September 24, 2018 / 7:27 AM / in a month

Daily Briefing: Brexit - second referendum momentum grows

LONDON (Reuters) - Finally, UK opposition leader Jeremy Corbyn bowed to the growing pressure from party grass roots to back a second referendum on Brexit, conceding at the weekend that he would be “bound” by whatever this week’s congress in Liverpool decides.

Labour Party Leader Jeremy Corbyn and Deputy Leader Tom Watson sit together on stage at the annual conference in Liverpool, September 23, 2018

Accordingly, a draft motion due to be put to delegates on Tuesday commits Labour as an opposition party to backing all available options "including campaigning for a public vote".

How much that changes the Brexit dynamic remains to be seen but it is a significant shift that heaps more pressure on Theresa May, who conceded last week her negotiations with the EU had hit an impasse.

Today the agenda moves on as Corbyn's deputy John McDonnell will defend his proposal to incentivise millions of workers by forcing any company with more than 250 employees to hand over 10 percent of their shares to them.

The Swedish parliament will today elect a new speaker, which in turn could influence the outcome of government talks after the Sept. 9 election. The vote produced no clear winner and with the traditional left and right blocs virtually tied the anti-immigration Sweden Democrats could gain influence.

While the speaker holds little formal power, the role is responsible for facilitating government talks. Although all parties have rejected bringing the far-right into a coalition, one question is whether the conservative bloc could envisage forming a minority government with their tacit backing.

Speaking of awkward, loveless marriages, Germany’s Social Democrats hold an emergency meeting today on whether to remain in theirs with Angela Merkel.

The leader of the party’s youth wing wants them to go back into opposition, arguing they are being compromised by the tie-up - witness last week’s shabby compromise over the fate of the country’s head of surveillance, who will remain in the interior ministry despite allegations of far-right sympathies.

The party's leadership nonetheless want to remain in the alliance: a decision this weekend to make sure the former spy chief at least doesn't get the pay rise he was initially promised might just help their cause.

MARKETS AT 0655 GMT

Anti-Brexit supporters demonstrate in the centre of Liverpool, September 23, 2018

World markets have sobered up after last week’s mini bounce, with the significant drags of an escalating Sino-U.S. trade war and another U.S. interest rate hike this week seeing a hefty pullback first thing Monday despite a slew of market holidays in Asia.

Stock markets in Japan, China and South Korea were shut, but the near 2 percent drop in HK’s Hang Seng index was ample testimony to the mood of the new week.

MSCI’s emerging markets equity index snapped a four-day advance to drop almost 1 percent as 10 percent U.S. tariffs on some $200 billion of Chinese goods kick in today. China has since withdrawn mid-level trade talks and promised tariffs on some $60 billion of U.S. imports.

Last week’s global markets rally appeared to be based on a number of mitigating factors – a likely Chinese fiscal boost to offset the effects of the tariffs, U.S. exemptions on some tech goods to ease the hit on supply chains, the lower-than-expected initial U.S. tariff level of 10 percent and some idea that net effects may lower the Fed’s long-term interest rate horizon.

But many investors have countered that with questions about the net effectiveness of a Chinese growth offset, the fact that U.S. tariffs go to 25 percent from January, reports that the staggered approach is to get U.S. firms to rethink their existing supply chains and Washington’s pledge to go ahead with tariffs against yet another $267 billion of Chinese goods if it gets no concessions.

As to the Fed, there’s little suggestion from any policymakers there that the trade row has altered monetary thinking and the next quarter-point rate rise is due Wednesday. Ten-year U.S. Treasury yields set their highest levels since May overnight, just shy of 3.1 percent. European and U.S. stock futures were down about 0.3 percent each first thing on Monday, euro/dollar was weaker at levels just above $1.17 and the dollar’s DXY index was up.

Key emerging market currencies such as Turkey’s lira, South Africa’s rand, China’s offshore yuan and India’s rupee were all weaker. Crude oil prices rose about 2 percent on Monday to more than $80 per barrel for Brent as markets tightened ahead of Washington's new sanctions against Iran.

Sterling steadied after its biggest one-day drop of the year against the dollar on Friday when UK PM May said Brexit talks had reached an impasse after her meeting with European Union leaders in Salzburg last week.

Sterling had been creeping higher for the past two weeks on the expectations that some breakthrough was in the air, but positions appeared to have hardened around the summit. Britain’s main opposition Labour party, meantime, is set to vote on whether to keep the option of a second referendum on EU membership on its policy agenda.

Italy’s short-dated bond yields nudged higher on Monday as the deadline for the government to publish its 2019 deficit and spending forecasts draws closer. ECB chief Mario Draghi appears in front of the European Parliament later on Monday.

— 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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