LONDON (Reuters) - Are things finally coming to a head over Brexit? Ahead of UK parliament votes on the government position starting next week that will test the mettle of pro-EU rebels, there are reports that Brexit Minister David Davis was this week an inch away from resigning.
British PM Theresa May had planned to publish today a proposal to avoid a hard Irish border by temporarily aligning the whole of the UK to EU single market rules until a new customs arrangement was in place.
Davis balked at the fact the proposal did not contain a fixed end-date to the temporary alignment - which he feared would lead to Brexit In Name Only (Brino), as hardcore Brexiters have dubbed their worst-case scenario.
Now it looks as though publication of the new proposals may not happen after today’s cabinet meeting after all but be postponed for a few days as May buys herself (yet) more time for a compromise. Davis is due to make a statement later.
Vladimir Putin does his annual "good tsar" performance today in which he seeks to fix Russians' everyday problems on live TV. The novelty this time is that he is expected to deliver real-time orders and reprimands to regional governors and government ministers who have been told to be at their desks when the event starts at 0900 GMT.
Critics, including in the West, dismiss the event as a stage-managed piece of theatre designed to allow Russians to let off steam; but when the occupant of the White House is meanwhile creating positive headlines for himself by bestowing presidential pardons at the prompting of reality TV stars, it is starting to look like politics as normal.
In other news, the Ukrainian parliament is set to vote on a law to establish an anti-corruption court, a reform which is key to Kiev receiving more bailout money from the IMF; European defence ministers will meet their U.S. counterpart for NATO talks in Brussels with the transatlantic alliance at a new low ebb; and German industrial orders for April went awry, German plunging unexpectedly for their fourth consecutive monthly drop.
MARKETS AT 0655 GMT
World equities and bond yields are tip-toeing around myriad political minefields and nudging higher again as mostly healthy global economic soundings bring central bank monetary tightening back firmly onto the agenda, encouraging both earnings projections and lifting financial stocks that profit from higher interest rates and steeper yield curves.
MSCI’s all-country index of world stocks, now up almost 1.5 percent for 2018 to date, rose to its highest level in more than three weeks overnight and has now rallied more than 3 percent in little over a week.
Boosted by financial and technology stocks, the S&P500 rose almost 1 percent and the buoyancy saw the Vix ‘fear gauge’ close below 12 percent for the first time since late January.
With the European Central Bank signalling yesterday that next week’s policy meeting may give a firm signal on winding up its asset purchase scheme by the end of the year and the Fed set for its second interest rate rise of 2018 on Wednesday, benchmark bond yields are rising again.
Ten-year Treasury yields hit 2.9850 percent overnight – their highest since May 25 and also reflecting an ebbing of the ‘safety’ bid surrounding Italy’s brief political panic last week. Spooked by the ECB’s red flag, German bund yields have risen to 0.493 percent – almost 30 basis points up from the Italian shock on Tuesday of last week. Euro/dollar has risen above $1.18 for the first time since May 22.
However, the latest economic numbers are not all playing to the ECB’s preferred script and may give the central bank pause for thought as anxiety about trade protectionism rises. German industrial orders unexpectedly plunged in April and showed the fourth consecutive monthly drop.
German Chancellor Merkel and finance minister Scholz speak in Berlin later today, while economics minister Altmaier meets with leaders of the ‘Mittelstand’ companies. G7 leaders then head to Quebec tomorrow to talk trade with U.S. President Trump.
Asia’s main stock markets from Tokyo to HK, Seoul and Taiwan all followed Wall St higher overnight. Shanghai bucked the trend to end slightly in the red. European stock futures point to gains of about 0.5 percent at the open. In emerging markets, the big set-piece of the day is the policy decision by Turkey’s central bank.
The lira, which is slightly weaker first thing Thursday going into the meeting, has stabilised over the past couple of weeks after the central bank hiked some market interest rates by about 300 basis points, simplified the complex interest rate structure and as economics officials insisted President Tayyip Erdogan was not trying to take the reins of monetary policy to get interest rates lower after elections on June 24.
Whether the central bank follows through again on that today is important to assert its independence in the eyes of overseas investors. The expectation is for a 75 basis point rise in the bank’s lending rate and 50 basis points on the borrowing rate.
Elsewhere, oil stocks may get some support from rising crude prices after news of plunging exports from Venezuela. Brent crude was higher.
— 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. —