April 23, 2019 / 7:26 AM / a month ago

Daily Briefing: No respite for May as Brexit woes mount

LONDON (Reuters) - Britain's politicians return to Westminster today after the Easter break with nothing resolved on Brexit and PM Theresa May's position looking more tenuous than ever.

Prime Minister Theresa May shakes hands with former Archbishop of Canterbury Lord Carey at church in Sonning, April 21, 2019. REUTERS/Hannah McKay

Talks aimed at reaching a cross-party deal on the arrangements of Britain’s departure resume, but nothing indicates that divergences have narrowed since the last meeting. Separately, lawmakers in May’s Conservative Party are due to meet to discuss a possible rule change that would allow them to get rid of her swiftly in the event of a rout in next month’s European Parliament elections.

That outcome looks increasingly likely as polls point to a strong start for the unambiguously named Brexit Party of anti-EU campaigner Nigel Farage. Meanwhile, watch out for a possible announcement that U.S. President Donald Trump will be invited for a full state visit to the UK in June.

Last night's televised debate between the main candidates of Spain's general election next Sunday was an ill-tempered affair that among other things raised questions about how any of them could form a coalition with the others after the vote. In keeping with a campaign where the economy has been largely off the radar, the main point of contention was Catalonia's independence drive, still simmering away on the back burner.

Candidates for Spanish general elections - People's Party's Pablo Casado, Prime Minister and Socialist Workers' Party's Pedro Sanchez, Ciudadanos' Albert Rivera and Unidas Podemos' Pablo Iglesias attend a televised debate ahead of general elections in Pozuelo de Alarcon, outside Madrid, April 22, 2019

This is one of a handful of big issues - including everything from women’s rights to former dictator Francisco Franco’s legacy - in an election about what sort of country Spain sees itself being in the future. The new far-right party Vox, whose emergence has made it less likely that anyone will get a clear majority, was not invited to the debate and was not mentioned by name by any of the candidates. A further debate is due tonight.

Italy will inevitably be a major focus today as the European Union releases data on member states’ 2018 debt and deficit ratios as part of its assessment of whether they comply with euro zone rules.

With the Italian economy having fallen into a technical recession in the last quarter of 2018 and spending set to rise, Brussels has repeatedly warned Rome of the need to rein in its finances. Italy’s government insists its measures will start pushing growth up in the second half of this year.

MARKETS AT 0655 GMT

Surging oil prices grabbed most attention on world markets as London traders returned after a four-day Easter break, with Brent crude hitting new five-month highs after the United States tightened sanctions on Iran’s oil exports by announcing it would remove waivers offered to eight countries still trading with Tehran. Brent rose to $74.64 first thing Tuesday, up 3.6 percent from Thursday’s close in London.

Stock markets remained buoyant, nudging higher on Wall Street and across Asia overnight and set to open up about 0.2 percent in Europe. Shanghai steadied after losses of more than 2 percent on Monday as last week’s robust first-quarter Chinese GDP numbers prompted some speculation about a slowing of the policy easing in place to offset the effects the trade war with Washington.

In Europe, meantime, there was some recovery in bond yields after last week’s disappointing flash business surveys for April. European Central Bank board member Benoit Coeure said he saw no reason for creating a tiered ECB deposit rate, a move many in markets have assumed is the ECB’s next step as it tries to offset for banks the effects of an extended period of negative interest rates.

U.S. Treasury yields nudged lower after poor home sales numbers on Monday, with the yield curve from three months to 10 years flattening again toward zero, back tot its lowest since the rare inversion in late March. U.S. equity markets were only about 1 percent shy of record highs, however, as the first-quarter earnings came in.

S&P 500 profits are expected to drop 1.7 percent year-over-year in what would be the first earnings contraction since 2016. But more than three-quarters of 82 S&P 500 companies that have reported so far have exceeded expectations.

The dollar was generally firmer as the euro ticked lower following the poor April PMIs. Japan’s yen outperformed. Sterling remained near its lowest level since March 11, with Brexit in limbo over the Easter parliamentary break and investors now looking to see how the economy holds up against the prolonged uncertainty over the coming months. Emerging- market equities and currencies weakened.

On the European corporate front, first-quarter earnings were stacking up, too, with battery maker Umicore among the biggest movers pre-market after it warned revenue and earnings growth in 2020 would be lower than previously expected. Its shares were seen down 5 to 10 percent.

In M&A news, Thomas Cook shares could jump 10 to 15 percent, traders said, after a Sky News report on Saturday said the tour operator has been approached by potential bidders.

— 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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