September 11, 2018 / 7:42 AM / 10 days ago

Daily Briefing: Defiant Orban heads to EU assembly

LONDON (Reuters) - Hungary’s Viktor Orban will give a robust defence of his government in a speech to European Parliament today, before a vote there later this week on whether he is running roughshod over EU rules on law and democracy.

FILE PHOTO: Hungarian Prime Minister Viktor Orban speaks during a meeting with Italian Interior Minister Matteo Salvini in Milan, August 28, 2018

Re-elected in April, Orban is accused by critics of weakening press freedoms and the judiciary while misspending EU funds: He rejects such criticism and accuses Brussels of overstepping its powers.

Two-thirds of European lawmakers are required to trigger sanctions against Budapest - a high bar that may not be reached. The focus will be on how his allies in parliament vote, notably those in the same grouping as Orban’s Fidesz party. Others, such as the UK Conservatives, may well oppose sanctions because they see any such a move as undermining national sovereignty.

Today marks the formal start of Russia’s biggest war games since the fall of the Soviet Union, with an unprecedentedly large involvement by the Chinese army. The manoeuvres in the east of the country take place at a time of heightened tension between the West and Russia, which is concerned about what it says is an unjustified build-up of the NATO military alliance on its western flank.

Asked if China’s involvement meant Moscow and Beijing were moving towards an alliance, the Kremlin has said it shows that the two were cooperating in all areas. Indeed, Vladimir Putin will meet China’s Xi Jinping on the sidelines of a business event in eastern Russia at the same time.

British finance minister Philip Hammond answers questions in parliament today amid reports he could announce his budget as early as next month to avoid a clash with the final stages of Britain’s talks to leave the EU.

It looks now as if the EU is preparing for a one-off summit in November on the basis that no deal will get done at the one planned in Salzburg next month. Separately, there are reports that the batch of hard Brexit MPs who oppose Theresa May's compromise proposal on future ties with the EU have failed to come up with their own alternative - "The truth is that we reconsidered," the FT quotes Conservative lawmaker Jacob Rees-Mogg as saying.

MARKETS AT 0655 GMT

World markets have been dominated over the past 24 hours by sterling’s surge on fresh Brexit-related optimism and yet another down day for emerging market equities.

The pound added to Monday’s jump, hitting its highest in over a month after the European Union’s Brexit negotiator, Michel Barnier, said on Monday that a deal with the UK was doable within six to eight weeks if all sides were realistic.

Russian President Vladimir Putin shakes hands with Japanese Prime Minister Shinzo Abe during their meeting on the sidelines of the Eastern Economic Forum in Vladivostok, September 10, 2018

Shrugging off domestic political rows and splits over the issue, sterling took the Barnier comments more seriously as they underline a change in tone from Berlin, Paris and Brussels in recent weeks toward completing a deal by November. After a summer of warnings about a no-deal Brexit, market positioning has been short and the surprise factor has been tilted toward any compromises.

The news embellished more upbeat UK economic news, with GDP growth in the three months through July coming in ahead of forecasts at 0.6 percent and July’s trade deficit at its narrowest since February.

UK jobs and earnings data are due out later today and UK finance minister Hammond answers questions in parliament. Sterling extended its gains above $1.30 early Tuesday and touched its strongest levels since early August against the euro.

Chinese shares continued to wither on the prospect of U.S. tariffs on practically all Chinese goods after a series of warnings from President Donald Trump over the weekend. Asia shares more broadly weakened with Trump’s weekend warning to Apple to pull manufacturing back to the United States hitting Apple’s suppliers across the region. MSCI’s Asia ex-Japan index dropped for the ninth straight session – its longest losing streak since early 2016.

Despite some relief for emerging-market currencies as the dollar dialled back a touch, MSCI’s global emerging equities index fell to its lowest in 14 months as investors worry the financial shock of recent months will now morph into slowing growth and recession in the worst hit countries.

Benchmark stock indices in Shanghai, Hong Kong, Seoul and Jakarta were all in the red again, with Tokyo’s Nikkei outperforming partly due to the weaker yen. China’s offshore yuan briefly touched its weakest in more than two weeks.

Russia’s rouble steadied after steep losses for it and Russian government bonds on Monday before this week’s central bank policy decision and some doubts about whether a rate rise is likely amid Kremlin pressure not to tighten policy.

Turkey’s lira was also steadier as markets awaited a policy decision from the Turkish central bank on Thursday, amid signs the domestic economy was weakening in the second quarter even before the worst of the lira’s summer collapse.

Euro/dollar, meantime, was firmer ahead of this week’s European Central Bank policy meeting, with an easing of tensions over Italy’s impending budget evident in the retreat of 10-year Italian government bond yields to their lowest since July.

Echoing comments from all of Italy’s senior government figures over the past week, Italy’s foreign affairs minister, Enzo Moavero, said on Tuesday the country was determined to pass a budget this year that will stem market speculation and sees no standoff with Brussels over the outcome.

With Wall Street stocks eking out gains overnight, European stocks were set for a higher open, with one eye on the release of the September German ZEW investor confidence index.

 — 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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