August 24, 2018 / 7:50 AM / a year ago

Daily Briefing: Italy ups ante on migrant stand-off

LONDON (Reuters) - Populist politics have a habit of getting abstruse quickly. An Italian prosecutor has opened a kidnapping investigation into "unknown persons" for holding 150 migrants onboard a ship docked off Sicily against their will.

FILE PHOTO: Italian Interior Minister Matteo Salvini arrives before the state funeral of the victims of the Morandi Bridge collapse, at the Genoa Trade Fair and Exhibition Centre, August 18, 2018

Italian deputy PM and interior minister Matteo Salvini has stepped proudly forward and declared himself to be among the “unknown persons” in question - he is refusing them entry to Italy until other EU countries agree to take a share.

Not to be outdone on the publicity stakes, his fellow deputy prime minister Luigi Di Maio of the 5-Star party is saying Rome will suspend Italy’s 20-billion-euros’ worth of annual funding to the EU if there is no deal on redistributing the migrants at a meeting in Brussels later today.

After the Italian government sought to argue that the Genoa bridge collapse showed that it should be freed from the budget promises it made at European Union level, this is taking the stand-off to a whole new level.

Just as Brexit minister Dominic Raab was acknowledging that a no-deal Brexit would - surprise, surprise - burden companies and individuals with a mountain of red tape and inconvenience, Finance Minister Philip Hammond was being very frank about the costs it would entail.

"The fact is that neither the chancellor nor the Treasury wants to leave the EU so they repeat themselves ever more noisily"

In a letter to a Conservative lawmaker published on Thursday, he said the hit to the economy from a no-deal Brexit could result in “large fiscal consequences” - about 80 billion pounds worth of extra annual borrowing by 2033/34 to be precise.

A no-deal Brexit would furthermore reduce GDP by 7.7 percent over 15 years compared to the status quo, he calculated. Accurate or not, these are inconvenient figures for many of his fellow Conservatives: suspecting him of being a closet Remainer, they are renewing their attacks on him in a messy display of disunity weeks ahead of the party conference season.


Global stock markets are staging a relatively buoyant end to the week despite Wall St closing slightly in the red overnight, Sino-U.S. trade talks failing to find a breakthrough and ahead of major policy speech by Federal Reserve chair Powell later on Friday.  

Although the lack of progress in this week’s mid-level trade talks dragged on industrial stocks in New York overnight, Shanghai stocks nudged higher on Friday. China’s Finance Minister Liu Kun told Reuters China reserved the right to retaliate again to any further U.S. trade moves and said his government would increase spending to support workers affected and flagged more local government bond sales to support infrastructure projects.

After a strong bounce on Thursday, the dollar slipped back again on Friday ahead of Powell’s Jackson Hole speech at 1500 London time. That retreat helped Japan’s Nikkei up strongly and Seoul’s Kospi ended higher too.

Powell is widely expected to restate the case for further Fed tightening, with some pressure on him to assert the Fed’s policy independence after President Trump openly criticised his rate rise campaign earlier in the week.

Whether there’s any clear signal on whether next month’s expected hike will be the first of two yearend moves or the last one of 2018 remains to be seen. Incoming U.S. economic data has been underwhelming of late, with the U.S. economic surprise index at its most negative in almost a year.

While nominal U.S. Treasury yields held steady overnight, the closely-watched 2-10 year yield curve slipped below 21 basis points for the first time in 11 years and is a worrying portent on future economic activity.

Elsewhere in currency markets, Australia’s dollar bounced back on Friday after its worst day since February as the country’s Treasurer Morrison looked set to become the new prime minister after winning a Liberal party leadership vote.

Traders work on the floor of the New York Stock Exchange, August 23, 2018

Sterling remained under pressure against the euro, meantime, as traders grew anxious about the government’s contingency planning for a ‘no deal’ Brexit. The euro climbed back above 0.90 pence again for only the second time this year and is close to its highest levels since September 2017.

Trading volumes are expected to thin through the day, however, as London markets are closed on Monday for a bank holiday. In debt markets, Italian bonds were in focus after a bizarre newspaper report that Trump offered Italian PM Conte help in funding its public debt next year. The story in Il Corriere della Sera did not say how Trump proposed he would do that.

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

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