December 18, 2018 / 8:30 AM / in a month

Daily Briefing: Brexit humbug

LONDON (Reuters) - The splits within the ruling UK party on Brexit are only matched by the fudging of the main opposition’s position on it - meaning it will take weeks before any resolution to the Brexit impasse can emerge.

A demonstrator holds EU and Union flags during an anti-Brexit protest opposite the Houses of Parliament in London, Britain, December 17, 2018. REUTERS/Toby Melville

After first threatening but finally pulling a no-confidence motion in the government, Labour last night decided to call merely for a non-binding one in Theresa May as prime minister - a largely symbolic step.

It argues there is no point in pushing for a bona fide confidence vote that it will lose as long as the Northern Irish DUP is still backing the government - which is of course true.

Others suspect the real reason is that such an outcome would risk bouncing the Labour leadership into having to demand a second referendum, a move it fears would alienate Leave voters from the party.

Meanwhile May will today discuss contingencies for the scenario of a no-deal Brexit as British Chambers of Commerce forecasts puts UK growth this year and next at the slowest in a decade.

European Economic Commissioner Pierre Moscovici is out this morning saying Brussels is still "working very hard" to ensure Italy can avoid a sanctions procedure for its 2019 budget.

That sounds like diplo-speak for: "Give us a bit more". Rome already promised to bring down its projected deficit next year of 2.4 percent to about two percent, but Corriere della Sera daily is reporting that the European Commission has demanded a further 2.5 billion-3 billion euros in savings before giving its stamp of approval.

It remains to be seen where this leaves some of the costlier election promises of the 5Star-League coalition.

Polish President Andrzej Duda moved last night to reverse laws that would have forced judges to retire, after the European Union's top court demanded its controversial judicial overhaul be suspended.

Backing down on this fits into the ruling Law and Justice party’s strategy of trying to appeal to moderate voters before next year’s elections.

But there is no indication it is giving up on a wider agenda of social conservatism and nationalism that has the strong backing of around a third of voters.

MARKETS AT 0755 GMT

World stock markets are on the retreat again on Tuesday after Wall St indices tumbled more than 2 percent overnight, with the S&P500 closing at its lowest level in 14 months.

The list of ailments is rising as investors fear a widening bear market going into 2019 as the global economy slows and the U.S.

Federal Reserve prepares its fourth interest rate increase of the year on Wednesday, despite an ongoing barrage of criticism from the White House.

Disappointing readings from China and the euro zone economies last week were compounded on Monday by a shock to retailers when British online fashion firm Asos issued a dire profit warning that sent its stock down almost 40 percent and dragged other major retail stocks down in its slipstream.

Another big miss was seen in the drop in  U.S. housebuilders’ sentiment this month to its lowest in more than three years.

Adding to the pressure on Wall St was the drop in bank stocks, down more than 20 percent from the peaks of the year, as Goldman Sachs fell almost 3 percent to its lowest in 2 years after Malaysia filed criminal charges against the bank in connection with an investigation into suspected corruption and money laundering involving the sovereign wealth fund 1MDB.

The Vix volatility gauge jumped to 24.5 percent, with the 10-year Treasury yield falling to 2.8410 percent first thing Tuesday and the dollar’s DXY index a touch lower.

The five-year U.S. Treasury yield fell to its lowest since May.

The global equity market selling continued through Asian hours, although S&P500 futures were up modestly.

Shanghai and HK stocks were down about 1 percent each, Tokyo’s Nikkei was down almost 2 percent and Seoul’s Kospi was down 0.4 percent.

European stock futures were down about 0.5 percent.

MSCI’s all-country world index hovered close to its lowest level since May 2017 and is on course for an annual drop of more than 10 percent for the first time since the crash of 2008.  

Sterling was slightly firmer amid confusion over UK parliamentary developments.

The opposition Labour Party has tabled a non-binding vote of no confidence in UK PM May but not yet in the government as a whole after May said on Monday that the postponed parliamentary vote on her Brexit agreement with Brussels would not now take place until the second week in January.

In European corporate news, eyes will be on Deutsche Telekom after its US unit T-Mobile and Sprint won backing from two U.S. national security reviews for their $26 billion merger, a go-ahead that comes after indications that both groups had offered to stop using Huawei equipment.

Speaking about the global battle to supply new equipment for telecoms network upgrades, a report from the Times of India saying Huawei will be allowed to enter 5G trials in the country is set to weigh on Ericsson and Nokia shares.

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.

Editing by Andrew Heavens

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