June 11, 2019 / 7:31 AM / 2 months ago

Daily Briefing: Sanchez's Socialists up ante for government deal

LONDON (Reuters) - Spain's Pedro Sanchez, invited last week by King Felipe VI to try and form a government without a parliamentary majority, pursues meetings today with leaders of the various opposition parties aimed at winning their support.

FILE PHOTO: Spain's acting Prime Minister Pedro Sanchez takes part in a race against gender-based violence in Madrid, June 9, 2019. REUTERS/Juan Medina

The talks are proving difficult: the right-wing People’s Party (PP) and centre-right Ciudadanos have both said they will seek to block Sanchez’s swearing-in, while left-wing Podemos has conditioned its support on a place within Sanchez’s government - something his Socialists have ruled out.

On Monday evening his party sought to up the stakes by threatening to call a fresh ballot if opposition parties persisted in blocking him.

Representatives of the EU’s national governments meet on Tuesday to decide whether to start disciplinary procedures against Rome over Italy’s rule-breaking debt levels.

That comes after the European Commission - which is charged with policing EU budget rules - judged that such a step would be warranted. Italy's combative Deputy Prime Minister Matteo Salvini has chosen, for now at least, to play the stand-off softly softly, insisting on Monday that he didn't want to "pick up a fight with Europe" and that a compromise could be found.

With the field of candidates narrowed down to a still fairly broad pack of 10, Conservative Party lawmakers get a chance later today to quiz would-be successors to PM Theresa May at a private hustings event in parliament.

Conservative Party leadership candidate Boris Johnson leaves his home in London, June 11, 2019. REUTERS/Hannah McKay

Increasingly the contest seems to boil down to the question of whether the winner will be the frontrunner Boris Johnson or not, with rivals lining up to take more or less oblique potshots at him.

Still, according to the Telegraph he has won a significant endorsement in the shape of high-profile Brexiteer lawmaker Iain Duncan Smith, who described Johnson as the most likely to deliver on Brexit by Oct. 31.


Global stock markets pushed higher for the seventh straight day, only the second time this year the MSCI all-country world index has staged such a winning streak as investors bet on U.S. interest rate cuts and some easing of international trade tensions.

Shanghai stocks led the way early on Tuesday, jumping more than 2% as the People’s Bank of China moved to stabilise the offshore yuan and the government announced another set of stimulus measures involving infrastructure-targetted bond financing for local authorities.

The offshore yuan strengthened further from the 2019 lows it had set on Friday amid confusion over whether China’s authorities were prepared to defend the psychologically important 7 per dollar level. But on Tuesday, the PBOC said it would sell yuan-denominated bills into the Hong Kong market – ostensibly to tighten yuan liquidity there and support the currency.

HK’s Hang Seng index rose almost 1%, while Tokyo’s Nikkei and Seoul’s Kospi closed higher too. MSCI’s emerging market equity index rose to its highest in a month, with its EM currency index higher too.

The upbeat mood on stock markets was global, with the S&P500 hitting its highest in over a month last night too and both U.S. and European stock futures higher first thing. The flipside was a back up in bond yields, with 10-year Treasury yields nudging to their highest in more than 10 days.

The big picture remains one of economic anxiety, however, with the yield curve between 3 months and 10 years still inverted to the tune of 15 basis points. In Europe, Germany’s bund yield relapsed again to minus 22.5bp amid heightened speculation the European Central Bank stood ready to cut benchmark interest rates again if necessary too. Euro/dollar was steady just above $1.13, with the dollar generally firmer across the board.

Italy’s fractious ruling coalition leaders continued to make soothing noises about avoiding a row with Brussels over Italy’s breach of European Union budget rules and PM Conte’s office said the PM and heads of the ruling parties would meet with finance minister Tria to set out a shared budget package acceptable to the EU Commission. The moves also eased concerns about a snap election.

With UK political headlines dominated by the ruling Conservative party’s leadership race, sterling markets focussed back on the economy. Poor GDP and manufacturing numbers for April will now be set against the latest employment and wage report later today.

Even though markets think it’s more likely that the Bank of England will cut interest rates over the next year than raise them, Bank of England officials – including policymaker Saunders late Monday – continued to say that markets underestimate the speed with which rates could rise. Several senior BoE officials speak on Tuesday. The pound was a touch lower first thing.

On the corporate news front, UK fashion retailer Ted Baker was seen down 10-20% as it warns on annual profit after "challenging" start to 2019. AIM-listed fast-fashion retailer Quiz was also seen tanking more than 20% after a significant drop in profits.

Deutsche Bank shares may take a hit as credit ratings agency Fitch downgraded the bank's long-term issuer default rating to BBB, citing the lender's difficulty in improving its profitability. Rival Commerzbank was seen 1.2% lower after reports that Dutch lender ING Groep had decided against a tie-up with the German bank.

German biotech company Evotec was seen 1-3% higher after it received a $23.8 million grant from Bill & Melinda Gates Foundation for TB Therapies. In the Swiss world, Roche shares were seen slightly higher after FDA granted earlier-than-expected approval to antibody-drug conjugate Polivy for treatment of patients with advanced lymphoma.

Analysts estimate Polivy sales at nearly $1 billion by 2024. Smaller rival Cosmo Pharma’s shares were seen 3% higher after the U.S. FDA accepted a new drug application for the Swiss company’s Remimazolam, an ultra-short-acting intravenous benzodiazepine sedative. And Novo Nordisk shares jumped 5% as traders pointed to a positive update at Global America Diabetes Association.

 — 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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