March 29, 2019 / 8:52 AM / 3 months ago

Daily Briefing: Amid chaos, Brexit day comes - and goes

LONDON (Reuters) - On the day that the UK was originally supposed to be leaving the European Union, Theresa May will today have possibly her last go at getting her deal through parliament.

She has asked it to vote purely on the section to do with leaving the EU and keep the one outlining future ties for another day - despite having earlier argued the two components were intrinsically tied to each other.

With the DUP at this stage saying it cannot back the deal, she is likely to need to get her entire party behind it and persuade more Labour rebels to come over: whether the latter group will do that now they know that May could then hand over power to a more right-wing successor such as Boris Johnson is highly doubtful.

Still, there have been so many upsets in this Brexit saga that nothing at this stage is ruled out. If May’s deal is rejected again, attention will turn to Monday’s run-off of alternative Brexit options, with much softer variants and possibly a second referendum currently in pole position.

Conservative Party MP Jacob Rees-Mogg reacts next to a demonstrator outside parliament, March 29, 2019

In a case of life imitating art, comic actor Volodymyr Zelenskiy, a political novice who plays a fictional president in a popular TV series, is set to win the first round of Ukraine's presidential election race on Sunday.

While few Ukrainians actually believe he will go on to win the run-off, Zelenskiy's strong poll showing highlights the frustration of many voters with a political elite that has let down hopes on all fronts since the 2014 revolution.

The country is at the hard edge of the confrontation between the West and Russia since Ukraine’s at the time and Moscow annexed the Crimea peninsula. Its people meanwhile have suffered the consequences of corruption in high places and declining living standards, to an extent exacerbated by International Monetary Fund-backed reforms.

Most of the suspense on Sunday is about who from the old guard will get through to face Zelenskiy in the run-off: incumbent Petro Poroshenko or former Prime Minister Yulia Tymoshenko. Kiev's international allies cannot muster much enthusiasm for any of the three.

Intriguing questions remain after Norwegian Justice Minister Tor Mikkel Wara resigned on Thursday, hours after police filed new accusations against his partner over a series of unexplained domestic incidents.

Wara’s partner, Laila Anita Bertheussen, was first detained for questioning by police on March 14 on suspicion that she had set fire to their car and faked threats against the family. Their home had been vandalised at least five times in recent months and Bertheussen is now a suspect in all cases, police said. Bertheussen denies having either fabricated or presented threats.

MARKETS AT 0755 GMT

With all the troubles spooking world markets these days, we’ve managed to arrive at the last trading day of March with global equities set to post their best quarter since early 2012. For New York’s S&P500 we go all the way back to 2009. However, most of those gains came in January, with February a bit less ebullient and March barely eking out a return.

What happens in the second quarter is anyone’s guess. How do you square the equity gains with a 30-basis-point drop in Treasury yields? If the Federal Reserve is scared enough by the economy’s state to turn tail on tightening policy and if markets are to be believed, it will actually be cutting rates by the end of this year.

The European Central Bank has announced more stimulus and central banks from New Zealand to Canada are hinting at cuts ahead. There’s the simmering crisis in Turkey, Brexit, a series of elections in big emerging markets and the European parliament. So how the second quarter goes is anyone’s guess.

But back to today — and the mood ain’t looking too bad. World shares have inched higher, emerging-market shares are up almost 1 percent, led by a 3 percent-plus surge in mainland China.

The moves come after U.S. Treasury Secretary Steven Mnuchin commented on his "productive working dinner" in Beijing before today’s talks. Wall Street steadied yesterday and the risk-on mood has helped 10-year US yields edged up to 2.403 percent, off 15-month lows of 2.352 percent touched on Thursday, and the yield curve inversion has moderated somewhat.

German yields are up, too, though the 10-year remains below zero. For the month as a whole, German and French 10-year yields are on track for biggest monthly falls since June 2016, when the Brexit referendum rattled investors. The bounce in yields – and some reassuring words from Fed policymakers overnight – has helped the dollar rise, putting it on track for its biggest one-day gain in five months.

Meanwhile, fresh sets of dovish signals from the European Central Bank have sent the euro 1.2 percent lower this week. Most central banks have now turned dovish, the latest being New Zealand, meaning the dollar still looks like the best of a bad lot in terms of yield and economic growth rates.

Sterling rose first thing today after falling 1 percent on Thursday, then resumed its slide as lawmakers prepared to vote on a watered-down version of PM Theresa May’s withdrawal agreement – on the day the UK was meant to leave the EU! Sterling might react to credit and mortgage data out today, but the focus remains on Brexit. House price data showed London house prices continued to slide.

Lest the markets bounce puts us in too positive a mood, let’s remember the drumbeat of poor data goes on. A day after U.S. GDP was revised down, Japanese data showed industrial production up an annual 1.4 percent, but only after a 3.4 percent dip in January. Worse still, retail sales rose less than expected, by a monthly 0.2 percent.

Tokyo CPI came in at an annual 0.9 percent, showing how far the Bank of Japan remains from its inflation target. Similarly, German HICP inflation fell to 1.3 percent in March from 1.5 percent in February, a bad omen for next week’s euro zone core inflation release. Other data sets due today are German unemployment, U.S. personal income and spending, the Chicago PMI, and new home sales.

European stocks are opening higher as investors hoped the positive tone emerging from U.S.-China trade talks in Beijing indicated an imminent deal to end their tariff war. FTSE 100 futures lagged peers as investors prepared for a parliamentary vote on Britain’s withdrawal agreement with the European Union.

In company news, results and dealmaking dominated. H&M shares could jump as much as 8 to 10 percent, traders said, after the Swedish fashion retailer reported first-quarter pretax profit fell less than expected and margins beat estimates.

French telecoms firm Altice was expected to fall 2 percent after reporting a year of heavy promotions took a toll on its profits.  British pharmaceuticals firm AstraZeneca was indicated down 2 to 3 percent after it struck a deal with Japan's Daiichi Sankyo Co to develop and sell a cancer drug. The deal could result in Astra paying Daiichi Sankyo as much as $6.9 billion.

Chemicals firms BASF and Covestro were seen falling 1 percent after U.S. chemicals company DowDupont cut its sales forecast. Swiss vacuum valve maker VAT Group said it is prolonging shorter working hours for 400 production employees for another three months, blaming a market correction in semiconductor equipment. Its shares were expected to fall 1 to 2 percent.

In the UK, stockbroker Numis said it foresees lower first-half revenue because of a difficult market environment and lower UK equity capital market volumes. Building materials company Travis Perkins was expected rise 1 percent after its chief executive said he would step down in August. Dutch biotech firm Galapagos was seen jumping 10 to 15 percent after its Filgotinib drug met its main goal in a phase 3 rheumatoid arthritis study.

In emerging markets, China’s Shanghai Composite Index climbed more than 3 percent on Friday on hopes of progress in trade talks between Washington and Beijing. Expectations of progress also helped the yuan, which is set to add 2 percent against the dollar this quarter. China’s yuan-denominated onshore bonds will be included in the Bloomberg Barclays Global Aggregate Index starting Monday.

Turkey's lira slipped again after steadying earlier as liquidity returned to a key London foreign-exchange market before Turkish elections this weekend. Overnight swap rates plunged to 35 percent, while Turkey's 2030 bond has recovered further after falling to its lowest since September earlier in the week.

But Turkey's tensions with the United States were back in focus after U.S. senators on Thursday introduced a bill to prohibit the transfer of F-35 fighter aircraft to Turkey.

South Africa's rand was up 0.2 percent. Later on Friday, Moody's is expected to cut the country's ratings outlook to negative.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Sujata Rao. The views expressed are their own —

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