June 13, 2017 / 7:25 AM / 7 months ago

Daily Briefing: Humble May wins stay of execution

LONDON (Reuters) - PM Theresa May might well have won a stay of execution with a contrite performance last night in front of Conservative lawmakers who are no doubt as eager as she is to save their skins and avoid a new election. But her government's policy is still anyone's guess.

Possibly the most significant thing to emerge from the meeting was her acknowledgement that a wider consensus is required in defining Brexit policy: although many will remain sceptical as to whether she actually means it, a Reuters poll out this morning suggests a majority of economists see the chances of Britain ending up outside the single market as having receded.

We could also learn more today about what price Northern Ireland's DUP will want for supporting her government when May meets DUP leader Arlene Foster.

Meanwhile the EU is champing at the bit to start Brexit negotiations next week, with its negotiator Michel Barnier warning in several European newspapers that the clock is ticking.

May travels to France later for talks with newly elected President Emmanuel Macron - interesting to see whether she adopts a less confrontational stance with him than her previous threats to be a "bloody difficult" bargainer with the EU would suggest.

Further east, the European Union has concerns of its own as Hungary's parliament votes today on a bill regulating foreign-funded NGOs. The controversial legislation places reporting and other requirements on NGOs and would bill them "foreign funded" if they receive any funding from abroad - all part of a wider crackdown on dissent by Prime Minister Viktor Orban which has been heavily criticised across Europe.

That comes as the European Commission is expected to decide to launch legal cases against Hungary, Poland and the Czech Republic for failing to take in asylum-seekers to help Italy and Greece, on the front lines of the bloc's migration crisis. The move would mark an escalation in the EU's divisive battles over migration that have been going on for two years.


The global tech sector selloff seems to have petered out overnight despite another down day for the Nasdaq on Monday. Equity markets in South Korea and Taiwan rebounded in Asia, while Shanghai and HK advanced too. Japan’s Nikkei underperformed and ended flat.

The question in most minds yesterday was whether the wobble in Wall St’s tech giants, such as Amazon, Alphabet, Microsoft and Facebook, was a warning sign for the broader market or merely a rotation away from the outperforming sector.

Given that nearly half of overall return of the S&P500 in the first five months of the year was down to just 10 stocks from internet and software industries, the strong suspicion is that this is just a shuffling of the pack toward better valued stocks and sectors - and indeed better valued tech companies in Asia and elsewhere. Even though the Nasdaq lost another 0.5 percent on Monday, the S&P500 fell less than 0.1 percent.

Wall St’s equity volatility index, the ViX, closed above 11 percent, but this is only back to where it was late in May. The widely expected Federal Reserve interest rate rise on Wednesday is likely to keep a dampener on stocks later, but the meeting will all be about signalling on future policy rather than any surprise at the latest hike. Ten-year Treasury yields were steady just above 2.21 percent, with euro/dollar a touch lower.

The big overnight mover in currency markets was Canada’s dollar, which leaped on signals that no further easing of monetary policy was likely from the Bank of Canada and has added another 0.25 percent to that move on Tuesday so far.

Sterling firmed as the UK awaits some workable agreement on a new government, with press reports on PM May’s meeting with party and cabinet late on Monday indicating that policy may shift toward seeking a softer Brexit deal than before the election and also to dial back on plans for further fiscal austerity. While that may help the pound longer-term, the offset is deteriorating economic confidence as the unstable domestic political scene plays out and Brexit talks are likely delayed.

The release of May UK annual inflation numbers later will be a focus, with another above-target reading of 2.7 percent expected. The renewed weakness of the pound will be worrying for inflation-watchers more broadly and while the Bank of England is expected to ‘see through’ the acceleration in prices without any tightening of policy, inflation is eating into still-subdued wage growth. Higher inflation and less austerity, meantime, will hardly be a boon to the gilt market.

Elsewhere, European stocks are expected to open flat.

Editing by Andrew Heavens

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