LONDON Just when you thought Brexit was all about soft versus hard, or even smooth versus cliff-edge, it might now come down to whether it is "open" or "closed".
So suggests Scottish Conservative leader Ruth Davidson, using her new-found weight in the hung UK parliament to say the British stance should be based on open and broad consultation with other parties rather than the cards-close-to-chest strategy favoured so far by Theresa May.
Given the fact that it is now not certain that there is a parliamentary majority to pull Britain out of the single market as May publicly sought, that approach would throw things very much up in the air before the June 19 formal start of Brexit negotiations and an EU summit a few days later.
Yet a lot of things need to happen before things become clear. May has yet to strike a deal with the Democratic Unionist Party she now needs to be able to remain in power; and there are still open questions about her leadership within her own party.
In an attempt to cling on, May has brought in foes such as Brexiteer Michael Gove back into the government. She faces her angry lawmakers today: the feeling in the party is that she should be kept for now.
No such difficulties for France's Emmanuel Macron, who on Sunday's first-round showing is likely to get a whopping majority from the second round of parliamentary elections next week. That should facilitate his drive for robust economic reform, although analysts have noted the record abstention rate (over one in two voters failed to vote) means his popular mandate is hardly overwhelming.
Another take-home from the French election was the poor showing of the National Front, whose leader Marine Le Pen had high hopes only a few weeks ago of entering the Elysee Palace.
It is too early to say that Europe's mainstream has weathered the populist challenge entirely, but it was also interesting that Italy's anti-establishment 5-Star party also under-performed at mayoral elections this weekend.
MARKETS AT 0655 GMT
The technology stock wobble on Wall St late Friday comes at an interesting moment when investors are starting to sense the surprise factor in this year’s hefty global economic upswing is starting to fade. Led by negative reports on Apple’s new iPhone, tech stocks and the tech-heavy Nasdaq turned tail and the latter lost almost 2 percent in its third biggest one-day loss of the year so far.
While year-to-date Nasdaq gains of more than 15 percent have outperformed the wider market, the ebbing of the Trump reflation trade and the slide in U.S. economic surprises deep into negative territory has prompted some strategists and investors to review the mix of their portfolios.
The G10 economic surprise index, capturing the world’s 10 leading economies, has just dipped below zero last week for the first time in 8 months. JPMorgan, for one, reckons the ‘reduced upside risk to growth and inflation’ has led it to underweight growth sensitive stocks and assets in favour of high income assets – a move echoed by others in the shift out of tech stocks late last week even as the S&P500 remained largely flat. With the U.S. Federal Reserve about to pull the trigger on another interest rate rise on Wednesday, the defensive stance gains more relevance.
The Fed’s signalling on the chances of another hike before year-end and the speed of its balance sheet rundown, however, will carry more weight and uncertainty than this week’s rate rise itself.
Treasury yields are higher and the dollar index a little lower first thing Monday. Asia bourses got caught in the backwash of the U.S. tech selloff, meantime, with Seoul’s Kospi down 1 percent and the Nikkei225 down about 0.5 percent.
Back in Europe, politics continues to grab the headlines, with a fresh rally in euro zone government debt following Sunday’s first round of the French national assembly elections, where President Macron’s new party looks poised for a landslide overall majority. French and Italian 10-year debt spreads over Germany’s tightened further, with the Italian spread now at its lowest in two weeks. European stocks, however, have more of an eye on Wall St and are marked about 0.3 percent lower.
Sterling has recovered some ground against the dollar after Thursday night’s shock election result that saw PM May’s Conservative’s losing their parliamentary majority. While investors now expect days and weeks of uncertainty over May’s position as PM and the possibility of yet another election this year, many now think May’s hardline stance on Brexit will have to be softened and this is supporting the pound. UK economic numbers are deteriorating, however, and negative surprises are mounting.
(Editing by Andrew Heavens)