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Asian shares look set to climb after Wall Street rallies as trade concerns ease

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‘Mini trade war’ imminent? EU rejects the UK’s attempts to overhaul the Brexit deal

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LONDON, ENGLAND – JUNE 09: Cabinet Minister Lord Frost (R) chairs the first meeting of the Partnership Council followed by the eighth meeting of the withdrawal agreement joint committee with his EU counterpart Maros Sefcovic (L), Richard Szostak, Principal Adviser, Service for the EU-UK Agreements (2ndL) and Paymaster General, Penny Mordaunt (2ndR), on June 9, 2021 in London, England.

Eddie Mulholland – WPA Pool/Getty Images

The European Union rejected a call from the British government to overhaul the Northern Ireland Protocol, a key tenet of the agreement that saw the U.K. leave the EU in 2020.

U.K. Brexit Minister David Frost and Secretary of State for Northern Ireland Brandon Lewis on Wednesday set out a “command paper” urging European leaders to renegotiate the protocol, on the basis that it has turned out to be unworkable in practice.

“We are ready to continue to seek creative solutions, within the framework of the Protocol, in the interest of all communities in Northern Ireland,” the European Commission said in a statement late on Wednesday. “However, we will not agree to a renegotiation of the Protocol.”

The deal was negotiated and signed by the British government in 2019 and ratified by the British Parliament, but the government is now seeking to renege on its commitments due to the challenges arising from its implementation.

The protocol, in principle, helps prevent customs checks and an effective land border between Northern Ireland, which is part of the U.K., and the Republic of Ireland, which remains in the EU.

BELFAST, NORTHERN IRELAND – APRIL 07: Nationalists and Loyalists riot against one another at the Peace Wall interface gates which divide the two communities on April 7, 2021 in Belfast, Northern Ireland.

Charles McQuillan/Getty Images

However, it has led to port inspections on goods traveling between Great Britain and Northern Ireland, a development that has angered businesses and drawn criticism for effectively creating a border in the Irish Sea. This has stoked historical sectarian tensions in Northern Ireland.

Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng told Sky News on Thursday that “nobody could guarantee the effects of the Northern Ireland Protocol until we left the EU.”

Kwarteng also claimed the agreement wasn’t “written in stone,” despite it being written into international law.

Supply chain shifts

Christopher Granville, managing director for EMEA and global political research at TS Lombard, told CNBC Thursday that the process of kicking the can down the road on Northern Ireland has already begun, with a three-month extension in place until September of a grace period on food and other products being transported between Great Britain and Northern Ireland.

The British government said in its command paper that it believes the current situation satisfies the criteria for invoking Article 16 of the Protocol, which allows for its suspension in the case of “serious economic difficulties.” However, it has expressed reluctance to trigger this clause just yet. The EU, Granville said, will take the position that a party cannot claim “serious difficulties” before the full terms of the agreement have been implemented.

A lorry passes through security at the Port of Larne in Co Antrim, Northern Ireland on December 6, 2020.

PAUL FAITH | AFP | Getty Images

“These positions point to the following kind of negotiation: the EU rejects the U.K. proposal for an ‘honesty box’ approach to goods shipments from GB to NI; but the EU will propose fast-track regulatory checks on shipments of foodstuffs arriving in NI from GB with additional facilitations for trusted traders,” Granville explained.

“To the extent that such negotiations produce any agreements, both sides will be able to claim victory: the UK will say that it has renegotiated the Protocol, the EU will say that it has found the best way to implement the Protocol.”

However, he noted that such agreements will be difficult to establish, and there will be “cliff-hangers” as the grace periods approach their expiry date and the parties come out with the “usual threats” of withdrawal and litigation.

While these disputes grab the headlines, Granville said the crucial reality unfolding beneath the surface will be a fundamental shift in supply chains.

“Essentially these will shift from east-west (i.e. GB-NI) to north-south (i.e. ROI-NI, with ROI in this context meaning both Ireland in its own right and as a channel for shipment from all of the rest of the EU),” he explained.

LONDON – Brexit minister Lord Frost making a statement to members of the House of Lords in London on the government’s approach to the Northern Ireland Protocol.

House of Lords/PA Images via Getty Images

“This adjustment will mean over time (even in time for Christmas) that there will be no empty shelves in NI supermarkets on the basis of which U.K. politicians could invoke the ‘serious economic difficulties’ criterion of Article 16.”

British businesses such as Marks & Spencer that are facing delays in fresh produce delivery from Great Britain to Northern Ireland would then have to either expand their supply chains within the Republic of Ireland, Granville suggested, or leave their Northern Irish market share to be taken up by a company operating in the Republic or the broader EU.

‘Mini trade war’

James Smith, developed markets economist at ING, said there are two possible ways the renewed stand-off could affect the British economy.

“A positive – though seemingly unlikely – outcome is that the UK government opts to align more closely to EU food standards after all, removing barriers not only for GB-NI trade, but also on exports to the EU,” he told CNBC on Thursday.

“But with trust between both sides clearly low, the bigger near-term question is whether further legal steps are taken by Brussels that eventually culminate in tariffs – and in a negative scenario, some form of mini trade war.”

Although things may not get that far in reality, Smith said, such a scenario would reintroduce disruption to U.K. exports which have partially recovered from the sharp decline in January, after the U.K.’s formal separation from the bloc.

BELFAST, Northern Ireland: A Loyalist holds a placard with words ‘Stormont Or The Protocol?’ during a protest against the Northern Ireland Protocol at the entrance to Belfast Harbour.

Artur Widak/NurPhoto via Getty Images

“At a bigger macro level however, the effects of Covid-19 are still likely to dominate the outlook over coming months, with the impact of Brexit likely to have a less noticeable impact on GDP in the short-term,” Smith added.

TS Lombard’s Granville suggested that the main opposition Labour party in the U.K. may push for the “easy and instant solution” of aligning with the EU’s food standards, which Prime Minister Boris Johnson’s pro-Brexit Conservative government will be reluctant to do as it undermines the “sovereignty” at the core of its electoral platform.

He anticipates that if the process of kicking the can down the road lasts until the Northern Irish elections next May, and present polling remains consistent, pro-Irish republican party Sinn Fein will emerge as the largest single party in the devolved Northern Irish Assembly.

“I haven’t yet got a clear view for now on exactly how this might change the political dynamic over the Protocol dispute, but it will surely do so,” Granville said.

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Didi shares drop on report China is planning unprecedented penalties

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Chinese ride-hailing giant Didi came under pressure again on Thursday amid a report that Beijing is considering harsh penalties from a massive fine to even a forced delisting after its IPO last month.

Shares of Didi fell more than 8%, bringing its month-to-date losses to more than 25%. Bloomberg News reported Chinese regulators are planning a slew of punishments against Didi, including a fine likely bigger than the record $2.8 billion that Alibaba paid earlier this year.

The penalties could also include suspension of certain operations, delisting or withdrawal of Didi’s U.S. shares, the report said, citing people familiar with the matter. Didi didn’t immediately respond to CNBC’s request for comment.

Didi shares have dropped about 25% to $10.50 a share since its market debut on June 30 when it started trading at $14 a share.

Last week, officials from seven Chinese government departments visited the ride-hailing giant’s offices to conduct a cybersecurity review. The ride-hailing giant was forced to stop signing up new users and its app was also removed from Chinese app stores.

The Cyberspace Administration of China alleged that Didi had illegally collected users’ data.

Beijing is stepping up its oversight on the flood of Chinese listings in the U.S., which are overwhelmingly tech companies. The State Council said in a recent statement that the rules of “the overseas listing system for domestic enterprises” will be updated, while it will also tighten restrictions on cross-border data flows and security.

— Click here to read the original Bloomberg News story.

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Visa to buy UK payments start-up Currencycloud

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A Visa debit card.

Simon Dawson | Bloomberg | Getty Images

LONDON — Visa said Thursday it has agreed to buy British payments start-up Currencycloud, in its second major fintech acquisition of 2021.

The deal values Currencycloud at £700 million ($962 million), Visa said. The payments giant led an $80 million investment in Currencycloud at the beginning of 2020. As a result, Visa said the sum it’s paying for Currencycloud would be reduced by the outstanding equity it already owns.

Founded in 2007, London-headquartered Currencycloud sells software for banks and fintech firms to process cross-border payments. It’s one of many business-focused fintechs that operate behind the scenes powering popular banking and payment apps like Monzo, Starling and Revolut.

“Consumers and businesses increasingly expect transparency, speed and simplicity when making or receiving international payments,” said Colleen Ostrowski, Visa’s global treasurer.

“With our acquisition of Currencycloud, we can support our clients and partners to further reduce the pain points of cross-border payments and develop great user experiences for their customers,” she added.

Shares of Visa were about 0.4% higher Thursday morning New York time. The stock has risen about 23% in the past year thanks to a boom in digital payments during the coronavirus pandemic.

The acquisition of Currencycloud marks Visa’s second big takeover this year, according to Crunchbase. The card network company last month agreed to buy Swedish firm Tink for $2.1 billion, after its attempt to acquire Plaid, a U.S. rival, was thwarted by U.S. regulators.

The move is part of an ongoing push from Visa and rival credit card firm Mastercard into fintech, as alternative payment methods like virtual wallets and bank-to-bank transactions gain traction.

Currencycloud has raised more than $160 million in total funding from investors including Google parent company Alphabet’s venture capital arm GV, French bank BNP Paribas and Japanese financial services firm SBI Holdings.

“Re-imagining how money flows around the global economy just got more exciting as we join Visa,” said Mike Laven, Currencycloud’s CEO.

“The combination of Currencycloud’s fintech expertise and Visa’s network will enable us to deliver greater customer value to the businesses moving money across borders.”

Currencycloud, which has 500 banking and technology clients in more than 180 countries, will continue to operate from its headquarters in London and keep its currency management team. The deal is subject to regulatory approvals and other customary closing conditions, Visa said.

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