November 12, 2018 / 8:42 AM / a month ago

Daily Briefing: May's no-friend Brexit falters

LONDON (Reuters) - British PM Theresa May has called off a special cabinet meeting on Brexit pencilled in for today, local media report, amid growing signs she would not get parliamentary backing for her proposed compromise with the European Union.

Prime Minister Theresa May speaks during the Armistice service at Westminster Abbey, November 11, 2018

In the past few days, senior Conservatives from both the Remain and Leave camps have come out to reject her plan as the worst of all possible worlds, leaving the UK in a limbo less appealing than the status quo but with little prospect of achieving the “global Britain” ambition of Brexiters.

"If the deal goes down then we’ll call for a general election. If that doesn’t happen then all options must remain on the table and that includes the option of a public vote"

Add to that the fact that opposition Labour and the DUP both would vote down the deal in its current form and the impasse is complete. Former ministers such as Justine Greening and Jo Johnson have stepped up their calls for a new referendum as the only way out - an option May has consistently rejected.

A motion will be put forward in Sweden’s parliament today to elect moderate centre-right leader Ulf Kristersson as the next prime minister, a move that would end the stalemate since an election in September that left the anti-immigration Sweden Democrats holding the balance of power.

They have promised to vote against any government in which they do not have some kind of influence. Kristersson has ruled out negotiations with the Sweden Democrats, who insist nonetheless they need “guarantees” on certain policies in order to support him. A vote is expected around Wednesday; so far, there is no sign of movement.

Italy will host a Libya conference starting today that aims to push forward a new U.N. plan to stabilize the troubled North African country after efforts to hold elections next month failed. Western powers that helped topple Muammar Gaddafi then left Libya to its chaos, letting militias and radical Islamist groups grow.

Worried about it becoming a source of instability on the shores of Europe, European powers have again started paying Libya more attention, yet expectations of a breakthrough are not great.

Diplomats hope it will at least pressure the various Libyan factions to overcome their differences; also at play are tensions between Italy and France, which both have extensive oil interests in Libya but have used different approaches to trying to resolve the conflict.

MARKETS AT 0755 GMT

The U.S. dollar has surged across the board into the new week as markets start to position for the next Federal Reserve interest rate rise next month and nerves surrounding the twin European headwinds of Brexit and Italy’s budget row go up a notch.

Euro/dollar broke below August’s 2018 low to fall to its lowest since June of last year at $1.1266, a gain of half a percent on the day. The DXY dollar index also gained 0.5 percent to its highest since June 2017, with sterling losing more than cent from Friday’s close to $1.2861.

Sterling was undermined by weekend reports of deep splits in the government cabinet over Brexit, with talk of resignations from those both in favour of a "hard Brexit" as well as those advocating another referendum and reports PM May has abandoned a planned cabinet meeting.

The euro was knocked back by reports the European Commission has categorically rejected Italy’s expansionary budget as it reneges on prior commitments and has given Rome until tomorrow to revise its figures. Dollar/yen rose to its highest level in over a month. A sharp bounceback in world oil prices on reports of Saudi production cuts added to early volatility.

Anxiety about steady Fed tightening has grown since the central bank indicated no change to its trajectory after its latest policy meeting last Thursday. The S&P500 lost almost 1 percent by the close on Friday and futures point to only a modest recovery since. The U.S. Treasury market is closed later today, however, with a partial U.S. holiday for Veterans Day.

Asia’s main stock markets climbed back into the black after early losses as China’s government at the weekend rolled out a series of measures to boost the private sector and offset the hit from the escalating trade war with the United States. Shanghai stocks eventually ended about 1 percent higher.

Tokyo and Hong Kong were little changed, while Seoul lagged slightly in the red. A stronger dollar in Asia, against the yuan, won, rupee, rupiah and ringgit added to emerging-market pressure. Emerging-market equity and currency indices were lower. European  stocks opened higher, meantime, amid regional currency weakness and incoming results.

FILE PHOTO: Ulf Kristersson, leader of Sweden's Moderate Party, in Stockholm, October, 14 2018

Chipmaker Infineon delivered some welcome good news for semiconductors which have been among the worst hit by sell-offs in past weeks in the highly valued tech sector. Shares rose 1 percent after the company guided for an acceleration in revenue growth in its 2018/19 business year.

Tobacco stocks British American Tobacco fell 10 percent and Imperial Brands dropped 3 percent after a Wall Street Journal report that an FDA Commissioner plans to pursue a ban on menthol cigarettes.

— 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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