May 21, 2019 / 7:51 AM / a month ago

Daily Briefing: Hammond ups the Brexit rhetoric

LONDON (Reuters) - Unusually strong language will emerge tonight from Britain's mild-mannered finance minister Philip Hammond, who according to speech excerpts will accuse some "on the populist right" of "hijacking" the June 2016 Brexit vote by advocating no-deal.

FILE PHOTO: Chancellor Philip Hammond looks on during an interview with Reuters at the British Ambassador's residence in Beijing, April 26, 2019. REUTERS/Florence Lo/Pool

Hammond - who himself voted Remain - will argue to an audience of business leaders that the 2016 campaign always promised a departure with a deal and that therefore there is no mandate from voters to leave without one.

The backdrop to his attack is the increasingly public manoeuvring within the ruling Conservative Party to succeed Theresa May in coming weeks/months, with lines inevitably split down Brexit lines - ranging from a soft Brexit camp to a Brexit-come-what-may faction.

What now for Austria’s Sebastian Kurz, whose controversial 2017 decision to bring a far-right party with Nazi roots into government has ended in tears?

After calling an end to his coalition following the emergence of a video of his vice-chancellor hatching plans for media manipulation, Kurz went a step further last night with a call for the sacking of another far-rightist who is his interior minister.

His swift disavowal of former cabinet colleagues may shield him from the fallout of the whole affair ahead of early elections likely in September where he will need to find new allies to stay in power.

An early poll shows support for his party rising to 38 percent, suggesting it could be working. It will get turbulent in coming weeks, however: the local APA news agency is reporting he could face an early vote of no-confidence.

On the macro front, Paris-based think tank the OECD is due this morning to publish its economic outlook for member countries and other major economies.

MARKETS AT 0655 GMT

It feels like ‘two steps forward, half a step back’ in the escalating U.S.-China trade war, with investors fearing the tariff row is now morphing into an all-out ‘tech war’ after Washington’s blacklisting of Chinese telecoms giant Huawei has seen ripple effects across chipmakers, tech suppliers and other U.S. digital companies that could be caught up in retaliation by Beijing.

"I think this is a reality check. It shows how pervasive Huawei goods and technology are around the globe and if the U.S. imposes restrictions, that has impacts"

But, as if tailoring moves to offset reverberations on Wall St, the White House rowed back on some Huawei restrictions overnight by saying Huawei could service its operations in the United States with U.S.-sourced inputs. That encouraged some investors who feel the trade war will only get as hot as the domestic U.S. stock market will allow.

But the jarring effect of the Huawei move, Google’s response on limiting the use of its services and reports U.S. chipmakers will stop supplying Huawei until further notice compounded this month’s rise in manufacturing tariffs from both sides and suggested a durable trade deal between the world’s two biggest economies – that many has assumed imminent only a couple of weeks ago – could now take months at least.

While the S&P500 shed about 0.67% late Tuesday, the tech subcomponent lost 1.75% and  the tech-heavy Nasdaq also underperformed with losses of almost 1.5%. The Philadelphia Semiconductor Index, which includes Huawei suppliers Qualcomm, Broadcom and Micron Technology, fell 4% and Apple alone lost more than 3%.

The slight rowback from Washington overnight allowed Shanghai to recover Monday’s losses and bounce back more than one percent and Taiwan’s tech-laden market was up 0.6% as U.S. and European futures regained some ground.

China’s offshore yuan was a shade firmer. But there was much less of a fillip elsewhere in Asia, with South Korea’s Kospi ending barely in the black and Tokyo’s Nikkei and Hong Kong’s Hang Seng closing lower. Singapore’s first-quarter GDP growth slowed to its lowest in a decade. MSCI’s all-country index was down for the third day in a row.

In a speech that gave little away on monetary policy even as markets have moved to price a Fed rate cut this year, Fed chair Powell said it was premature to make a judgement on the effects of trade and tariff moves on the central bank’s policy path. Along with the overnight recovering in stock futures and firm oil prices, that helped lift 10-year U.S. Treasury yields overnight.

The dollar’s DXY index rose to its highest level in almost a month, with euro/dollar slipping amid trepidation about this week’s European elections and sterling falling to a fresh 4-month low amid rising fears of a ‘no deal’ Brexit as traders speculated about who would now replace UK PM May. MSCI’s emerging markets currency index was lower.

On the European corporate front: What one trader called an “austerity drive” at Daimler could help the German carmaker’s shares up: it plans to cut administration costs by 20%, according to a Handelsblatt report citing sources. Traders saw the stock rising around 1%.

With results slowing to a trickle, Telecom Italia stood out: Italy's biggest phone group was hit by stronger competition in the first quarter, sending its domestic revenues and core earnings down.

Swiss hearing aid maker Sonova reported an increase in full-year sales, sending its shares up 2% in pre-market, while German retailer Ceconomy fell 2% after earnings declined and management struck a negative tone about a challenging market environment.

— 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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