March 15, 2019 / 9:00 AM / 2 months ago

Daily Briefing: Brexit - third time lucky for May's deal?

LONDON (Reuters) - March 29, once destined to go down as a milestone in British history, will now be a spring Friday much like any other - assuming of course the European Union begrudgingly agrees to the request to a Brexit delay that Britain has now accepted it will have to make.

The two other take-aways from this week of voting are that a no-deal Brexit could now only really come about by accident and against the will of parliament; and that Theresa May remains just about in control of proceedings, despite a palpable weakening in her authority.

As was already clear yesterday, she will now seek to persuade 80 or so hard Brexiters, the DUP and other waverers to finally back her deal sometime next week by threatening them with the prospect of a much longer delay to Brexit.

Some of them are sounding more conciliatory; on the other hand, a local media report this morning suggests that an attempt to feed them with "clarified" legal advice on the temporary nature of the Irish backstop has failed.

A pro-Brexit protester holds up a sign outside the Houses of Parliament, March 14, 2019

The European Central Bank may have missed its opportunity to raise interest rates before the next downturn, according to a Reuters poll that shows a majority of central bank policy watchers aren't confident they will.

If they are right that the ECB has missed its window to tighten its policy, that is worrying - it means that the bank will have very little scope from its conventional arsenal to provide an easing of conditions if the economy goes into a more severe downturn and so would be forced to dream up new (and untested) tools to fight one.

Populist nationalist politicians seem to be in fashion across much of Europe right now but not, it would appear, in Slovakia. On Saturday its voters look set to back a progressive anti-corruption campaigner with green credentials in the first round of voting for president.

Zuzana Caputova has even been dubbed “Slovakia’s Erin Brockovich” for leading a fight against an illegal landfill in her hometown, echoing the plot of a film that won Julia Roberts an Oscar. A political novice, she has leapt to first place in the polls after another opposition candidate withdrew and backed her.


Beware the Ides of March? A fair amount of news out there could swing markets. None of it is particularly good, but stock markets seem determined to make the best of it.

Global stocks appear to be shrugging off talk North Korea might suspend nuclear talks with Washington and Brexit is going to be delayed. They are up and set for a weekly gain, first of all thanks to tenuous hopes of progress on the U.S.-China trade talks, even though Treasury Secretary Steven Mnuchin confirmed a Donald Trump-Xi Jingping summit will not happen at the end of March.

There’s also renewed hope for Chinese stimulus - Premier Li Keqiang outlined broad policy steps to prevent a sharp deceleration in growth. Those expectations helped markets such as Tokyo, where shares of companies exposed to China soared. The Bank of Japan, on the other hand, has been forced to temper its outlook for the economy; it said "exports and production have been affected by the slowdown in overseas economies".

After last week’s European Central Bank meeting it’s pretty clear that no major central bank now contemplates any policy tightening. Final inflation euro zone data today should confirm that - headline inflation is forecast at 1.5 percent.

We also get data on U.S. February industrial output and the March Empire index showing how manufacturing fared in March, as well as the March consumer sentiment survey from the University of Michigan. In addition, Moody’s reviews Italy’s, S&P has Finland, Austria and Portugal.

Markets were unimpressed after this week’s vote on Thursday in favour of delaying Brexit (as expected). A proposed amendment for a second referendum failed (also as expected). Sterling appears to have settled in to wait and see, with PM Theresa May expected to try and resurrect her hated withdrawal agreement for another vote next week — her third attempt to get it through Parliament before she goes to the EU to request that extension. 

The dollar is down following unimpressive weekly jobs data on Thursday. The promise of more Chinese stimulus has lent a helping hand to the Aussie and kiwi dollars. The North Korea news has hit the Korean won but only in a small way.

All the major European stock futures are in positive territory, with the trade-sensitive DAX leading the pack, up 0.2 percent. There's not much in the way of corporate earnings to drive direction with the results season nearly over. 

Better-than-expected results from U.S. chipmaker Broadcom may boost competitors in the euro zone. H&M, the world's second-biggest fashion retailer, has reported in-line first-quarter sales growth. British pubs group JD Wetherspoon saw a drop in first-half profits as it battles high labour costs.

Volkswagen will be in focus after the U.S. Securities and Exchange Commission filed a civil suit against the company and Martin Winterkorn, its former chief executive, over the German automaker's diesel emissions scandal. It accused the company of perpetrating a "massive fraud" on U.S. investors.

UBS shares are seen under pressure after Switzerland's top bank said it is bulking up its litigation provisions to deal with a hefty penalty imposed by a French court last month. The news comes a day after Hong Kong's securities regulator banned the bank from leading IPOs in the city for a year and hit it with a fine.

Nordic banks will remain in focus after a Swedish television programme reported that an internal Swedbank report dated last September showed transactions corresponding to 95 billion Swedish crowns between "suspicious" customers in Swedbank and Danske Bank had been done between 2007-2015.

The shareholder showdown continues at Telecom Italia, with the board backing Chairman Fulvio Conti, who is embroiled in a row with the company's top investor, French media group Vivendi. Vivendi accused Conti of violating corporate and governance rules by siding with rival investor and activist fund Elliott.

Shares in German payments company Wirecard are expected to fall after the newspaper Handelsblatt reported the company's Indian operations are being investigated by authorities in Singapore for allegations of money laundering and document forgery. The company's shares have fallen almost a third since the end of January amid the scandal.

In emerging markets, the Shanghai Composite Index added 0.7 percent while the broader emerging equity index was boosted by 0.6 percent. Some emerging-market currencies were supported by the hopes for a China-U.S. trade deal, with South Africa’s rand adding 0.6 percent.

Turkey’s lira was little changed but watching for any impact from data released Friday showing unemployment reached its highest level in nine years. The South Korean won weakened to its lowest level since November on reports that North Korea is considering suspending nuclear talks with the United States.

— 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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