June 21, 2017 / 7:23 AM / 2 months ago

Daily Briefing: A very fraught Queen's Speech

Britain's Queen Elizabeth reads the Queen's Speech during the State Opening of Parliament in the House of Lords in London, Britain May 18, 2016.Alastair Grant/Pool

LONDON (Reuters) - British Prime Minister Theresa May is talking about a more consensual approach to Brexit, glimpses of which will be seen in her minority government's manifesto to be read to parliament by the Queen from 11.30 local time (1030 GMT).

"Consensual" is of course a very generous way of describing May's approach to the predicament she is in. She is in fact fighting for her political survival after the new reality created by the June 8 election: she still has no viable coalition deal, her credibility inside her own party is in tatters and now she has a finance minister who is publicly challenging her approach to Brexit.

Here are a few specific things to watch: on domestic policy, expect a ditching or refinement of the infamous "dementia tax" social policy that contributed to her poor election showing; a rowing-back on plans to expand selective grammar school education; and tough words on security and counter-terrorism.

On Brexit, May has tried to set the new tone already with a statement pledging to "consult and listen": now watch out in coming days for any language that moves away from her previous "no deal is better than a bad deal" mantra to the need for a smooth transition out of the EU as advocated by finance minister Philip Hammond; and finally, how generous will her offer be to the EU on securing the rights of European citizens living in the UK when she appears at the EU summit on Thursday and Friday? Will she, for example, accept that any EU citizen who arrives in the UK before Brexit itself in March 2019 will retain all their current rights in the country, as Brussels insists?

A government reshuffle by French President Emmanuel Macron due today is becoming more complicated than he expected. Justice Minister Francois Bayrou, head of the small liberal Modem party, has just said he will leave the government, hard on the heels of the departure of defence minister Sylvie Goulard, another Modem member. Modem, a key ally of Macron's Republic On the Move (LREM) party, is the target of an investigation into alleged fake European parliament assistant jobs. So far, Macron is likely to weather the storm but it is not the optics he would have chosen for his early days in government.

Harking back to one of the most gruesome episodes in Europe's migrant crisis of recent years, 11 men go on trial in Hungary today for the deaths of 71 migrants found in an abandoned poultry refrigerator truck in Austria in 2015.

MARKETS AT 0655 GMT

Britain's Prime Minister Theresa May leaves after visiting the Finsbury Park Mosque where a van was driven at muslims outside the mosque in North London, Britain, June 19, 2017.Hannah McKay

Oil and sterling were the big movers on Tuesday, with the hit to energy stocks from an accelerating slide in Brent crude to 7-month lows pushing the S&P500 into its fourth worst day of the year so far with a loss of more than 0.6 percent. Wall Street’s jolt rippled through Asia bourses overnight too, with Tokyo, HK and Seoul all down about 0.5 percent.

MSCI’s decision to include China’s mainland ‘A’ shares in its benchmark emerging markets investment index next year had little impact on Shanghai stocks and was seen as largely a symbolic victory for Chinese authorities rather than a major re-direction of capital flows.

Oil’s retreat rattled many markets, meantime, as it speaks not only to the crude glut but also growing doubts about U.S. growth and inflation that have seen mounting economic data misses, negative surprises and a flattening of U.S. Treasury bond yield curves out to 30 years – itself a sign that investors do not believe the Fed can raise interest rates much further without weakening the economy.

Even though many senior Federal Reserve officials continue to signal another interest rate rise for later this year, Chicago Fed chief Charles Evans said Tuesday that he was “a little nervous” about the Fed’s ability to get inflation back towards its two percent target. The sliding Brent oil price, which stabilized about $46 early on Wednesday, won’t soothe those nerves.

Bank of England chief Mark Carney pushed sterling lower on Tuesday by saying now was not the time to raise interest rates as Brexit negotiations started – dousing speculation about a possible tightening after the BoE’s monetary policy committee last week came closest to voting for a rate hike since 2007.

Sterling was further undermined by delays in UK PM May’s Conservative Party in reaching a parliamentary support deal with Northern Ireland’s Democratic Unionist Party to secure a working majority, even as it lays out its legislative agenda later today.

BoE chief economist Andy Haldane, seen as one of the more dovish BoE policymakers, is due to speak later and the Bank’s regional agents are also due to release their latest economic assessment.

The pound looks set to test $1.26 again in early Wednesday trading. Oil’s retreat has helped the dollar higher across the board, meantime. Eurostocks are expected to open 0.3 percent lower.

editing by John Stonestreet

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