July 23, 2018 / 7:37 AM / 8 months ago

Daily Briefing: May looks forward to a Brexit break

LONDON (Reuters) - The summer holidays can’t come soon enough for Theresa May. Members of parliament start a six week holiday from Tuesday, drawing a temporary halt to the bruising battles that have marked Britain’s long goodbye to the European Union over the past week.

Prime Minister Theresa May delivers a speech at the Waterfront Hall in Belfast, July 20, 2018

With the latest polls showing voters are deeply underwhelmed with May's handling of the Brexit crisis, there's probably little chance of her deciding on a snap election while on a hill-walking holiday with her husband. The last time she did that it didn't end well.

When parliament resumes its deliberations this autumn there will be just six months to go to Departure Day and plenty of scope for more confusion and recrimination. And not just within her Conservative Party. A lot of work remains to be done if May is to achieve her goal of avoiding a hard exit from the EU on March 29, 2019.

Meanwhile, IHS Markit publishes its monthly Household Finance Index for Britain on Monday, a gauge of consumer finances and interest rate expectations watched by the Bank of England. Separately, the bank's deputy governor, Ben Broadbent, gives a speech on the history and future of quantitative easing to London's Society of Professional Economists later in the day.


What’s unnerving markets today? Take your pick. The yen hit two-week highs against the dollar and Japanese 10-year yields have jumped to a six-month peak after sources told Reuters the central bank was debating moves to scale back stimulus.

Yen moves are being further amplified by President Trump’s unprecedented broadsides against the Fed and dollar strength which sent the dollar crashing 0.7 percent on Friday and raised 10 year yields.

Yields in the euro zone as well as on Treasuries are up a bit more this morning after the Japanese moves, rising to one-month highs. Then there was Trump’s Twitter scream at Iran’s Rouhani, though oil prices are down today because of weekend growth warnings from the G20. Which leads us to trade. On that front, Trump now is threatening tariffs on China’s entire $500 billion exports to the United States.

The EU’s Juncker is headed to DC this week to try and head off car tariffs. Meanwhile at the G20, U.S. Treasury Secretary Mnuchin found himself confronting a hostile "G19", with the EU snubbing his hints of a free trade deal.

And finally, the second of the FAANGs — Google Alphabet – reports Q2 earnings today (followed by Facebook on Wednesday and Amazon on Thursday) and after Netflix disappointed last week, there is some trepidation about the rest of the group - after all, tech earnings are among the few positive stories out there.

Asian bourses are mostly in the red, led by the Nikkei which had been driven to 10 day lows by the yen’s strength though Hong Kong is modestly higher and mainland Chinese shares have risen too, possibly as the yuan has stabilised from steep falls earlier in the month.

Apparently investors are relieved that new draft rules on banks’ wealth management products are unlikely to cut off liquidity. Heavy selloffs in vaccine makers shares however, after yet another scare over faulty drugs

In Russia RUSAL shares rebound 13 percent on expectations that U.S. sanctions on the steelmaker will be removed soon. S&P500 futures indicate a weaker opening on Wall Street.

On the currency front, the yen is up almost half a percent to the dollar and the greenback is approaching two week lows to a basket of currencies. The yuan is now one percent off one-year highs and that’s lifted many emerging currencies too by as much as half a percent.

Sterling is flat, having rebounded off 10-month lows late on Friday after the dollar tanked but news on the Brexit front will be crucial as the spectre of a no-deal Brexit is clearly looming. A weekend poll has signalled more turbulence ahead with PM Theresa May’s Brexit plan drawing little support from the populace who seem more inclined to turn to right-wing parties and former foreign secretary Boris Johnson.

European stocks have opened lower but the pan-European STOXX 600 index could remain supported by growing optimism around company earnings. Fiat Chrysler shares are down 4 percent after the carmaker named its Jeep division boss Mike Manley to take over immediately from long-time CEO Sergio Marchionne, who is seriously ill following surgery.

Marchionne has also been replaced at luxury carmaker Ferrari, but shares have failed to open this morning in Milan though indicated down as much as 6 percent in premarket, and CNH Industrial.

Ryanair shares are down 4.5 percent at open after it warned that average fares would be lower than expected during its key summer period, while Philips was down 3 percent after sales growth was light, offsetting strong order growth.

The Turkish lira firmed 0.6 percent ahead of a central bank meeting on Tuesday at which it is expected to raise its main rate by 100-125 basis points after inflation hit a 14-year high in June. On Sunday, finance minister Berat Albayrak was quoted as saying that Turkey would not fight with markets but pursue a win-win relationship with them.

U.S. President Donald Trump and First Lady Melania Trump disembark Marine One upon departure from Morristown in New Jersey, July 22, 2018

Equities are flat despite the Chinese bounce around 1 percent. The yuan also edged up against a weaker dollar after a firmer fixing by the Chinese central bank. South Korea shares fell 0.9 percent as investors fretted about the impact on trade, with chipmakers SK Hynix and Samsung Electronics tumbling after a forecast of a slowdown in the sector. 

South Africa’s rand was an underperformer, down 0.4 percent on expectations that rates were unlikely to rise until late next year.

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

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