LONDON (Reuters) - The Brexit news flow is gathering momentum ahead of this week’s EU summit, with more reports on behind-the-scenes efforts to work out how to manage the Irish border assuming Britain also leaves the single market and customs union.
The Times reports that EU chief negotiator Michel Barnier is working on a plan to track goods using barcodes on shipping containers under “trusted-trader” schemes: The aim would be to minimise physical checks at the border between the Ireland and Northern Ireland.
Beyond Brussels' efforts to help Theresa May strike a deal, leaders of Germany and Austria also came out at the weekend saying they wanted to avoid a hard Brexit at all costs. Once again it leads to the conclusion that the biggest potential obstacle to a compromise will be ardent Brexiters in May's own party.
Local media are reporting that top Italian officials will talk numbers on the 2019 budget at a meeting today. PM Giuseppe Conte, his two deputies and Economy Minister Giovanni Tria want to decide what funds to allot to the different measures being considered.
Reassuring comments from some of Italy’s politicians that they will respect EU budget rules on fiscal discipline have soothed investors in recent weeks. How they do that while sticking to costly election pledges such as the introduction of a universal basic income scheme remains to be seen.
There was a new twist this weekend in the saga around the chief of Germany’s BfV domestic intelligence agency, who was accused of playing down recent anti-migrant violence in the eastern city of Chemnitz.
Bild am Sonntag newspaper now reports that the BfV also failed for months to act on concerns voiced by regional states about local youth chapters of the far-right Alternative for Germany (AfD) party. It is not clear whether BfV chief Hans-Georg Maassen knew of these concerns; a meeting to decide his fate is scheduled for Tuesday.
MARKETS AT 0655 GMT
Reports that the United States will announce 10 percent tariffs on $200 billion of Chinese goods later today have put global stock markets on the defensive yet again.
Even though the new tariffs had been expected for the past week and the indicated size is less than the 25 percent many feared, anxiety over what happens next has dragged on world equities as the Wall Street Journal reported that Chinese officials would decline the invitation to further trade talks if the tariffs are imposed and an editorial in Chinese tabloid the Global Times talked of a “counter attack” from Beijing.
Shanghai and HK stocks dropped more than 1 percent, with emerging Asia markets down more broadly too. Seoul’s main benchmark was down 0.7 percent and Jakarta was down 1.6 percent. MSCI’s benchmark emerging markets index dropped 1 percent, snapping a three day rebound from 14-year lows.
Tokyo markets were closed for a public holiday. The U.S. dollar was firmer, with 10-year Treasury yields close to last week’s highs after briefly topping 3 percent again on Friday for the first time since early August. While China’s offshore yuan was steady after weakening on the trade news late Friday, emerging market currencies more generally weakened again first thing Monday.
Most notably Turkey’s lira fell back to 6.3 per dollar in early trading, returning to levels seen prior to Thursday’s huge 625 basis point interest rate rise to 24 percent. With attention now turning to the damage to the real economy from the financial shock, investors are looking to industrial output numbers due later in the day and finance minister Albayrak’s medium-term economic plan due on Thursday. President Tayyip Erdogan on Friday froze new government investment projects to rein in public spending and stem near 18 percent inflation rates.
Elsewhere, Argentina’s peso – which has also not been strengthened durably by punitive interest rates of 60 percent – fell again on Friday toward recent record lows. Korea’s won and India’s rupee were both sharply weaker first thing Monday and South Africa’s rand slipped again too.
Late on Friday, India’s government announced a slew of steps aimed at stemming the currency’s steep decline including measures to cut imports, ease overseas borrowing norms for manufacturers and relax rules around banks raising rupee-denominated overseas bonds. Euro/dollar held above $1.16 after a sharp reversal on Friday on the trade reports.
Top European Central Bank officials Coeure, Praet and Mersch all speak later in the day – though the unchanged policy message issued by ECB President Draghi last week is unlikely to shift much.
In European debt markets, traders will be watching Italy after reports there that PM Conte is to meet his deputies Salvini and Di Maio along with economy minister Tria later today to discuss finer details of the 2019 budget. S&P on Friday revised Portugal’s ratings outlook to positive.
— 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 —