December 4, 2017 / 8:33 AM / a year ago

Daily Briefing: Brexit breakthrough day for May?

LONDON (Reuters) - There is rising optimism in Brussels and London that PM Theresa May's encounter with top EU officials today will yield an agreement in principle to move Brexit negotiations onto the next phase.

Britain's Prime Minister, Theresa May, and her husband Philip, leave after a visit to VFB The Florist on Small Business Saturday, in Twyford, Britain December 2, 2017. REUTERS/Peter Nicholls

The fact that European Commission President Jean-Claude Juncker has scheduled a meeting with the European Parliament's Brexit people just hours ahead of those talks is being read as a sign that he is seeking their endorsement for a possible deal that would allow discussions on a new trade pact and a two-year transitional deal.

There is still a chance things could go wrong, however - for example if Dublin says it is not happy over arrangements for future trading with Northern Ireland, or if Brexiteers back home balk at the 50-billion-plus-pound divorce bill Britain could end up paying.

Germany's centre-right Christian Social Union (CSU), the Bavarian sister party of Chancellor Angela Merkel's conservatives, are due to decide today who will lead the party in a regional election next year. Bavarian State Premier Horst Seehofer will most probably be replaced by his more right-wing rival Markus Soeder, a move which in turn will not make it any easier to renew a national government coalition with the centre-left Social Democrats.

The SPD fears it will again be smothered in a new tie-up with Merkel, so it must show its political base that its policies are present in any coalition agreement; the CSU meanwhile will seek to pull the coalition right-wards to protect itself from attacks from the anti-immigrant AfD.

Finally, euro zone finance ministers are due later today to elect their new leader at a meeting of the so-called Eurogroup today. Although largely a coordinating role, it is a politically sensitive one and the intention this time is to replace Dutchman Jeroen Dijsselbloem with a centre-left candidate.

Mario Centeno of Portugal is seen by some as favourite but Dana Reizniece-Ozola of Latvia (a chess grandmaster whose surname would be a challenge for journalists issuing news alerts), Pierre Gramegna of Luxembourg, and Peter Kazimir of Slovakia are in the frame.


After waiting for more than 12 months for a U.S. tax cut package, world markets are on Monday trying to absorb its likely passage after the Senate finally approved the reforms late Friday. Even though the Senate and House bills still need to be reconciled before being passed into law, the initial market directions are as you’d expect - even if slightly underwhelming given how long the cuts have been in the offing.

Concerns about the deepening investigation into links between U.S. President Donald Trump’s election campaign team and the Russian government have offset some of the impact and added some long-absent volatility to Wall St stocks.

Global markets are also concerned cutting taxes into a U.S. economy growing in excess of 3 percent and already at full employment levels will only prod the Federal Reserve into more and faster interest rate rises over the next couple of years – lifting the dollar and U.S. Treasury yields and taking the wind out of highly indebted emerging markets for example.

Monday’s moves have been more tentative than that so far, however. The dollar index is up about 0.5 percent on Monday, on course for its biggest one-day gain since October, but with  little new ground broken against the major currencies. Dollar/yen led the way, but only back up to levels just above $113 seen just three weeks ago.

Euro/dollar ticked lower to the mid $1.18’s. Ten-year U.S. Treasury yields have bounced back above 2.40 percent – up about 4 basis points from Friday’s close, but still below Thursday’s closing levels.

S&P500 futures are up about 0.6 percent, rebounding from index losses on Friday that had also seen the Vix volatility gauge briefly set its highest intraday level since August before settling back about 11.5 percent. MSCI’s all-country world stock index is down a fraction on Monday. The underlying picture was more mixed. While the likes of Seoul’s Kospi index was up more than 1 percent and HK Hang Seng was up 0.5 percent, Shanghai and Tokyo stocks were in the red.

Elsewhere, sterling was also in focus as British PM May heads to Brussels for the latest talks with European Union Commission chief Juncker and Brexit negotiator Barnier to try and ensure this month’s EU summit will be able to push the Brexit talks onto the next stage. While there looks to be some agreement on the financial settlement, there still no concrete agreement on what happens the Irish border after Brexit.

Depending on what part of Monday’s UK press you choose to read, both sides are either 90 percent there or talks are on the verge of breakdown. Sterling was lower against the rallying dollar at about $1.3430, but a touch firmer against the euro first thing.

Editing by Toby Chopra

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