LONDON (Reuters) - Those hoping for a bit of clarity on Brexit will have to wait another week or so. British PM Theresa May and her government managed at the last-minute to buy off Europhile rebels in parliament last night by promising further talks to give lawmakers more control over Britain's departure from the EU.
While some in the pro-EU camp - and financial markets - have so far interpreted this as making a “no deal” Brexit less likely, they have at this stage little more to go on than verbal promises by May. She will now come under massive pressure from Eurosceptics in her party not to make any real concessions.
Let’s not forget too that there is another player in all this - the EU27 bunch of remaining members of the bloc who are becoming increasingly exasperated with the Westminster in-fighting.
Today the voting in parliament continues, but a showdown over Britain’s future membership of a customs union with the bloc has already been averted with some compromise language. Right now the real fight remains about how much control a largely Europhile parliament will ultimately exert on Brexit - and that will take place in phone calls, emails and corridors.
If you want examples of successful compromise and deal-making in Europe, look no further than the Balkans. After decades of dispute, Greece and Macedonia have finally reached an accord over the former Yugoslav republic's name, with the formula "the Republic of Northern Macedonia". That opens the way for the country's eventual membership of the European Union and NATO, and comes bang on time ahead of EU and NATO summits in coming weeks.
The accord still requires ratification by the two national parliaments and a referendum in Macedonia - a tough test for the leaders in both countries. While the accord is a victory for Alexis Tsipras, it still contains special risks for him: many Greeks are hostile to any formula at all involving “Macedonia”, birthplace of Alexander the Great, and he will face fierce attacks from the opposition in weeks to come.
France's National Assembly lower house holds its final vote on Emmanuel Macron's disputed railway reform bill this evening - and Macron looks well placed to win it. The reform, which cuts railworker benefits and shakes up the heavily subsidised national rail company, is a landmark moment in the history of French industrial action.
In April, rail workers vowed strikes that would cause mass disruption to the country, but two months later, strike participation has fallen and public sympathy for the workers is down. Commuters have found ways around the strike, using car-sharing apps, working from home or cycling to work when stoppages hit for two days every five. Macron appears to have chosen his moment well.
MARKETS AT 0655 GMT
As world markets settle in ahead of the Federal Reserve’s second interest rate rise of the year later today, European eyes have drifted back to Italy.
Ahead of an auction of 3, 7 and 30-year bonds on Wednesday, two-year Italian government yields fell back below 1 percent after the presumed euro-sceptic European Union affairs minister Paolo Savona told reporters late Tuesday that the euro was ‘indispensable’ to Italy, even if the European Central Bank’s remit should be more like the Federal Reserve and it should also have more control over currency market intervention.
Savona, who was rejected by President Sergio Mattarella as the government’s initial pick for economy minister because of prior views on Italy leaving the euro, was seen as one of the most controversial members of the new coalition’s cabinet.
However, his conciliatory comments and denials he ever advocated euro exit will ease investor nerves about the direction of the new government. Ten-year Italian debt yield spreads over Germany narrowed further to 232 basis points.
Elsewhere, the looming Fed decision tonight, and the ECB meeting tomorrow, has seen some dialling back of the week’s buoyant start for world stocks. The attention is all on how the Fed statement and chair Powell’s press conference signals policy for the remainder of the year – a third 2018 rate rise is already priced, with about a 1-in-5 chance ascribed by markets to a fourth.
Shanghai and HK benchmark indices dropped more than 1 percent earlier, with eyes also on Friday’s deadline for the United States to detail some $50 billion of Chinese goods likely to be subject to a 25 percent tariff. Those markets were also hit as the Hong Kong-listed shares of Chinese telecommunications giant ZTE fell as much as 41.5 percent, wiping off about $3 billion of its market value, as it resumed trade after agreeing to pay up to $1.4 billion in penalties to the U.S. government.
The looming Fed decision and likely hawkish tilt from the ECB too has heaped pressure back on emerging market currencies yet again, with the Latin America currencies under the cosh, South Africa’s rand slid to its lowest level of the year and Turkey’s lira weakened again despite a series of emergency interest rate rises there in recent weeks.
The rand has been hit over the past week by a dire South African GDP reading for the first quarter while Turkey braces for the June 24 election, after which President Tayyip Erdogan has pledged to take greater control of economic and monetary policy if he wins as expected. The dollar is firmer more broadly against the major currencies, with 10-year U.S. Treasuries ticking higher.
Although a touch lower against the dollar too, sterling remains trapped in recent ranges despite the important Brexit votes in the British parliament. The pound got a brief fillip after PM May made some concessions to the pro-EU wing of her party on Tuesday over parliament’s say over a final Brexit deal and subsequently won the vote on the issue. Investors reckon this makes a hard ‘cliff edge’ Brexit less likely, but that was the market’s default position anyhow.
— 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. —