August 12, 2019 / 7:42 AM / 3 months ago

Daily Briefing: Renzi roadblock for Italian snap election

LONDON (Reuters) - Matteo Salvini's push for early elections in Italy has hit a potential roadblock in the shape of Matteo Renzi. The ex-premier and former leader of the Democratic Party, who still wields strong influence over his centre-left party, said on Sunday that going back to the polls just when the government is due to prepare the 2020 budget would be "crazy".

FILE PHOTO: Former prime minister and senator Matteo Renzi attends the Senate in Rome, March 23, 2018. REUTERS/Remo Casilli

Instead, he proposed a cross-party caretaker government to sort out some of the more pressing budget issues - like avoiding a hefty new sales tax - before the country heads back to the polls.

Salvini’s League needs the backing of other parties for a no-confidence vote in the current government to succeed: The timing of such a vote lies with the heads of political groups in the Senate, who will meet later today to set a timetable.

Announcements by the Boris Johnson government of plans to create thousands more prison places and extend the stop-and-search powers of police have fuelled speculation that he is gearing for a general election, given the law and order focus of many traditional Conservative voters.

Johnson is also launching a review of sentencing of the most dangerous and prolific offenders and will today host a round-table meeting with officials from the police, probation and prison sectors.

Separately, the Sunday Telegraph reported that Johnson has accepted an offer to meet Irish leader Leo Varadkar to discuss Brexit and the Northern Irish backstop - a potentially crucial meeting if it were to happen. Citing government sources, the paper said the aim was to hold the talks ahead of the G7 summit in Biarritz on Aug. 24 - when Johnson will encounter the leaders of France and Germany.

Google is facing a new dilemma in Russia. After Saturday's street demonstration, attended by tens of thousands and described as the biggest political protest in eight years, the country's communications watchdog has asked Google to stop advertising what it called "illegal mass events" on its YouTube video platform.

Law enforcement officers detain a man after a rally to demand authorities allow opposition candidates to run in the upcoming local election in Moscow, August 10, 2019. REUTERS/Tatyana Makeyeva

At issue are the push notifications and other tools that the watchdog said were being purchased from Google by groups in order to spread information about the protests. Failure to respond to the request would be deemed “interference in its sovereign affairs”, the watchdog warned.


Sterling fell to within a whisker of $1.20 overnight for the first time since January 2017, in an otherwise mixed, calmer start to the week for world markets. The pound, which is now down more than 5% against the dollar in just six weeks, slipped as low as $1.2015 in Asia, where Japan, Singapore and India were closed for holidays.

Sterling also fell to its lowest against the euro since October 2016. Beyond mounting anxiety about no-deal Brexit, there was no one trigger for the overnight move and it was more a continuation of last week’s slide on news of a contraction of the UK economy in the second quarter.

Much of the weekend and Monday press reports centred on whether or when the opposition Labour party would propose a vote of no confidence in the government of new PM Boris Johnson, who currently has just a one-seat majority in parliament. Even if he loses such a vote, which can’t be held until after the summer recess, it’s possible for Johnson to schedule any election after the Oct. 31 Brexit deadline.

With warnings mounting of food and medicine shortages and security threats after a no deal crash out of the European Union, that prospect and then the uncertainty of an election is seen as the worst of both worlds for the pound. Although sterling steadied after the overnight dip, traders will now look to test $1.20 and the January 2017 low of $1.1983.

Elsewhere, Shanghai stocks rallied about 1% after local margin trading restrictions were lifted and traders identified some stability in the yuan despite another weaker fixing of the currency’s target midpoint by the People’s Bank of China. The offshore yuan hovered just below 7.10 per dollar, where it’s held the line since the sudden and controversial decision to let the currency weaken through 7 to the dollar a week ago.

There were few new developments in the escalating U.S.-China trade war over the weekend. U.S. President Donald Trump and his trade advisor Peter Navarro said talks would resume, but Trump cautioned that no deal was likely soon.

The prospect of new U.S. tariffs kicking in on Sept. 1 and the whole issue lingering as a risk into the end of the year has unnerved many investors, who are upping the chances of a 2020 recession as a result. Elsewhere in Asia, Hong Kong shares underperformed after another weekend of violence as protests against the local administration met with a stiff police response. South Korean stocks ticked about 0.3% higher.

Wall Street futures were higher after Friday’s late selloff, and European futures were up almost 1% before the open. Italy’s bond market was on firmer ground this morning, perhaps reflecting some relief among investors that Fitch on Friday left the country’s ratings unchanged, albeit with a negative outlook.

Politics remains in focus after the League filed a no-confidence motion to bring down the government. A timetable may be set on Monday, although many within parliament insist that no election should be scheduled before the 2020 draft budget process next month.

The dollar’s DXY index was higher, with the yen outperforming and euro/dollar firmer ahead of this week’s second-quarter GDP releases for the euro zone. MSCI’s emerging- markets currency index was lower, with the lira and rand weaker first thing. Ten-year U.S. Treasury yields held just above 1.71%, while Brent crude was steady above $58.

In European corporate news, AMS is lighting up the M&A market. In a bid to reduce its dependence on Apple and betting on growing demand for technology for self-driving cars, the Austrian sensor specialist triggered a bidding war for Osram on Sunday, saying it was ready to pay 10% more for the German lighting group than finance investors Bain Capital and Carlyle have already offered.

In line with that counterbid, Osram shares are up 10%, while AMS shares are down as much as 6.7% in premarket trade, according to Julius Baer. Analysts have previously questioned Osram’s strategic fit with AMS given its exposure to the struggling automotive market.

In executive moves, ABB shares are expected to get a boost from news the Swiss-Swedish robotics and engineering group has wooed Sandvik's chief executive officer, Bjorn Rosengren, as its next CEO. Sandvik shares are expected to come under pressure from the loss of the chief, who has a reputation for being ruthless with underperforming divisions.

Shares in National Grid, which owns the electricity and gas transmission system in England and Wales, may draw scrutiny after Ofgem threatened the utility with a possible fine after almost a million UK businesses and homes suffered power cuts on Friday.

— 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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