March 13, 2018 / 8:36 AM / 7 months ago

Daily Briefing: UK-Russia ties - deep freeze beckons

LONDON (Reuters) - UK-Russian relations are set to grow even frostier in the wake of the Salisbury nerve agent attack. PM Theresa May has given Moscow until the end of today to plausibly explain the presence of a substance identified as the Russian-developed Novichok, or face what she called "more extensive measures".

FILE PHOTO: A street sweeper walks past St. Basil's Cathedral at Red Square in Moscow
Either this was a direct act by the Russian state against our country. Or the Russian government lost control of this potentially catastrophically damaging nerve agent and allowed it to get into the hands of others

Moscow's reaction thus far - describing May's statement to parliament as a "circus show" - does not suggest it takes the threat seriously. The U.S. State Dept has issued strong backing to May and the European Commission has promised "solidarity" from the EU on the matter.

Separately, British finance minister Philip Hammond is due to give his half-yearly update on public finances later this morning. Not a full budget statement as such, this will instead likely focus on a modest improvement in the country's slow economic growth outlook in the run-up to Brexit.

Despite newspaper headlines suggesting an “end to austerity”, Hammond will stress that his priority remains to ease the burden of Britain’s 1.7 trillion pounds in public debt, meaning that any easing of spending constraints will be limited.

Slovakia is lurching towards early elections after Prime Minister Robert Fico's coalition partner Most-Hid (Bridge) effectively withdrew its support in the wake of a corruption scandal. Amid heavy public pressure for this moment to produce change, other coalition parties are expected to react today.


Soldiers wearing protective suits work at a site in Winterslow, near Salisbury, Britain, March 12, 2018

Is inflation still missing in action? World stock markets lost their early week fizz late Monday and overnight ahead of today’s February U.S. consumer price inflation report, a critical marker in deciding just how many interest rate rises the Federal Reserve is likely to execute this year.

The CPI will either confirm or deny unexpectedly soft wage and earnings readings from last month’s employment report, data which had briefly reignited hopes brisk growth can continue without overheating the economy and rattling the Fed’s cage. Ten-year U.S. Treasury yields and the dollar index are on the backfoot ahead of the inflation report, with the former slipping back below 2.90 percent overnight.

The consensus forecast was that headline U.S. inflation ticked higher to 2.2 percent last month, while core inflation was expected to have held steady at 1.8 percent. Wall St gave up early gains on Monday to end marginally in the red, although the Vix volatility gauge remained relatively subdued below 16 percent.

We in Congress simply cannot be complicit as this administration courts economic disaster in this fashion

Adding to equity market trepidation has been the steady drumbeat of U.S. protectionist pressures, the latest being President Trump’s blocking of Singapore-based Broadcom’s bid for U.S. chipmaker Qualcomm on national security grounds. The intervention in the bid only adds to anxiety about international retaliation to looming U.S. trade tariffs on steel and aluminium imports, something that jarred big industrial stocks such Caterpillar and Boeing on Monday.

Shanghai and HK stocks underperformed in Asia overnight, both ending in the red. Helped by a weaker yen, Japan’s Nikkei advanced despite a cronyism scandal threatening to undermine Prime Minister Abe and finance minister Aso, who is now planning to skip the weekend’s G20 finance chiefs meeting in Buenos Aires. Dollar/yen was testing levels just shy of 107 yen early on Tuesday. Seoul’s Kospi also advanced. European stock futures were mostly flat ahead of the open.

Sterling too was mixed after a reasonable strong Monday, with eyes on finance minister Hammond’s Spring economic update later in the session. The speech is expected to detail the latest forecasts and be upbeat about government revenues without announcing any major new spending or taxation measures.

Sterling will also eye the British government’s midnight deadline to Russia’s President Putin to explain how a nerve agent developed by the Soviet Union was last week used to attack a former Russian double agent in Britain. Russian stocks fell 0.5 percent while the rouble traded flat.

— 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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