March 27, 2018 / 7:49 AM / a year ago

Daily Briefing: Diplomatic expulsions - Russia readies reply

LONDON (Reuters) - Australia overnight became the latest country to join the international protest against Russia over a nerve attack which the UK has blamed on Moscow, expelling two diplomats and warning of further actions.

Russian President Vladimir Putin chairs a meeting about the fire that killed at least 64 people at a busy shopping mall, in Kemerovo, Russia, March 27, 2018

Overall, this is the biggest Western expulsion of Russian envoys since the end of the Cold War, including the toughest action Donald Trump has taken against Russia since coming to office and a substantial show of European solidarity for the UK. Moscow has said Vladimir Putin - who only days ago set improving ties with the West as one of the goals of his new mandate - will make a final decision on a "symmetrical response" shortly. Given that he is also dealing with the consequences of the deadly fire in a Siberian shopping mall that is blamed on criminal negligence, that may take a few days.

Can we be confident in the result of the referendum? This is not refighting the referendum. This is about the integrity of the democratic process

Just over a year to the day before Britain is scheduled to leave the European Union, its parliament is holding today an emergency debate on alleged breaches of electoral law during the June 2016 Brexit referendum. The specific allegation is that the main Vote Leave campaign broke election spending limits by donating to a smaller, allied group known as BeLeave.

Vote Leave has denied any wrongdoing and paints the affair as a last-ditch attempt by Remainers to reverse Brexit. This story has a long way to go before it seriously raises that prospect - and for now does not seem to have appeared on the radar screens of financial markets - but will be one to watch in coming days.

Forecasters expect fairly marked drops in business climate and economic sentiment indicators due out at 1000 GMT. That comes days after data showing business morale in the export-oriented German economy fell in March for the second straight month, albeit from record highs. The reason in Germany’s case was growing concern about protectionism triggered by Trump’s “America First” platform. To what extent this starts making dents in the euro zone economy remains to be seen - it is certainly one of the two main external risks being watched by the European Central Bank.


After trade war fears and Facebook woes lopped 6 percent off the SP500 last week, Wall Street rebounded last night amid a slight easing in China-U.S. tensions to enjoy its biggest one-day gain since 2015. The buoyant mood has played out in Asia, with the Nikkei up around 2 percent and Hong Kong rising almost 1 percent.

Interestingly the yuan has been fixed much higher, taking it to 2 1/2-year highs to the dollar. European shares are poised to open around 1 percent higher and equity futures are pointing upwards for New York, too – SP500 futures are up almost half a percent, and MSCI’s world equity index is up 0.3 percent, having risen  off near-two-month lows touched on Monday.  

Accordingly, safe-haven assets have lost ground, with the yen coming further off against the dollar after hitting 19-month highs last Friday. The dollar itself remains near six-week lows against a basket of currencies. The euro, which surged 1.4 percent on Monday against the yen for its biggest one-day gain since June 2017, is up another 0.3 percent. Reasons are manifold, among them the Japanese political scandal, which casts doubts over Shinzo Abe and his reflationary policies.

In Europe, the prospect of the hawkish Bundesbank man Jens Weidmann becoming the next European Central Bank boss should support the single currency. A raft of euro zone data is out, including business and consumer confidence for the bloc as well as Spanish and Italian inflation. Sterling continues to hold near $1.42 on back of a BoE rate rise that’s pencilled in for May. Let’s see what the BoE minutes show today.

European equity futures are up 1.4 to 2.2 percent across the major benchmarks. Retail stocks will be ones to watch after French supermarket group Casino struck a deal with Amazon to make groceries from its Monoprix chain of stores available on Amazon's Prime Now service for Parisian customers this year. The partnership extends Amazon's reach into the European grocery market, and while Casino shares are seen rising 3 to 5 percent, the news could shake investors’ confidence in retail names that are more behind the curve.

— 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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