May 18, 2017 / 7:37 AM / in 5 months

Daily Briefing: May mixes it in UK election pitch

Britain's Prime Minister Theresa May answers a question during a news conference with Chancellor of the Exchequer Philip Hammond in London's Canary Wharf financial district, May 17, 2017. REUTERS/Stefan Wermuth

LONDON (Reuters) - As if to highlight how the tags "left" and "right" are becoming increasingly irrelevant to our understanding of politics, British Prime Minister Theresa May will set out a mix of promises taken from across the policy spectrum in her election manifesto today.

Media leaks suggest her Conservatives will promise to intervene in markets when necessary and loosen fiscal policy. Better-off pensioners in particular are likely to face welfare cuts, in a move May’s advisers see as an effort to redistribute aid where it is most needed. Expect also some stern talk on “fat cats” after recent excesses in the UK corporate sector.

That will be balanced by moves designed to appeal to her conservative heartland: the BBC says the manifesto will propose extra charges for businesses who employ non-EU migrants and higher charges for migrants who use the National Health Service.

EU defence ministers' meetings can be dull affairs but the buzz at today's talks in Brussels will be Emmanuel Macron's decision, announced yesterday to name Sylvie Goulard, a European expert, as new French defence chief.

A European lawmaker who speaks four languages, Goulard is respected in Brussels as a straight talker, having acted as adviser to former European Commission president Romano Prodi: her appointment is intended to show that Macron is serious about boosting EU’s defence capability.

Another late night is due for Greece's parliament as it votes on austerity measures agreed with creditors in the latest bailout review. The bill has to pass in order for Greece to receive funds -- a fact which should make the vote a formality despite the unpopularity of the package.

MARKETS AT 0655 GMT

Pop! The growing furore over the extent of U.S. President Donald Trump's links with Russia finally led to the biggest one-day drop in the S&P 500 in eight months and the seventh biggest daily surge in implied equity volatility on record.

In some respects, many investors saw this move as overdue -- the evaporation of volatility over the past few weeks and successive record highs on major stock markets sat uncomfortably with the shaky political backdrop and policy uncertainty in DC, but also with the stream of economic data misses that have plunged U.S. economic surprise indices deeper into negative territory than they have been since May of last year.

The latter makes it harder to ignore the many questions over the Trump administration -- both its ability to deliver its long-promised economic stimulus and possibly even its ability to last a full term. Bookmakers and betting markets put the chances of an early "Tr-exit" as high as 30 percent as separate justice department, congressional and FBI investigations into the Russian links stack up.

Trump himself now heads on his first big world tour over the coming week, to the Middle East first and then to Rome, the Brussels NATO summit and then the G7 summit in Sicily.

But for context, the S&P 500 is only back to where it was in late April, still up more than 10 percent since Trump’s election last November. And Wall St futures showed signs of some modest stabilisation on Thursday.

The dollar is marginally higher too after hitting its lowest level in well over six months against the euro overnight -- although, just like commodities, it has now wiped out all its post-election gains as the “Trump trade” fades away.

The question is whether this reflation euphoria now just gets shelved or actually goes into reverse. Wall St nerves rippled across Asia earlier, Tokyo underperforming with losses of more than 1 percent. Euro stocks fell hard on Wednesday too despite all the talk of relative switching of funds, and futures are pointing to a lower opening.

Elsewhere, reports about Brazil's President Temer getting embroiled in a domestic corruption scandal have unnerved Brazilian markets traded overseas. On the plus side, Japan's first-quarter GDP beat forecasts with an annualised 2.2 percent expansion that beat January-March readings in both the United States and the euro zone.

Editing by Catherine Evans

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