February 26, 2019 / 8:37 AM / 3 months ago

Daily Briefing: Brexit - signs of movement emerging

LONDON (Reuters) - Signs of major shifts in the Brexit debate emerged late yesterday, with Labour leader Jeremy Corbyn moving to support a second referendum and media reports that PM Theresa May will today discuss with her cabinet taking a no-deal option off the table.

A pro-Brexit protester displays a placard outside of the Houses of Parliament, February 25, 2019

In both cases, the two main protagonists have been dragged kicking and screaming to such U-turns by party allies threatening revolt.

The European Union has made it pretty clear to May that it sees a delay to Brexit as the only sensible path given the uncertainty: however, it would not want to agree a short one if it simply means the impasse is extended for a few weeks.

May is due to speak in parliament shortly after midday: the question will be how explicitly she rules out a no-deal outcome, if she does so at all.

The Labour move meanwhile raises a totally separate question of whether Brexit will actually happen. It will give heart to campaigners for a second referendum but they also know that - for time being at least - there does not appear to be a majority in parliament for calling one.

While the German economy has narrowly skirted recession, its consumers remain relatively upbeat, according to a GfK survey released this morning. That suggests household spending can support further economic growth in the first quarter of this year.

Separately, French consumer confidence jumped in February as fears over joblessness subsided. The reading of 95 points marked the highest level for the consumer confidence index since October, which was the month before France's "Yellow Vests" protesters started to wage weekly demonstrations against high living costs and Emmanuel Macron's policies.

MARKETS AT 0755 GMT

Sterling has charged higher overnight amid several reports UK PM Theresa May, as soon as Tuesday, is set to announce a delay in Brexit beyond the scheduled March 29 deadline and after the main UK opposition Labour Party moved to back a second referendum on the issue.

The pound has gained as much as 0.7 percent against both the euro and the dollar since the close in London on Monday, reaching its highest in a month.

The first jump came about 2200 GMT on Monday night after the first reports May, faced with threats of ministerial resignations unless she removes a no-deal Brexit from the government’s list of options,  will play for more time and announce that she will seek a delay in Brexit after a cabinet meeting later this morning.

Sterling added to those gains first thing Tuesday, with FTSE stock futures getting hit by the pound’s rise.

May’s de facto deputy, David Lidington, said on Tuesday that a delay would only defer difficult parliamentary decisions and he hoped a "meaningful vote" on the Brexit deal on the table could happen as soon as next week. He refused to speculate about May taking no deal off the agenda.

The European Union needs to agree to a requested delay and reports on Monday said it favoured backing a substantial postponement of up to two years. Labour’s move to back a second referendum, meantime, comes amid its own internal mutiny over the issue.

If a long Brexit delay were to involve a general election that Labour might win, then all options start to open up again, including a possible Brexit reversal. Bank of England Governor Mark Carney also answers questions in parliament later.

Elsewhere, world market enthusiasm about an imminent trade deal between the United States and China cooled somewhat overnight. Even though U.S. President Donald Trump indicated increases in tariffs would be postponed beyond March 1, he also said a deal had not yet been sealed and there was still a lack of detail on what emerged from the Washington talks.

Wall Street stocks closed mostly flat on Monday, with U.S. and European futures both lower first thing today. Shanghai stocks and the offshore yuan gave up some of Monday’s surge in both, with the former paring some 0.7 percent off gains of more than 5 percent on Monday. The other main Asia markets also slipped.

Beyond Brexit, the big set piece of the day will be Federal Reserve Chair Jerome Powell’s Senate testimony. Markets have now priced the Fed’s pause and will be on tenterhooks to see whether Powell feels a resumption of interest rate rises later in the year is possible and how soon Fed policymakers will discuss ending the central bank’s balance sheet rundown.

The dollar’s DXY index was steady to a touch lower first thing, with euro/dollar lower, too. Currency volatility has subsided over the past few weeks as the Fed and other central banks have leaned more dovish in the face of weakening economic soundings. Ten-year U.S. Treasury yields fell about 2 basis points overnight to 2.6520 percent.

Brent crude oil prices remained below $65 per barrel after falling about 4 percent on Monday following Trump tweets that energy prices were too high and OPEC should do more to get them lower.  On the positive macro front, French consumer confidence readings for February came in well ahead of forecasts.     

On the European corporate front,  precious metal producer Fresnillo has warned of another challenging year and its results missed expectations, with its shares seen down 5 to 10 percent.

Standard Chartered’s pledge to cut costs and increase its dividend was well-received by investors in Hong Kong overnight, sending its shares up 2.5 percent. Traders in Europe reckon the London-listed stock will get a similar boost.

There’s plenty of corporate earnings from German and French industrial heartland as well. BASF reported a plunge in fourth-quarter profits after a sharp decline at a unit making basic petrochemicals for products such as heat insulation. Shares in the German chemicals group are under pressure in pre-market trading following Covestro's poor results yesterday.

Shares in semiconductor equipment maker Aixtron are down as much as 9 percent in pre-market trade after its results.

— 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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