The Brexit negotiations moved to round two (trade talks) last week when UK Prime minister Theresa May agreed to a divorce bill that satisfied the EU requirement of "sufficient progress".

In the trade talks, David Davis, the UK's chief Brexit negotiator seeks a Canada Plus Plus Plus agreement with the EU, while warning of the consequences if trade talks break down.

"Canada plus plus plus" is a reference to a trade deal between Canada and the EU.

"We'll probably start with the best of Canada, and the best of Japan and the best of South Korea and then add to that the bits that are missing, which are the services," said Davis.

Unlike the Canada deal, Davis also wants financial services included in the tariff-free area.

The Carrot

The odds of the UK exiting without a deal had "dropped dramatically" according to Davis. Yet Davis cautioned that the deal struck by Theresa May on Friday to move to the next phase of talks was a "statement of intent" and not "legally enforceable".

If a trade deal cannot be worked out, the UK is willing to walk away. "No deal means we won't be paying the money." The divorce bill, is between £35 billion and £39 billion. That' s approximately $47-$52 billion, or €40- €44 billion.

Four Outcomes

Mike "Mish" Shedlock