April 19, 2017 / 7:11 AM / 9 months ago

Daily Briefing: May bids for Brexit on her terms

LONDON (Reuters) - Britain's parliament will vote this afternoon on PM Theresa May's call for a snap election on June 8 and is widely expected to give it the two-thirds majority needed to go ahead.

Britain's Prime Minister Theresa May speaks to the media outside 10 Downing Street, in central London, Britain April 18, 2017. REUTERS/Stefan Wermuth

True to form, May made her mind up to call for the election in splendid isolation (on a walking holiday in Wales) and has left everyone speculating as to what motivated the U-turn.

Some see it as a Machiavellian strike to smash the opposition Labour Party while it is down and so secure a massive 100-seat-plus majority for her wider programme, including some hotly disputed domestic policies. Others see it as a bid by a closet Remainer to reinforce her authority over the hard Brexiters in her own party and so allow her to work for a closer post-exit partnership with the EU than they would like.

A victory for May in June may well do both those things.

Some have also pointed out that it also probably kills off any lingering hopes that Britain could stay in the single market or even reverse Brexit outright. But the one thing that is certain at this stage is that, by shunting the prospect of a general election from 2020 to 2022, it will give May the leeway she needs to tie up some of the messier aspects of Brexit after the two-year negotiating period with Brussels is over in 2019.

Specifically, that will entail agreeing some kind of implementation phase that will mean Britain still allowing EU freedom of movement and obeying the rulings of the European Court of Justice during that transition. That could have spelt electoral death for May and her Conservatives in 2020 - now they have more time to work it through.


The already-packed European election calendar just got more intense. But instead of rattling sterling with more uncertainty, the surprise scheduling of a snap UK election for June 8 sent the pound soaring – vaulting $1.28 for the first time in six months late on Tuesday to levels not seen since before October’s "flash crash", before taking a breather this morning.

The argument is that opinion polls show the ruling Conservatives significantly increasing their majority, strengthening PM May’s hand in Brexit negotiations as well as domestic policy and potentially watering down the influence of more right-wing factions within her party who would be happy to push for a Brexit without any post-membership "deal" with EU trading partners. Deutsche Bank, for example, removed its bearish stance on the pound as a result and called the early election a "game-changer".

Yet, just as the sterling’s post-referendum slide lifted the fortunes of the big overseas earners on the FTSE 100 index, its rally is having the opposite effect. The FTSE lost 2.5 percent in its biggest one-day drop since the referendum and is set to fall further on Wednesday.

The strength of the pound’s surge, however, was supercharged by another lousy day for the dollar – with growing doubts about U.S. tax cuts compounded by softening U.S. economic readings and ebbing U.S. Treasury yields. A big miss on March U.S. housing starts on Tuesday, for example, is seeing an alarming drop in overall U.S. economic surprise indexes to levels not seen since November’s election.

On top of that, Wall St stocks' Monday bounce was partly reversed yesterday amid a worrying start to the first quarter earnings season that saw notable misses from both Goldman Sachs and Johnson & Johnson. Morgan Stanley, Amex, Blackrock and eBay are among the big names up later today.

The relentless dollar unwind was underlined by Goldman throwing in the towel on its bullish dollar forecasts for 2017. Brent crude has slipped back below $55.

Asia stocks were mostly in the red earlier, with Shanghai down almost 1 percent as fears of tightening regulation there persist.

European stocks are expected to open lower across the board despite a good set of earnings from Akzo Nobel and others, but with eyes on the weekend’s first round of the French presidential election.

Although opinion polling shows the gap between all top four candidates has tightened over recent weeks, most still put centrist Macron and far-right candidate Le Pen as most likely for the second-round runoff and Macron comfortably winning that contest.

European corporate events: Akzo Nobel, ASML, TomTom Q1s; AB Foods half year; Heineken Q1 trading update; Burberry H2 update; Zalando, Remy, Rentokil trading updates

Editing by Louise Ireland

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