LONDON (Reuters) - When Barack Obama visited Britain two months before the Brexit vote of June 2016, he famously warned that the UK would be at the "back of the queue" for any trade deal with the United States if it voted to leave the EU.
Wind forward three years and PM Theresa May will be hoping for more encouraging words from Donald Trump when they hold their joint news conference this afternoon after a meeting at 10 Downing Street.
Ahead of the talks, May has already made a pitch for a closer commercial relationship - notwithstanding the controversy about the better access the U.S. would demand to Britain's health sector. Expect mass protests and the flying of the Trump baby blimp today.
At least 100,000 people are expected to march through the Czech capital Prague tonight to demand that the government does not interfere with a criminal case involving Prime Minister Andrej Babis.
Babis is a billionaire-turned-politician who has been charged with illegally tapping 2 million euros in European Union funds a decade ago when he was in business. He denies the charges. Protesters say Justice Minister Marie Benesova's past comments and actions indicate she is a Babis supporter.
Ukrainian President Volodymyr Zelenskiy heads to Brussels today for a first set of meetings with leaders of the European Union and NATO. Local press reports suggests that Zelenskiy will assure both institutions of his plan to remain on a pro-West course but there remains much to discuss.
Brussels has invested heavily in Ukraine as a potential model for other post-communist neighbours and a bulwark against Russia, but the bloc has grown frustrated with continued corruption and democratic failings in Ukraine.
MARKETS AT 0655 GMT
Following world markets’ dramatic Fed rethink over the past few trading days, Tuesday offers some hopes for a reality check on just how monetary policymakers will now respond to the escalating Sino-U.S. trade war, rising recession risks and tech sector nerves.
Even tough futures markets have been shifting spectacularly toward pricing in a Federal Reserve interest rate cut as soon as next month - and possibly up to three cuts in total by yearend.
As a measure of the impact of the reheated trade war, JPMorgan’s global aggregate manufacturing sentiment index dropped into contractionary territory in May and its lowest level since 2012.
And any sign of détente ahead of the weekend’s G20 finance chiefs meeting in Tokyo appeared remote as the U.S. Trade Representative’s office and the U.S. Treasury on Monday accused China of pursuing a ‘blame game’ over the row.
Stock market woes were compounded by news that U.S. antitrust agencies were gearing up to investigate tech giants Amazon, Apple, Facebook and Google over misuse of their massive market power. Facebook’s stock dropped more than 7%, Google parent Alphabet lost more than 6%, Amazon fell almost 5% and Apple dipped 1%.
The tech-heavy Nasdaq index underperformed wider losses on Wall St, dropping 1.6% and recording an official 10% peak-to-trough correction from the highs of just one month ago. Shanghai, Hong Kong and Taiwan stocks ended in the red early on Tuesday. All this underlined the scramble to re-price Fed policy and the biggest two-day drop in U.S. 2-year Treasury yields since the crash of 2008.
Egged on by comments from St Louis Fed chief Bullard that a rate cut may be needed “soon”, 10-year U.S. Treasury yields plunged as low as 2.06% - their lowest since September 2017 – before a tentative stabilization overnight that left them still under 2.1%.
The recession flag from yield curve between 3 months and 10 years continued to fly furiously, with the inversion now as high as 27 basis points. Adding to the rates rethink was a recession-spooked recoil in world oil prices, where Brent crude futures are now testing $60 per barrel for the first time in four months.
Bullard’s comments aside, investors now need to see if top Fed officials endorse the market rethink of its policy horizon. Fed chair Powell and several of the central bank’s most senior figures all speak at a strategic policy review conference in Chicago later. In downturns over the past 20 years or so, the Fed has typically managed to cut interest rates before the economy officially records a recession.
Trade war and recession fears have swept across the world meantime, with the Reserve Bank of Australia cutting its interest rates to record lows overnight and holding out the chance of further easing.
With the ECB meeting on Thursday, today’s release of flash euro zone inflation numbers for May will likely sketch the backdrop for a dovish message from ECB chief Draghi to match the global mood and also address what’s set to be a nervy summer of political and electoral risks across Europe.
But for now, the Fed rates rethink is dominating and that’s taking its toll on the dollar. With the dollar’s DXY index falling to its lowest in more than two weeks and dollar/yen to its lowest since January, euro/dollar pushed to its highest since April.
European stocks opened down almost 1%. The Fed and dollar relief for emerging markets has helped them outperform this week. Sterling was higher against a weaker dollar even after news that UK retail sales sank by an annual 2.7%, the biggest fall - excluding distortions caused by the timing of Easter - since the British Retail Consortium's records began in 1995.
On the European corporate front, Denmark's Bang & Olufsen cut its profit outlook, hurt by lower-than-expected sales in Europe. One trader expects shares of the luxury TV and stereo maker to fall 5-10%.
European retail continues to be battered and results from Britain’s AO World is the latest evidence as the seller of washing machines, fridges, cookers and televisions reported another loss hit by weakness in its continental Europe division. AO World was seen 5-10% lower.
Shell was called 1-2% higher after the oil giant said it expects to increase its dividend payouts to shareholders once it completes a $25 billion share buyback by the end of 2020.
— 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 —