May 16, 2019 / 7:33 AM / 4 days ago

Daily Briefing: Time trickling away from May

LONDON (Reuters) - British PM Theresa May will again face calls from senior Conservatives to set a clear date for her departure at a meeting of the party's so-called 1922 committee later today.

Prime Minister Theresa May is seen outside Downing Street, May 15, 2019. REUTERS/Hannah Mckay

She is expected to tell them she aims to get Brexit done and dusted in early June with a last-ditch attempt to get the EU withdrawal bill through parliament. With eurosceptics in her own party and her Northern Irish allies in the DUP questioning what exactly has changed to that bill to make them back it this time, the spotlight is on Labour’s stance.

Labour's foreign affairs spokeswoman Emily Thornberry last night knocked down speculation that the party might ultimately abstain in the vote, insisting it would reject it outright. If she is right, May's days in power are numbered.

The damage done to the EU-sponsored Iran nuclear deal by the United States' decision to walk away from it brought home to Europe just how much of a soft power tool the dollar remains.

That gave birth to a desire to study what could be done to enhance the international role of the euro - an effort which has so far yielded little concrete. The European Commission today holds a conference on the subject with a bunch of high-powered speakers including ECBers Peter Praet and Luis De Guindos.

MARKETS AT 0655 GMT

The to and fro of trade war news continues to dominate macro market thinking, with Washington’s decision to blacklist Chinese telecoms giant Huawei the latest incendiary move unnerving Asia markets again overnight, while anxiety grew about Beijing’s gigantic holdings of U.S. Treasury bonds as well as surprisingly weak April retail data from both the United States and China.

People walk by an electronic board showing the Shanghai and Shenzhen stock indexes, on a pedestrian overpass at Lujiazui financial district in Shanghai, May 16, 2019. REUTERS/Aly Song

The Huawei news reversed a brief bounce in market sentiment on Wednesday after reports that the White House had postponed its decision on planned auto tariffs for six months while it sorted its bilateral issues with China - a move of particular relief to European markets facing European Parliament elections next week and a new Commission in October.

Shanghai and HK stocks markets, with one eye on further domestic policy stimulus after this week’s poor retail and industrial numbers, stalled on Thursday. Japan’s Nikkei lost 0.6% and South Korea’s Kospi was off more than 1%. After pushing higher for two straight days, MSCI’s all country world equity index was back in the red. Its emerging markets index was down 0.3%.

China’s offshore yuan weakened again, though it remained off the year’s low set earlier in the week. China’s economic surprise index had plunged back into negative territory for the first time since March. 

Ongoing jitters about whether China will use its more than $1 trillion of U.S. government bond holdings as a weapon in the escalating trade war have gone up a notch after a dismal 10-year Treasury auction last week and data on Wednesday showed Beijing had already offloaded its most Treasury bonds in almost 2-1/2 years in March, well before the last ratcheting up of trade tensions.

The disappointing U.S. retail numbers saw U.S. 2-year yields hit their lowest in 15 months on Wednesday, before rebounding on the auto tariff delay. Ten-year Treasury yields were last at 2.36 percent, about 20 basis points above the 2 year.

The dollar held steady to firmer more generally, with euro/dollar taking heart form the auto tariff delay and recovering from a brief dip under $1.12. Yesterday’s lift from the auto postponement faded for European stocks however, with futures pointing to a drop of 0.3 percent today. U.S. stock futures were down by a similar amount.

In European debt, German Bund yields steadied just above 2-1/2 year lows set on Wednesday. Italian sovereign bond yields and their spread over Germany continued to probe their highest levels of the year meantime, as divisions opened up again within the ruling Italian coalition over breaching European Union budget deficit and debt rules.

After deputy PM Salvini said earlier in the week that he was prepared to sacrifice the “ruinous” rules in favour of job creation, Italy’s other deputy PM Di Maio said this morning his 5-Star party would never allow public debt to rise and opposed a budget law that would do so. 

Sterling steadied after lunging to a 3-month low against the dollar on Wednesday amid ongoing deadlock over Brexit, reports of the UK PM re-presenting her withdrawal bill back to parliament in early June and insistence from many pro-Brexit factions that they will vote against it once again.

— 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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