LONDON (Reuters) - Pressure is growing on British PM Theresa May to ditch her attempts to forge a cross-party Brexit deal with opposition Labour.
Thirteen of her former cabinet colleagues have written an open letter urging her not to agree Labour’s demand for a post-Brexit customs union with the EU. They also argue that a deal would in any case not be binding on her successor - effectively acknowledging the same concern raised by Labour negotiators.
Despite the dim outlook for the talks, May is sending her Brexit negotiator, Olly Robbins, to Brussels to discuss what tweaks could be made to the existing text on the UK’s future relationship with the EU if consensus with Labour is found.
As expected, Hungarian PM Viktor Orban got a great photo op at the White House last night, with Donald Trump hailing him as "respected all over Europe" and praising his anti-immigrant stance.
Orban wasted little time posting pictures of the two leaders shaking hands in the Oval Office, winning thousands of “likes” from fans. The episode will do no harm to the already strong showing of his party in EU elections next week.
Economists are expecting a substantial rise in the main ZEW sentiment benchmarks for the German economy in May when they come out at 0900 GMT.
The other big number is first-quarter UK labour market data at 0830 GMT. Despite the Brexit uncertainty, so far businesses have kept hiring, pushing unemployment to its lowest since 1975. Some surveys have pointed to a slowdown in hiring in the past couple of months, but economists polled by Reuters don’t expect any big changes yet.
MARKETS AT 0655 GMT
After the worst day of the year for world stocks on Monday, investors are clutching at straws for something positive from the latest escalation of the Sino-U.S. trade war. MSCI’s all-country world equity index fell a further 0.2% on Tuesday after dropping almost 2% on Monday, its worst single day since Dec. 4.
China on Monday said it would raise tariffs on some $60 billion of U.S. imports in retaliation of a near doubling of U.S. tariffs on $200 billion of Chinese goods announced Friday.
Wall Street stocks fell more than 2% in their worst day since the first week of January. The tech-heavy Nasdaq had the worst day of the year so far and the ViX volatility gauge closed above 20% for the first time since Jan 22.
U.S. and European futures were up about 0.5% overnight as U.S. Donald President Trump said he would hold off raising tariffs for now on the remaining $300 billion worth of Chinese imports and held out hopes for some meeting of minds when he sees China’s President Xi Jinping at the end of June.
But with six weeks of trade rancour to cope with in the meantime and a commensurate relapse in business sentiment likely, Asia markets continued to fall overnight.
Shanghai ended lower again, Japan’s Nikkei lost 0.7% and Hong Kong returned from a local holiday on Monday to lose 1.7%. Seoul’s Kospi, the biggest loser on Monday, held steady, but MSCI’s broad emerging-market equity index fell another 0.8% to its lowest since Jan. 3, on course for its worst month since October.
In currency markets, the offshore yuan steadied after Monday’s lurch to its weakest level of the year, enabling MSCI’s emerging-currency index to stabilise as well. Safe havens such as Japan’s yen and U.S. Treasury bonds eased back from their best levels overnight, with dollar/yen bouncing from 109 to trade back above 109.50 first thing in London.
The Swiss franc retained much of its gains, however, with 10-year German bund yield rising only slightly after to falling to lowest since March yesterday.
Some of the reason for stabilisation on Tuesday has been the inevitable ratcheting up of Fed rate-cut speculation after Wall Street’s swoon. Fed futures now indicate as much as a 75% chance of a rate cut by December as the Treasury yield curve between 3-month and 10-year debt flirts again with an inversion, which many see as a harbinger of future recession.
The dollar’s DXY index held firm, however, with euro/dollar nudging higher. Despite rising tensions between Washington and Iran, the market jolt from the renewed trade war saw Brent crude oil prices dip below $70. Bitcoin’s move over the past week has seen it gain almost 30% since Friday to top $8,000 for the first time since August.
On the European corporate front, Bayer shares were down 7% premarket, after a California jury hit the company with a $2 billion judgement in a Roundup cancer trial. The share move is likely to wipe off more than $4 billion from its market value.
Volkswagen is expected to rise 2.7% as it resumes preparations for an IPO of its trucks unit, Traton. Shares of Allianz look to rise 1.5% after the German insurer reported a small rise in first-quarter net profit, better than expected, and confirmed 2019 targets.
Vodafone cut its dividend, reversing a pledge to maintain the payout in the face of rising spectrum costs, tough competition in Spain and Italy and a balance sheet soon to be hit by the acquisition of Liberty Global assets. Traders forecast the shares will fall 3% to 5%.
British baker Greggs said it foresees better 2019 results than its earlier expectations. Traders expect the shares to rise 5%. HelloFresh shares are seen sliding 7% after German e-commerce investor Rocket Internet sold a stake in the German food group.
Twenty-six China A shares are to be added to the MSCI China Index, while 30 equities from Saudi Arabia and eight Argentine securities are set to join the MSCI’s emerging-market stocks benchmarks.
Saudi Arabia and Argentina stocks will join its indexes as of the close of trading on May 28. Argentina will account for 0.26% of the MSCI Emerging Markets index, Saudi Arabia 1.42%. China A shares will be left with a 1.76% weight in the broad developing-nation gauge. The China gauge will have 31 additions in total, including five that are not A 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 —