July 6, 2018 / 7:42 AM / 3 months ago

Daily Briefing: Brexit's country away-day

LONDON (Reuters) - A "crunch" meeting or just more shadow boxing? Hard to tell whether today's cabinet meeting on Brexit will finally bring any clarity to the months of confusion within PM Theresa May's government.

Armed police officers stand guard at the main entrance to Chequers, the Prime Minister's official country residence, near Aylesbury, Britain, July 6, 2018

It starts at 0900 GMT and goes through into dinner, by which time the idea is that the gathering at a country residence just north of London will have agreed a so-called “white paper” policy document on Britain’s future relationship with the EU.

Pro-Brexit officials have warned that the plan reportedly backed by May to maintain a high degree of alignment with EU rules and standards will equate to Brexit in name only; that said, no high-level resignations are expected for today at least.

The bigger concern is that the UK debate remains alarmingly out of synch with what Brussels insists, publicly at least, are the basic parameters for any deal at all.

Indeed, even if May were to win approval for her plans today, it would face rejection by the EU on the grounds that it "cherry picks" some of the advantages of close EU ties without adhering to rules such as freedom of movement. No wonder some in business and elsewhere are getting worried about the risk of a "no deal" Brexit.

The German coalition's wrangling over migration becomes ever more esoteric. The deal finally agreed between Angela Merkel's CDU and her partners last night will in the end not include the "transit centres" that were the core part of this weekend's truce between her and the Bavarian CSU party. Instead it is envisaged that the asylum-processing of migrants will take place at police stations near its southern border.

How exactly this will function - and on what basis German police will perform border checks - is still not clear and possibly troubling on a human rights level. Polls meanwhile show the German public is heartily fed up with the whole business: a majority believe that too much focus is being put on migration to the detriment of other issues, and a full 78 percent say they are unhappy with the coalition’s work.

China meets central and eastern European leaders on Saturday for a summit where Beijing's promises of big infrastructure deals will come under greater scrutiny, with some participants saying the annual gatherings yield little.

States from the Baltics to the Balkans will meet China’s Premier Li Keqiang at the seventh “16+1” summit in the Bulgarian capital, hoping for fresh money from Chinese companies backed by state banks. More than 250 Chinese companies and 700 business people from central and eastern Europe will also attend a special economic forum alongside the meeting.

German Interior Minister Horst Seehofer and German Chancellor Angela Merkel attend the weekly cabinet meeting in Berlin, July 6, 2018

MARKETS AT 0715 GMT

The trade war has begun. U.S. tariffs on $34 billion of Chinese goods came into effect this morning at 0400 GMT and Beijing has said it will retaliate. Meanwhile U.S. President Donald Trump has threatened tariffs on $500 billion in Chinese goods.

This is not economic Armageddon. We will not have to hunt our food with pointy sticks. But it is applying the brakes to a global economy that has less durable momentum than appears to be the case

Shanghai shares are a bit higher this morning but set for their seventh week of declines and the yuan is also down a third of a percent but staying off recent lows beyond 6.72 per dollar.

So a stronger close on Wall street overnight amid hopes of a rapprochement between the United States and Europe on auto trade tariffs has not this morning translated into gains for Asia and world stocks too are flat to marginally firmer.

However they are at one week highs and set to snap a three week run of losses following tech-led gains in New York and a bounce in Europe that was led by auto shares.

Japanese shares too rose more than 1 percent, with carmakers enjoying the biggest gains, after European autos on Thursday saw their biggest one day jump in more than two years, and shares in firms such as Mercedes and BMW rose as much as 5 percent. But a sobering reminder came from Samsung which said weaker smartphone sales had led to the slowest growth in quarterly profits for more than a year. Samsung shares fell 2 percent.

The euro also rallied on back of that news and Thursday’s surprisingly robust industrial orders in Germany. But the ADP jobs data alongside Fed minutes that hinted at two more rate rises this year flattened the U.S. yield curve even further – the gap between 2- and 10-year Treasury yields is now 27 bps, a new 11-year low.

The dollar hit three week lows on Thursday but on Friday morning it’s flat against a basket of currencies. On the data front, the focus will be on U.S. payrolls (expected to show 200k jobs created in June, steady from May) but ADP data was below expectations.

For sterling and UK markets, attention will turn to the closed-door, all-day marathon meeting between Prime Minister Theresa May and her cabinet to agree on a plan for Britain’s future post-Brexit. An indication of the distrust and division in government ranks over Brexit can be gauged by the fact ministers will have their phones and smart devices confiscated at the start of the meeting and will only be allowed to get them back once it’s over. 

— A look at the day ahead from European Economics and Politics Editor Mark John and financial markets columnist Jamie McGeever. The views expressed are their own —

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