; Brexit gets even messier; Australia get record trade surplus; UST 10yr at 1.54%; oil up and gold down; NZ$1 = 72.1 USc; TWI-5 = 73.9

Inflation rises; food prices jump; US jobless claims up; EU retail sales slump; Brexit gets even messier; Australia get record trade surplus; UST 10yr at 1.54%; oil up and gold down; NZ$1 = 72.1 USc; TWI-5 = 73.9

Here's our summary of key economic events overnight that affect New Zealand, with news bond rates are taking a new turn higher today, rising as you read this.

Annual inflation in the OECD area picked up to 1.5% pa in January 2021, compared with 1.2% in December 2020. On a "without food and energy basis (ie core inflation), New Zealand contributes a +1.9% pa rate to the OECD, a relatively high level.

In China, commodity prices continue their rise with the iron ore prices shifting up yesterday.

And food prices are just taking off. The rise is across the board, but led by vegetable oils and cereals. Meat and dairy prices are up too, but by comparison their increases seem relatively restrained.

Meanwhile, US jobless claims rose last week to the expected 748,000 and taking the total on these benefits to 4.8 mln. In addition another 437,000 people signed up for the Pandemic Unemployment Assistance. There is no evidence yet that this pressure is receding.

Factory orders did rise in January, by a modest +2.6% above December and are now +1.3% higher than a year ago. That makes it nine consecutive months this data has posted a month-on-month rise and the first time it has posted a year-on-year rise.

The rise isn't being bolstered by car sales. Total vehicle sales continue to slide. In February, American vehicle sales ran at the annualised rate of 15.7 mln, the lowest since August 2020, and down sharply from the 16.6 mln recorded for January. And this latest February data is -7.8% below the same month in 2020.

Part of the decline might be capacity constraints due to the global chip shortage. Certainly in the large truck sector there are reports surging orders are blocked by this type of capacity constraint.

The overnight data released for EU retail sales in January just looks awful. They fell -6.4% compared to the same month a year ago, and this is a very serious backsliding there. It is grim in all the main economies, but especially so in France. The lights would have been burning all night in both Brussels and the ECB. A drop was expected in January, but nothing like this.

Not helping is the increasingly ugly Brexit divorce from the UK. Overnight the British reneged on the deal over the Irish border, inflaming things further. This is far from the first time the British have made a deal with the EU, then reneged. For some reason London doesn't feel bound to honor its agreements when it doesn't suit them. It's an arrogance that runs deep.

The UK isn't the only one reneging on agreements. Today Italy has blocked the shipment of vaccines to Australia, saying the EU comes first.

In Australia, the UK Greensill meltdown is widening its impact. Yesterday we noted a steel mill is threatened, today it is revealed that insurer IAG is major issues over its Greensill links.

Australia has posted a trade surplus of +AU$9.3 bln in January 2021 (a record), comprising of a goods surplus of just under +AU$8.0 bln and a services surplus of under +AU$1.3 bln. These 2021 levels compare with a January 2020 surplus of just +AU$2.4 bln where the goods surplus was AU$2.9 bln and a services deficit of -AU$0.5 bln. Their goods surplus with China is now +AU$5.5 bln in January 2021, compared to +AU$3.8 bln in January 2020.

In New York the S&P500 is down -1.6% in mid-day trade and sliding. That follows European markets which were generally down -0.2% overnight. Yesterday the very large Tokyo market fell a sharp -2.1%, matched by Hong Kong, and Shanghai fell -2.0% and giving up all of the prior day's gain. The ASX200 fell -0.8% yesterday while the NZX50 Capital Index was down -1.1% with a late sell-off.

The latest global compilation of COVID-19 data is here. The global tally is still rising and at a faster pace, now at 115,331,000 and up +419,000 in one day, so no letup globally. Global deaths reported now exceed 2,563,000 and +10,000 since yesterday.

More countries (129) are into their vaccination programs. About 275.8 mln doses have been given so far (+7.2 mln).

The largest number of reported cases globally are still in the US, which rose +82,000 over the past day for their tally to reach 29,460,000. The number of active cases fell overnight and is now just on 8,925,000 and -18,000 fewer in a day, so many more recoveries that new infections again. Their death total took a jump yesterday however, now at 532,000 (+3000).

The UST 10yr yield is up +7 bps at 1.54%. The US 2-10 rate curve is up marginally at 134 bps. Their 1-5 curve is still at +64 bps, while their 3m-10 year curve is marginally steeper at +145 bps. The Australian Govt 10 year yield is down -1 bp at 1.74%. The China Govt 10 year yield is up +1 bp at 3.29%. The New Zealand Govt 10 year yield is up +11 bp at 1.86% and the outlier here.

The price of gold starts today lower by -US$19 from yesterday and falling, now under US$1698/oz.

Oil prices are up a sharp +US$3 at US$64.50/bbl in the US, while the international price is up to just over US$67/bbl.

And the Kiwi dollar opens at 72.1 USc and more than -½c lower than this time yesterday. Against the Australian dollar we are firmer at 93.1 AUc. Against the euro we are lower at 60.1 euro cents. That means our TWI-5 is down at 73.9.

The bitcoin price is now down at US$49,832 and a retreat of -2.6% since this time yesterday. Volatility in the past 24 hours is still elevated at +/- 3.2%. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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88 Comments

13
up

Why is suddenly everyone so concerned :

https://i.stuff.co.nz/business/124438249/gale-force-economic-warning-wha...

Also if everyone is seriously concerned and aware of the risk that FHB are taking under FOMO, should not the government act now and ACT FAST.

Important to tame speculative demand and should be NOW.

11
up

Because a hyperinflation wave hammers everyone. Vs the asset reset just hitting the speculators and banks. Banks whose lending practices are the primary cause.

40% investors on interest only loan is a Big number.

Reason for only interest loan is that hose speculators are targetting to hold the property for short time before selling / flipping and is this flipping that adds fuel to fire.

https://www.interest.co.nz/news/109356/nearly-40-bank-lending-residentia...

No the real reason is that the rent doesn’t cover the mortgage payments and other costs

See this video to understand

https://www.facebook.com/thepropertyaccountant/videos/389506505567071/

I disagree that investors use interest only loans because they want to hold the property for short term only. The reason is simply that there is not good reason to repay the mortgage at all, with interest payments being tax deductible. I used to have all investment mortgages on interest only for many years, there is absolutely no reason to repay the mortgage. It's different for people owning their own homes because they have to pay the interest themselves whereas investors get their interest paid from the tenants or lessees rental income.

Luckily interest rates in New Zealand only go one direction over the long term.

There's too much invested, to many careers and ideologies, to de-escalate now. This will be the crash the Reserve Bank manufactured.

13
up

If it was necessary to introduce LVRs then it was equally unnecessary to remove them. Similarly it was unnecessary to lower the OCR below 2%. Even the good Dr Cullen opined that it was proven internationally that by the time it got to 2% any stimulus was already spent . Would wager if neither of these steps had been taken NZ would have a much smaller jar of pickles on the table.

Now most governor of reserve bank are fulfilling all their fantasize/ experiments in tandem under the excuse of corona virus and our very own Mr Orr is no exceptional and not the to miss opportunity of a lifetime.

Anyone else considering fixing for a long term on their mortgage?

5.2% for 7 years? Looks good!
In all honesty 2.99% for 5 looks to be a bargain if you want to fix.
But bear in mind (pun there!) the spike in % rates may not last. Not because 'they' will force them back down, but because the economic fundamentals underpinning all asset markets are shocking.

We're not concerned if we fix 2.99 for 5 years and rates drop. At 2.99 repayment is comfortable for us and would rather guarantee our outgoing cashflow than take a punt by refixing for a year only to end having to lock in a higher rate the following year. More upside than downside for us in a nutshell

I tend to agree with you. The biggest risk would be if rates fall and then for some reason you have to close out the mortgage.

Maybe if we had to sell our house and move? We're both in stable employment but yea is still a risk nonetheless

ydb
Great move, if I was in your position I would be looking to long term for assurance.
I would not be too worried about the eventuality in having moving house; from my experience banks tend to be positive about transferring a mortgage from one property to another.
My first encounter with this was when the bank actually initiated the offer and the rate for the remaining term was lower than the then current rate. Its about banks looking after their good customers.

YDB, you're spot on, fix for 5 years at 2.99% asap if you are quite certain that you will not move within this period (break fees can be expensive)

they cant fall that far so break fees will be small -- and if they did fall enough -- the change in repayments would easily cover it - and really at 2.99% you can hardly say that its a massive payment -- hell even on $1,000,000 its $600 a week interest -- way cheaper than renting

I tried to refix with ANZ at 2.99% over the last few days, the best they would do was 3.59%. I am not confident this lift in rates will hold taking into consideration yesterday’s report that this months GDP figures are going to be disappointing. Have therefore just gone with the 12 month 2.29% and will continue to watch the market with interest

2.29% is a good rate. But watching the market will make that 3.59 % sound like a bargain even as early as next month.

took 5 years at 2.99 last night -- happy as larry about that -- even with negative base rate -- thats not going to go anywhere --- and the upside risk is massive - you are right the fundamentals are shocking -- but shortages of goods / transport costs - moving to a green economy - and at some point a collapse in house prices -- hmmm goign to sleep like a baby on this loan :)

kpnuts
You are astute and prudent but not stupid.
Clearly you are recognising possible winds of change after a decade of falling interest rates. No certainties but there is clear signals of strong possibilities requiring one to reevaluate one's recent thinking.

thanks printer - yes i think that we are now past the point where there are significant gains to be had from waiting or floating -- risks are all on teh upside now - and if i am wring -- well hell i can live with that at 2.99 - Interestingly - there was no negotiating room and my lending manager said he felt the next moves at 5 years would be up - and i have been with the bank and him for 15 years now - first loan ever at carded rate

My broker should be calling me any minute now. 5 @ 2.99% works out to be roughly the same weekly payment as my current loans that are spread from 2.45% to 3.49% (yup...) and the break fee should be under $3K, which is cheap insurance for mid-term assurance. It's been a fun ride but I'm getting off the horse now.

GC
Never any certainty but being prudent gives one the additional advantage of sleeping easy and that has tremendous intrinsic value.
Difference between and 1 and 5 year rates is not that significant and the short term $ cost is cheap for long term assurance.

Really great to see some of the posting by GC and ydb recognising winds of change.
After a decade of rising house prices and falling interest rates there are signals (such as bank economists talk of medium-term upside to interest rates) we may be seeing a new area.
GC and ydb you both seem very astute.

Maybe we’ll see 30 year mortgages here.

16
up

Because they are finally (after 20 years) realising that this little monetary experiment has screwed the market for everything and they have nowhere to go.

Raise rates and the ponzi will collapse. Do nothing and the bubble will inflate further which will ultimately lead to a bigger crash.

Now it's just a tussle between the bankers and politicians as to who ends up taking the blame for what's coming.

The earlier central bank and government realise that it is best to let go little air before it burst by itself is better for everyone and than let the ecomomy takes its own course - like induced coma.

......the blame is already set. It's called covid.

Only two people will believe that, I think their names are Jacinda and Grant.

Let the housing Ponzi deflate NOW, before it is too late. If we do it now, there is still some hope that the housing bubble deflation can be somewhat managed. If we wait any longer before raising interest rates to a more sensical level, the housing Ponzi collapse runs the risk of taking the real NZ economy with it.

Have a look at George Gammon’s latest video on YouTube about the possibility of raising mortgage interest rate. Screwed if they do it and screwed if they don’t. Yes we are screwed.... but most people think it won’t effect us as we are NZ.

The EU has begins export restrictions on vaccines, starting with Australia. This is despite the fact there are millions of unused AstraZeneca vaccines across the EU in storage:
https://www.bbc.co.uk/news/world-europe-56279202

The inevitable conclusion to the EUs tough stance on vaccine exports under Ursula von der Leyen. Just bully smaller countries out of the queue.

sort of endorses the spirit of Brexit that does. Even the much lamented NHS is performing extremely well, under the UK’s independent management, rolling the vaccine out.

Good opportunity for the UK to improve its standing here by agreeing to send vaccine to Australia. 250k shots is about half a days work in the UK at the moment, they are flying.

UK doing 250 000 shots in half a day? Are you sure? How long do you expect NZ to take to do 250 000 jabs?

Yes PDK, I did have to laugh. "...Did you notice how in the media or in the socials there is no more debate? There are only insults. There has to be something deeply wrong in the way society is functioning that makes it impossible for most of us to discuss with people who don't fully agree with us."

Did you notice how in the media or in the socials there is no more debate? There are only insults.

Ah the standard ad hominem comments we have become accustomed to when we disagree with the oracle PDK..

Did you notice how in the media or in the socials there is no more debate? There are only insults.

No more debate as government is not debating ( keeping silence as not in election modae and when forced to answere are either lying, denying, manipulation or playing ignorant) and insulting the voice of average person, hence ..........

National government too se to lie, deny and manipulate but never seem to be stupid / ignorant unlike current Jacinda government.

11
up

I have noticed in the media, over a lifetime, that one false narrative - the one that says you can have unlimited growth on a finite planet, and that growth is unchallengedly good - spread by an ignorant (of facts) cohort.

That cohort generally are known as Economists....
Another sub-cohort are the spruikers/spinners/obfuscators, acting on behalf of said impossible growth

Small point: left alone, their pathway kills us all. Just sayin'.

Hu. NASDAQ plummeted 3.4% in the past hour and still falling.

Saudis/OPEC are keeping oil tight which will shunt inflation upwards. OPEC v.s. Powell.

Edit to add: https://www.bloomberg.com/news/articles/2021-03-04/opec-decides-not-to-i...

I just put another 100K into the NZX50 yesterday. I probably would have been wiser to leave it in TDs, and collect my .5% after tax return. The return OF your money is far more important than the return ON your money.

Weird post, unless you're being sarcastic? You tell us you did something and then tell us it's a bad idea.

Yep that’s the FED’s Big Experiment in action.

Bit of a shake this morning.
Just lucky we have replenished our financial resources and re-established economic stability to withstand the Next One when it comes, rather than loading our small economy up with Debt.
What's that you say? "But we have much less than other economies do!".
That will count for nothing when the next catastrophe arrives - whatever that is.

Talk about a shakedown! Went on a long time. Whatever do you mean, our small economy was extremely frugal and only threw several squillion indiscriminately at companies such as thriving law-firms, real estate agencies. Because we're in a great position and we didn't need to panic

One of the things that intelligence brings is clarity of mind. Covid has shown most of you don't have it. Lord Sumption here talks very well on the topic, saying things I said myself when published here on Lockdown last year. You don't change laws in a panic, you don't make decisions based on fear, you don't lock away healthy people, and if you change the convention you remove the obstacle government can now act with impunity to do anything they wish to you. As he points out, our civilisation relies on convention more than law, and the convention just changed and you all agreed to that changed because you were a little bit scared. You are fools, you don't know what you are playing with. I said last year when this happened that Covid brought us a new normal.

https://www.youtube.com/watch?v=5lXAA7ZOROc

And a bit more common sense being spoken by a prince of Lichtenstein.

https://www.youtube.com/watch?v=9BgjDBbVgtw

Accidental report. Sorry

Morning scarfie,

Do you listen the the DarkHorse Podcast with Drs. Bret Weinstein and Heather Heying? I highly recommend. Their lastest livestream podcast #69 discusses a paper which looks at 900,000 confirmed USA Covid cases, any co-morbidities these cases have and the negative outcomes of said co-morbidities. Very interesting and it goes a long way to explaining why the USA in particular has had so many issues with Covid- a lot of them are extremely unhealthy. Stuff (surprisingly) has this article this morning too.

I'm a fan of the Weinstein brothers. What you post about was clearly happening from very early on, but most people didn't want to listen.

I'm an athlete, the more I read on performance in sport the more I come across the information I was already aware of. A sedentary lifestyle combined with a diet high in refined foods is deadly. It is spiking your insulin all over the show which has adverse effects in many ways, including weight gain and poor immunity. A starchy meal will halve the T-Cells active in your blood, I've known this since I was about 7 and was playing soccer. My mother was researching the effect of half time glucose pills. Vitamin C can double those T-Cells. Too bad if this offends anyone, but Covid deaths are self inflicted.

"I'm an athlete"...professional or like the rest of us you just work out?

I've posted here before that I do Waka Ama. National Champion in long distance after 18 months in the sport. In singles I'm 4th in my age division, probably in the top 12, certainly the top 20, overall with only 3 years in the sport. Up from my first try in singles last year, in which I achieved 8th.

Did you see this? "Higher Covid death rates are observed in the [25/65°] latitude and in the [−35/−125°] longitude ranges. The national criteria most associated with death rate are life expectancy and its slowdown, public health context (metabolic and non-communicable diseases (NCD) burden vs. infectious diseases prevalence), economy (growth national product, financial support), and environment (temperature, ultra-violet index). Stringency of the measures settled to fight pandemia, including lockdown, did not appear to be linked with death rate.
Conclusion: Countries that already experienced a stagnation or regression of life expectancy, with high income and NCD rates, had the highest price to pay. This burden was not alleviated by more stringent public decisions. Inherent factors have predetermined the Covid-19 mortality: understanding them may improve prevention strategies by increasing population resilience through better physical fitness and immunity."
https://www.frontiersin.org/articles/10.3389/fpubh.2020.604339/full

Yes I'm well aware of that one, but I've somewhat given up banging on about it. Lost cause.

I wonder if some on here have looked in depth into what caused the Great Financial Crisis of 2008 (obviously many of us were around when it happened and personally affected with retirement portfolio losses, property value decline). Was it a sudden drop in rental demand that caused the GFC? Did the population suddenly drop off, people leaving USA or spontaneously combusting? And if so, couldn't the governments there have simply fixed the problem by quickly letting in more people into the USA? Or were there plenty of people, and the problem was they just couldn't afford their huge mortgages anymore, and what happened happened very fast and caused a meltdown? So many people feel very confident and think a house price drop in NZ will instantly be fixed by letting in more numbers into our country

It's called confirmation bias. Those heavily invested in property have convinced themselves is a risk-free asset and will defend that view vehemently. That's why it's important to do your own research before jumping in and following the crowd with any investment, or life advice, for that matter.

Good advice

As an investment class, I would not touch NZ residential housing with a barge pole.
In this nonsensical make-believe world of ludicrously low interest rates, most asset classes are dangerously inflated, but none is as inflated as NZ residential housing.

You have missed out immensely over many years then

youngdandb....To be fair, with the way much of the MSM reports and spins stuff, it is very easy to be misled. There are quite a few educated, intelligent people (in NZ) who love to tell everybody how property in NZ is guaranteed to double every ten years. And if questioned on this "fact" they will quote the last four ten year periods as empirical evidence that the market has always doubled every decade and always will.
It is similar to somebody (oblivious to the fundamentals of cricket) saying that because NZ scored 60 runs in the first 4 overs of the T20 cricket match tonight (which is quite possible) then the empirical evidence of the past tells us it is extremely likely (or even guaranteed) that we will score 300 from the full 20 overs (60 runs x5 (lots of 4 overs each) =300 runs), which of course is as far-fetched, simplistic and prone to error as the 10 year property rule as they are both predicated on a sample size of exactly four.
It is ironic that ( I think) a certain "property expert" would probably understand the cricket analogy far better than he understands how it relates to his own self-proclaimed area of expertise.

Golden rule of investing - past profits don't indicate future performance. and yes MSM has misled the public on a wide variety of topics purely for paid clicks. It is becoming increasingly hard to get to the truth with all the snake oil salesman crowding the media

past performance based predictions vs sound predictive analysis.

It's the Turkey fallacy 'I am safe and being fed well, nothing is ever going to change" until the night before thanksgiving something unexpected happens

Just don’t watch or read mainstream media.

No it wasn't a drop in rental demand
It was a function of CFD's
The US merchant banks had loaded up on them. One of the functions of CFD's were they were onsold in clusters of 10 funds with the contract rule that if 8 of the funds failed the whole of the cluster failed. Unfortunately Bear Stearns and Lehman Brothers had gorged themselves of these financial products. When the first one failed and the news got out it caused a domino effect which brought the whole schemozzle down. It was when the liquidators went in to wind up the underlying mortgages they were met with non-recourse mortgage holders who simply handed the keys to their properties back in

Non-recourse mortgages don't exist in NZ

A Canadian viewpoint. Are we in the Roaring 20s? Are we shortly then to be plunged in to the depressed 30s?
https://www.cbc.ca/news/business/canadian-economy-weath-recession-reboun...

Dago there's a great doco on Netflix (I think) called Inside Job that explains it really well

diago
Why all the suggestions - the housing bubble burst especially in USA was due to sub-prime mortgages.

I don't see that it is all so very different. The bottom line is if borrower can't keep up with higher interest payments, or payment arrangements are not met, and so on, the bank has to act at some point. I do feel people may have been lulled into a false sense of security with generous mortgage deferrals, interest only deals and low interest rates

Dago, It's the sub-prime mortgages, mortgages made to people with No Income No Jobs (called NINJA loans). These bad mortgages were then "packed" together with standard mortgages and onsold to other financial institutions as "prime" mortgages. Unsurprisingly, when enough people with no income defaulted on their mortgage payments the whole system collapsed.

No income No jobs describes NZ - NINJNZ in a few years when business lay off ppl or collapse due to so much disposable income propping up investors via rent and paying huuuge mortgages

Stock Market falling and reserve banks are under pressure to support and lift the market.

Central bank and governments themselves are responsible to put themselves in a hole where they are been blackmailed by the market to support - no more fundamental now it is all support / crutches to walk or will fall.

Same applies to housing ponzi, will not be able to move a step unless supported and promoted by reserve bank and government but for how long.

At sometime, market has to correct for healthy economy so why the fear.....and for how long...and bigger it gets BIGGER the PAIN.

Good comment. I call it the ‘snap back’ it’s coming...property values are so far removed from fundamentals it’s scary.

When Mr Orr said ‘property isn’t a one way bet’...to me that’s a sign the RBNZ isn’t going to intervene when prices start to correct.

He's smart enough to realise that policy can't always save a market - I can recall the Fed dropping interest rates in the US in 2008-2009 and house prices still plummeting. What people don't understand is that human psychology plays a big part in this, so if central banks can't convince people that the future is going to be better than the present because of what they are doing (i.e. dropping rates, which we're pretty much out of ammo now), then nothing they do will help. I think more people are slowly starting to wake up to the fact that you can't use more debt to solve a debt problem. And when that becomes the consensus of the market, who knows what will happen. It will be outside the control of fiscal or monetary policy. It will be over to human fear to clear/resolve itself out - and in bubbles throughout history the fear is typically equal in intensity to the greed that has pushed prices as high as they become at their peak (in NZ the greed factor has been extreme in my personal view).

Some points not being discussed here; The Chinese chip manufacturer SMIC is currently hitting capacity limits and the US is dragging its feet in approving export licences for some machinery and bits it needs. We had a discussion on this site some months back about what NZ could do, especially after the Taiwanese Chip manufacturer wa identified as setting up a new factory in the US. Sort of reinforces the missed opportunity lesson?

And the discussions we had on resilience; the reneging on agreements that are starting to occur are beginning to underline the importance on that. Over reliance on international agreements and treaties will not do any good when countries begin deciding they can renege on them at will

Anyone else thinking the share markets are looking particularly bearish right now?

NASDAQ looks like it could fall off the edge of a cliff in similar fashion to Feb/Mar last year.

Yes, although I did put more $ into the NZX50 yesterday. I viewed it as less risk than buying a rental. Keeping the $ in TDs was prolly the smart move but with all this artificial asset price inflation caused by the RBNZ and Govt I felt I was forced into gambling.

Some highly perverse incentives being put in place by regulators who are responsible for 'financial stability' - yet they set the rules in place so that the opposite is in fact the reality. That people are being forced to gamble (no offence to you at all karl) is just a recipe for future pain.

#cognitivedissoanance

Indeed Karl - I'm in both NZX50 and American markets.. I'm thinking about cashing some but the constant de-valuing of asset purchasing power prevents me.

Yes, I have been watching the US markets. Also watching (with amused interest) what is happening with GME.

Market falling because Fed decided it did not need to do operation Twist 3 today, to stop rates rising.
So, 10 year rate has spiked to 1.54%
All international rates follow this one.
Rates rising because markets expect inflation.
World seems to have thought it got away without the consequences of Cv19 lockdowns, which in many countries, like NZ , have not so far been v bad, and much better than expected
But economics has lags. And the consequences are now arriving.
Stimulus has been overdone and inflation is arriving

Well said Mike

This is far from the first time the British have made a deal with the EU, then reneged. For some reason London doesn't feel bound to honor its agreements when it doesn't suit them. It's an arrogance that runs deep.