LONDON (Reuters) - The EU side has upped the ante in the stand-off with Britain by letting it be known that Theresa May must deliver her offer on the Brexit divorce package this week or else see a further delay in the next stage of talks on trade.
The reason is simply that they would not have time to prepare next week’s EU summit and make sure all national capitals are behind the so-called draft guidelines for what would be the trade negotiations. So far, there has been no signal from Downing Street on whether May will make a fresh dash to Brussels - she is currently scheduled to do her usual prime minister’s questions in parliament today.
Andrej Babis, the anti-establishment tycoon whose business connections have led to comparisons with Silvio Berlusconi and even Donald Trump, is due to be appointed Czech prime minister today. He is putting together a minority government that will take power on Dec. 13 but he has still to secure support for his cabinet in parliament ahead of a confidence vote that must take place within a month.
Votes which have taken place in parliament so far have shown his ANO party siding with the Communists and a far-right, anti-EU party: this is starting to raise concerns over what concessions Babis may make to win their support in the confidence vote as well.
Setting aside Brexit, Brussels will also be occupied with today's announcement of the European Commission's proposals for reform of the euro zone, part of moves to forge ahead with greater EU unity even as Britain looks to be heading out the door.
Among the things to watch will be the creation of a powerful new EU economy “minister” and how it responds to French ideas (opposed in Germany) on creating a separate operational budget for the countries of the single currency area. Countries outside the euro area - notably to the east - are worried that all this could turn them into second-class citizens of the bloc.
Two late-breaking and unconnected pieces of news out of France last night. First was a poll which showed a massive bounce in President Emmanuel Macron's shaky popularity ratings following his Africa trip, which appears to have persuaded many French he is at least effective in handling their interests abroad - even as a majority still insist he is out of touch with their own concerns. Second was news that French rocker Johnny Hallyday died after a long battle with cancer.
Almost unheard-of outside the French-speaking world, Hallyday defied easy categorisation but the lines “French Elvis” and “cowboy swagger” go somewhere close to capturing his appeal for many. The country has followed the ups and downs of his eventful life for decades, even if sometimes with a degree of self-irony; if your French colleague is slightly subdued today, now you know why.
Global markets soured on Wednesday on a mix of technology sector jitters, U.S. Treasury yield curve blues, Chinese monetary tightening concerns and a shakeout in metals markets. The combination led to the third consecutive decline in the S&P500 on Tuesday, its longest sequence in the red since August. MSCI’s all-country world index is down for the second day to its lowest in two weeks.
The pullback in high-flying tech is seen by some as just long-overdue profit-taking at the end of a dizzying year, but it also has its roots in speculation about a third-quarter peak in semiconductor demand and also details of the U.S. tax cut package still being haggled over between the Senate and the House.
The last-minute inclusion in the Senate version of the Tax bill of a corporate Alternative Minimum Tax that House Republicans had repealed limits the scope of tax credit, meant to encourage research and development, or tax reduction and negates parts of the overall tax bill seen as beneficial to big tech firms.
The likely short-term economic impact of tax cuts, meantime, has pushed up expectations of Federal Reserve monetary tightening over the next two years and has seen two-year Treasury yields hit another 9-year high, which in turn has flattened the 2-10 year yield curve to a fresh 10-year low of 53 basis points – a flattening seen by many as a harbinger of future economic slowdown. The dollar has taken the lead of the long end and ebbed broadly too.
Monetary tightening concerns extended to China today, meantime. The CSI300 index of Chinese blue chip stocks fell 0.6 percent after reports a senior Chinese researcher at the People’s Bank of China urged central banks to adopt policies that discourage markets from expecting indefinitely lower interest rates and excessive risk-taking by lenders.
Asia markets were spooked by this, the tech sector wobble and a sudden drop in metals prices on Tuesday that saw copper record its biggest one-day loss in more than two years. While copper has steadied on Wednesday, the broad CRB commodities index has now fallen to its lowest level in a month.
Currency markets were more stable, with dollar/yen leading the greenback down but euro/dollar steady. Sterling was on the backfoot with little sign of light in the stalled Brexit talks after Monday’s sudden hiatus and European Union officials insisting this Friday is the “deadline of deadlines” to get a breakthrough at the Dec 13-14 EU summit. Bitcoin roars higher meantime, adding another $1000+ from Tuesday’s lows to today’s new record high of $12,448.