LONDON (Reuters) - The UK parliament had an opportunity last night to seize the Brexit initiative from Theresa May but chose, for now at least, not to take it. In the end, too many lawmakers stuck exclusively to their first preference to carry any of the softer Brexit variants across the line.
Thus, members of The Independent Group - the newly formed party that pledges to break down the old silos of UK politics - stuck to demands for a second referendum and rejected options under which the UK would stay in a customs union or the single market (despite the latter strikingly being backed by Labour).
Whether the assembly is more minded to go for second-best outcomes in a final set of test votes on Wednesday now largely depends on what happens in May's bitterly divided cabinet today.
Her allies are already out arguing that the case for her deal is now even stronger and are trying to scare hard Brexiters into backing it with talk of customs unions and second referendums. EU negotiator Michel Barnier said this morning no-deal Brexit is looking likelier but could still be avoided.
It is worth remembering that no-deal would be a big headache for the EU and notably for Dublin. France’s Emmanuel Macron has invited Ireland’s Leo Varadkar to Paris today for talks that will inevitably broach the subject of what happens if the UK crashes out of the EU without an agreement.
In that event, it would be down to Ireland to protect what would then be a land border to the EU’s single market - ensuring, in effect, that the market’s rules are not undermined by non-single market goods and services entering from a post-Brexit Northern Ireland.
Yet a new hard Irish border would be seen as a massive setback for peace on the island. In a sign of the seriousness of the matter, Germany’s Angela Merkel is also due to meet Varadkar later this week.
A delicate trip is meanwhile in store for Greek Prime Minister Alexis Tsipras today as he visits newly-named North Macedonia.
The deal he struck with Skopje on the name proved unpopular for Tsipras at home, where angry protesters condemned his decision to allow the continued use of the word Macedonia - a fact many Greeks fear implies a lingering sovereignty claim over their northern province of Macedonia.
Tsipras, who is looking to secure re-election later this year, will be accompanied by a delegation of business executives and investors.
MARKETS AT 0655 GMT
Some brightening of the global industrial mood in March – at least in China and the United States – competes with another dour U.S. retail sales report for attention and leaves world stocks just a whisker shy of their highs for the year but hesitant in breaking new ground.
After surging more than 1 percent on Monday, MSCI’s all-country index hovers just below the mid-March peak – itself a six-month high. Markets appear wary of another push however, with Asia’s major bourses little changed overnight despite Wall St’s rally and risk assets and currencies generally dialling back a touch, including a retreat in the Australian dollar after the Reserve Bank left policy rates unchanged there.
Brent crude was the exception, setting new five-month highs at $69.50 after U.S. threats of fresh sanctions against Iran and after a key Venezuela oil terminal halted production. Ten-year U.S. Treasury yields failed to hold 2.50 percent after Monday’s sharp spike and while the yield curve from 3 months to 10 years is now back in positive territory, it has halved again from 10 basis points last night to less than 5bp this morning.
The Brexit process ran into sand yet again on Monday evening with another series of inconclusive parliamentary votes on the next steps to break the impasse, knocking sterling back toward $1.30 where it retreated to late last week.
While no option garnered a majority, the proposal with the most votes was for a second referendum and the one with the narrowest defeat was for a post-Brexit customs union with the EU.
The votes are expected to go back one more time on Wednesday and after a cabinet meeting today UK PM May is expected to table some variant of her own withdrawal agreement for the fourth time on Thursday. On Tuesday, EU Brexit negotiator Barnier said a no-deal was more likely by the day and said there were now only three options – a ‘no-deal’ exit, the existing deal on the table or a long delay
Elsewhere in currencies, euro/dollar dipped below $1.12 for the first time in almost a month – with the brighter Chinese and U.S. manufacturing picture last month not yet reflected in Europe and futures markets now starting to even price a 10 percent possibility the European Central Bank could cut interest rates again by the end on the year.
In emerging markets, Turkey’s lira has see-sawed over the past 24 hours since local elections that saw defeats for President Erdogan’s AK Party in Istanbul and Ankara.
Although competing with persistent tightness in the offshore lira market as well as trepidation about the next economic policy steps, the lira slipped back 1 percent on Tuesday amid jitters over Turkey’s relations with Washington after the United States halted delivery of equipment related to the F-35 fighter aircraft to Turkey.
Eyes were also on Bitcoin, which jumped almost 20 percent at one point overnight – in its biggest one-day rise since April of last year.
London stock markets may also garner support from their heavyweight mining constituents as iron ore prices soared to record highs in China overnight on growing supply concerns after BHP became the latest miner to warn of lower output due to damage from the recent cyclone in Australia.
Some dealers say the buying spree may turn to profit taking amid worries that cyclone-hit Rio and BHP may lose out on the potential bonanza though. European basic resources stocks hit their highest since June on Monday.
— 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 —
