LONDON As she gears up to trigger the Article 50 Brexit clause after last night's green light from parliament, British PM Theresa May faces a battle on at least two, and possibly three fronts: No sooner had Scottish First Minister Nicola Sturgeon announced her demand for a second referendum on independence, than a resurgent Sinn Fein called for an early vote on Northern Ireland quitting the United Kingdom for a reunited Ireland.
This is the wider United Kingdom context within which May must pull the Article 50 trigger some time in the coming two weeks. The problem for her now is that the more she does to show the Leavers of England that she is standing up for their interests in Brussels, the more likely she is to anger and alienate the Remainers of Scotland and Northern Ireland. Timing will be everything, particularly on Scotland, which is why May will now try to resist Sturgeon's demands for a referendum before Britain has left the EU.
Turkey's long-threatened "sanctions" on the Netherlands after Dutch authorities prevented its ministers from speaking at rallies of expatriate Turks look pretty toothless: they include a ban on the Dutch ambassador and diplomatic flights from the Netherlands but there was no sign of anything that would hit burgeoning Dutch-Turkish trade ties or restrict travel for ordinary citizens.
This reinforces the interpretation that much of this was political grandstanding -- Turkish President Tayyep Erdogan talking tough for the benefit of nationalists at home, and Dutch PM Mark Rutte responding in kind to make sure he was not outflanked by the anti-Islam nationalist Geert Wilders in the run-up to tomorrow's election. An early poll suggests both Rutte and Wilders may have won votes from the fracas -- the loser, as is often the case, has been social peace.
The European Court of Justice (ECJ) will rule today on whether an employer can prohibit staff from wearing the Islamic headscarf in the first case of its kind before the EU's top court. The ECJ will rule on the cases of two female employees in Belgium and in France, who were dismissed for refusing to remove their headscarves.
MARKETS AT 0755 GMT
What markets are not doing continues to be the most interesting line of questioning these days. The opening salvos of a week packed with some critical policy and political decisions have left barely a ripple in major macro and equity markets so far.
Pointedly, sterling drifting modestly higher on Monday even after Scotland tabled a request for another independence referendum as early as next year and the UK parliament cleared all legislative hurdles to allow Prime Minister May to trigger Article 50 on leaving the European Union as soon as today. While it’s given up those gains again this morning to trade at its lowest since January, there has been no big jolt.
Although the timing of the Scottish announcement did surprise, both the Article50 trigger and eventual referendum have been largely expected by a market discounting a plethora if UK risks so far this year.
Sterling has already been the worst performing major currency again in 2017 and net short positions in the pound have been accumulating in recent weeks to their highest since November. What’s more, the announcement on the Scottish referendum showed the timing could well be put back to early 2019 – putting the issue well beyond market horizons for the time being as Brexit negotiations kick off first. The early exchanges in those negotiations are unlikely to be comfortable, so any relief rally has been short-lived.
But it wasn’t just the relaxed UK currency, stock and bond markets that puzzled.
US and euro zone stock indices and bond markets have also flat-lined this week as they awaited Wednesday’s interest rate rise from the U.S. Federal Reserve and the Dutch parliamentary elections the same day, U.S. President Donald Trump’s 2018 budget plans on Thursday and the G20 finance chiefs meeting in Baden-Baden on Friday. Too much to absorb? Perhaps. Certainly asset managers are saying there are just too many outsize, conflicting and overlapping political risks brewing to react to them all with any degree of confidence or efficiency and many are simply concentrating on the relatively steady and still-impressive pace of global economic growth building up in the background.
Forecast-beating Chinese industrial production and fixed asset investment numbers out earlier speak to that, with some forecasts now putting year-on-year Chinese Q1 GDP growth as high as 7 percent. If some slide in global activity was to materialise this year, then the myriad political risks would no doubt be amplified. But until then, the temptation continues to be to fade out the politics as background noise for now.
On the specific risks, the weekend diplomatic row between the Netherlands and Turkey seems to have lifted Dutch Prime Minister Rutte’s opinion poll ratings ahead of Wednesday’s vote – putting his party two percentage points ahead of Geert Wilders’ far right Freedom Party. The combination of these latest polls, the strong Chinese numbers and the looming U.S. interest rate rise tomorrow all pushed European bond yields higher this morning, with 10-year bunds topping 0.50 percent for the first time in 14 months.
Euro/dollar is slightly lower in the mid $1.06 area. Wall St and Asia stock indices were mostly flat overnight and Brent crude steadied above $51 after recent steep losses. European stocks are expected to open slightly higher. German March ZEW sentiment reading is the most interesting economic data point of the morning.