April 3, 2017 / 7:28 AM / 7 months ago

Daily Briefing: Rock diplomacy

LONDON (Reuters) - Many people were left scratching their heads at the row that exploded at the weekend over the post-Brexit future of Gibraltar, Britain's rocky outpost to the south of Spain, which culminated in one ex-minister even suggesting Britain would be ready to go to war to defend it.

A tourist watches monkeys on the top of the Rock in the British overseas territory of Gibraltar, historically claimed by Spain, March 29, 2017. REUTERS/Jon Nazca

It was all triggered by a line in the EU's Brexit negotiating mandate that states explicitly that "no agreement between the EU and the United Kingdom may apply to the territory of Gibraltar without the agreement between the Kingdom of Spain and the United Kingdom".

But this is only a statement of existing reality. All 27 EU states will have a veto on whatever the future trading status of Britain (and bits of it) with the EU. If anything, the line was more intended as an encouragement to Madrid not to use the main Brexit negotiations to push its claim on Gibraltar.

Still, that was enough for an outburst of often jingoistic soundbites from London politicians that were lapped up by the Sunday newspapers - an early foretaste of what to expect once the Brexit negotiations actually start in earnest from late-May.

As expected, Serbian premier Aleksandar Vucic won Sunday's presidential election by a huge margin, confirming his domination of the Balkan country as he pursues a delicate balancing act between Europe and Russia.

Normally the Serbian presidency is a largely ceremonial post but Vucic has let it be known that expect to retain de facto power through his control of Serbia’s ruling Progressive Party. Critics say Vucic’s rule has become increasingly authoritarian and raise concerns about media bias in his favour. Yet his supporters - and, more reluctantly, even some EU officials - note that he is at least a factor for stability in the region.


Soldiers walk during a change of guard outside the Convent building in the British overseas territory of Gibraltar, historically claimed by Spain, March 29, 2017. REUTERS/Jon Nazca

As April and the second quarter gets underway, world markets retain their positive tone but with a clear yearning for the next impulse.

With the legislative push of the new U.S. administration having stalled somewhat and Easter recesses due over the coming weeks, this week's theme has shifted to trade and Thursday/Friday’s summit between U.S. President Trump and China’s President Xi. For markets focused on growth, trade and regional geopolitics tend to be the darker side of the Trump agenda and his comments on Monday about the United States going it alone in dealing with North Korea’s nuclear threat if China won’t speaks to those nerves.

People enter the British territory of Gibraltar, historically claimed by Spain, at its border with Spain, in La Linea de la Concepcion, Spain March 29, 2017. REUTERS/Jon Nazca

The thorny issue of so-called currency manipulation and reports of intensified studies in DC into what the U.S. can do to reduce its trade deficit will get plenty of air this week too.

On top of that, Monday brings the first day of the European Central Bank’s effective tapering of its monthly bond-buying programme to 60 billion a month from 80 billion. ECB officials will try to soften the punch by insisting the bank’s monetary policy will remain loose even if the need for more easing has ebbed.

The release of global manufacturing surveys for March, where China’s official PMI out earlier hit its highest reading since 2012, are set to show continuing growth if not necessarily any major acceleration in the global picture. And that last point is something JPMorgan’s market strategists have as their theme for the week – a slight shift in tactical asset allocation to a world of ‘stable growth’ where the reflation trade may have stalled but not reversed. For JPM, this means seeking out more high yield debt plays in the corporate and emerging market space that tend to benefit from that scenario.

After a down day for Wall Street equities on Friday, April saw a mostly positive start across Asia bourses overnight and European equities are expected to open higher too. The dollar index and U.S. Treasury yields are a fraction higher, but euro/dollar is firmer too about $1.0660 . Brent crude is higher above $53. Sterling is lower but holds above $1.25.

 (Editing by Tom Heneghan)

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