LONDON (Reuters) - Lawmakers in the UK's upper house of parliament handed a fresh setback to British PM Theresa May's Brexit plans on Wednesday night, demanding she water down a bill that would have given her ministers sweeping powers to change laws after Britain quits the EU.
That came after the so-called Lords defied the government by insisting that Britain should keep open the option of remaining in an EU customs union and retain the EU Charter of Fundamental Rights - adding to the fears of committed Brexiteers that the UK is heading for “Brino” (Brexit In Name Only). Today, May will have to put up with an awkward debate on the customs union issue in the more powerful lower house.
Today's so-called backbench debate on whether Britain should remain in a customs union with the EU after Brexit will not be followed by a binding vote. But it will show how much dissent there is to her argument that Britain can only reap the benefits of Brexit by freeing itself from an EU customs union to sign its own trade deals across the world. The big parliamentary votes on Brexit are yet to come but there are signs of a solid and possibly growing resistance to the government-backed version of Brexit.
The European Central Bank is set to keep policy unchanged today, playing down worries over recent softness in the euro zone economy and leaving the door open to ending its bond purchase scheme by the close of the year. ECB President Mario Draghi may argue that growth is still solid and could point to higher oil prices and some improvement in underlying inflation. But he is likely to steer clear of commentary about future policy moves, keeping the bank's options open in case the outlook continues to soften.
The ECB’s rate decision is due at 1145 GMT, followed by Draghi’s news conference at 1230 GMT. Economists polled by Reuters expect bond purchases to end this year after a short taper and see the first rate hike since 2011 sometime in the second quarter of 2019.
Bulgarian Prime Minister Boyko Borissov will make the case at a conference later for his country to join the euro. Sofia, which has pegged its lev currency to the euro, is pushing to enter the euro zone and avoid being left in the political periphery of the European Union. But western bankers and diplomats have voiced concerns that Sofia, albeit meeting the formal criteria, is not ready to join the euro zone: its living standards are about half of the EU average and it is ranked among the EU most corrupt member states. Sofia however insists it will apply officially by the end of June.
As world markets obsess about incoming tech sector earnings, 3 percent U.S. 10-year bond yields and a recovering dollar, no black or white picture has emerged yet on the next overall direction. The white heat of the first-quarter earnings on both sides of the Atlantic makes it harder to get a clear view.
After weeks of controversy, internet giant Facebook beat forecasts overnight and its stock was up more than 7 percent in after-hours trading on Wall St. Twitter shares, on the other hand, fell more than 2 percent as it warned of slowing revenue. Samsung surprised positively in Asia, lifting its stock more than 3 percent and South Korea’s benchmark Kospi stock index more than 1 percent alongside decent Q1 GDP numbers too.
On the other hand, Chinese and Hong Kong stocks were on the back foot after reports U.S. prosecutors in New York have been investigating whether Chinese technology company Huawei violated U.S. sanctions in relation to Iran – increasing jitters about U.S./China trade and commercial relations. An index tracking IT and telecoms firms on China’s mainland dropped 1.8 percent and 1.6 percent respectively, as the Huawei probe added to investor worries over ZTE’s ban.
Back on Wall St, Amazon, Microsoft and Intel all report earnings later on Thursday. S&P500 futures are mostly flat overnight after the index eked on small gains on Wednesday. Tech aside, Boeing stock was up sharply on Wednesday after it beat consensus forecasts for the first quarter too and there’s a general sense that U.S. tax cuts are having more of an impact than a one-time lift to bottom lines. Once again, the S&P500 bounced back from its 200-day moving average in a sign that investors are not yet willing to throw in the towel on this bull market yet.
Ten-year U.S. bond yields remained above the psychologically-important 3 percent overnight but have yet to breach the January 2014 peak of 3.041 percent as week of heavy U.S. debt sales is watched closely. The dollar too has taken a breather after a steep run up to 3-1/2 month highs against a basket of the most traded currencies. With euro/dollar slightly firmer and hovering just above its March 1 low of $1.2153, all eyes shift to the European Central Bank meeting later for clues on euro zone monetary policy just a week before another Federal Reserve meeting stateside.
With incoming economic data in Europe underwhelming of late, the ECB is unlikely to change existing guidance much. The stalling of U.S. Treasury yields and the dollar has given some respite to emerging market currencies, which had been heavily this week from the twin tightening of U.S. dollar credit conditions.
In Europe, bank earnings are in focus alongside the ECB. Deutsche Bank shares are seen falling 2.8 percent at the open after the bank announced cutbacks to its bond and equities trading in a major overhaul of its troubled investment bank, after reporting a 79 percent drop in net profit in the first quarter. Barclays was also down more than 2 percent despite reporting better-than-expected first-quarter pretax profit of $2.4 billion. On the other hand, pharma giant Roche lifted 2018 revenue outlook as new drug sales accelerate.
Sweden’s Riksbank gives its policy decision at 0830 BST. With investors still short the Swedish crown - one of the worst performing G10 currencies in 2018 - the view is that the central bank will stick to its ultra-dovish tone.
— 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. —