July 20, 2018 / 7:44 AM / 5 months ago

Daily Briefing: May ends chaotic Brexit week in Northern Ireland

LONDON (Reuters) - Theresa May heads for Northern Ireland on Friday at the end of a tumultuous week for her Brexit plans.

Britain's Prime Minister Theresa May and Arlene Foster, the leader of the Democratic Unionist Party, visit Belleek Pottery, in St Belleek, Fermanagh, Northern Ireland, July 19, 2018

The province has particular significance for May: she relies on its Democratic Unionist Party to stay in office and customs relations with Ireland are a key stumbling block to her Brexit plans.

Northern Ireland has the UK’s only land border with the European Union. May is trying to square the circle of avoiding a hard border with Ireland, in order to maintain flourishing economic links between the north and south, while rejecting an EU proposal that would effectively create a border between Northern Ireland and the rest of the UK.

Brussels appears anxious to show flexibility on the final Brexit deal with Britain, despite a chaotic week in the UK parliament that many fear risks making May's overall plan less coherent.

But it’s hard to see how these conflicting goals can be reconciled as things stand. Michel Barnier, the EU’s chief Brexit negotiator, has a news conference later today after briefing member states on how things stand with Britain.

Germany’s Angel Merkel has problems of her own. The chancellor’s annual summer news conference is likely to focus on migrant policy, an issue that almost blew apart her governing coalition.

Relations with Horst Seehofer, an allied conservative who serves as interior minister, remain distinctly prickly after his attempts to force her to toughen her stance on migrants. Relations with U.S. President Donald Trump and a looming trade dispute between Europe's top exporter and the United States are also likely to loom large.

MARKETS

President Donald Trump complained yesterday the yuan was “falling like a rock” while the dollar strengthened. The irony will not be lost on many.

It happened today again with the yuan hitting a new one-year low beyond 6.81 per dollar before stabilising as state-run banks sold dollars to support it. It’s been looking fairly clear Beijing is planning stimulus to head off any economic weakening and that means there is only one way the yuan can go.  It’s on track for its sixth week of losses.

The fears of instability have sent investors scurrying for shelter, hitting Chinese stocks and the rest of Asia before a sudden upswing towards end of trading that’s helped mainland indexes close firmer and Hong Kong rise half a percent.

That’s slightly lifted the MSCI’s world stocks index, though it stays off recent five-month highs. China-focused currencies such as the Aussie and Kiwi are higher, bouncing off lows as the yuan stabilized.

Meanwhile, enemies of interest rates are not just in Turkey. Trump sent the dollar lower by declaring he was “not thrilled” by the Fed’s rate hikes, which he saw as undermining all the good work he was putting into the economy. 

He did say, though he was letting them do what they thought best but the comments, has taken the greenback off one-year highs and sent Treasury yields lower.

The dollar is up for a second straight week but has snapped three days of gains against a basket of currencies. Sterling is flat around 1.30 having fallen below that level yesterday for the first time in 10 months. And in Japan today, inflation data showed core prices barely budged higher despite years of QE, making the Bank of Japan’s 2 percent target look distant.

Wall Street closed lower on Thursday after sour earnings from eBay and American Express. Watching earnings today from a bunch of U.S. industrials – GE, Schlumberger, Baker Hughes -- and it looks like another weak session ahead given the trade war fears. An EU delegation is expected next week with talk that tariffs on U.S. goods are being prepared.

European stocks look set to fall, with futures down around 0.2 percent. However, despite the simmering tensions, pan-European stocks and Germany’s DAX -- which is highly exposed to trade and China -- were set for a third straight week of gains as earnings streamed in, taking the focus away from trade tensions.

Car parts maker Faurecia and aerospace and defence firm Thales are both seen rising around 3 percent after stronger profits, while price pressures on spirits maker Remy Cointreau are likely to rein back its gains after results, with shares indicated up 1 percent.  Food processing firm Koninklijke Wessanen is seen falling 4 to 10 percent, after its like-for-like growth disappointed.  

And trade tariff effects were one factor cited by Belgian steel wire maker Bekaert for its big profit warning. It now expects first-half profit to be 20 percent below analysts’ estimates – and is likely to see a sharp share price drop as a result. Another profit warning from Norwegian sports retailer XXL, indicated down 10 percent at the open.

In emerging markets, China mainland stocks snap a five-day losing streak, with Asian bourses sailing higher in the slipstream and help lift the broad emerging index up 0.4 percent. Nonetheless, the benchmark is on track for a 1 percent loss over the week.

German Chancellor Angela Merkel gestures as she visits a dairy farm in Nienborstel, Germany July 19, 2018

In currencies, it is all eyes on the yuan, which is track for a sixth straight week of losses. With the dollar steady after three days of gains, emerging market currencies are broadly treading water, though South Africa’s rand and Mexico’s peso and Russia’s rouble on track for weekly losses.

Turkey’s looks poised for a small weekly gain, but that comes amid increasing expectations the central bank will be forced to deliver an interest rate hike next week and a near 6 percent tumble last week.

— A look at the day ahead from EMEA Head of Desk Jon Boyle and EMEA markets editor Sujata Rao-Coverly. The views expressed are their own —

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