January 10, 2018 / 8:32 AM / a year ago

Daily Briefing: Confidence test for Czech Republic's Babis

LONDON (Reuters) - Strong government has become a rare thing in Europe these days with countries increasingly ruled by shaky coalitions, minority governments or even caretaker administrations, as politicians struggle to form workable alliances.

FILE PHOTO: The Czech Republic's Prime Minister Andrej Babis arrives at the Visegrad Group meeting in Brussels, Belgium, December 14, 2017

The Czech Republic adds to the sense of shakiness today as Prime Minister Andrej Babis, battling allegations his business empire illegally tapped European Union subsidies a decade ago, looks certain to lose a parliamentary confidence vote.

If his minority government does lose the vote, it will stay in power until a new one is formed. But the other eight parties in the lower house of parliament have refused to support Babis while fraud charges hang over him. The billionaire denies wrongdoing in the case.

One of the slow-burn stories of 2018 is likely to be the stand-off between eastern European countries led by Poland and western capitals over the post-Brexit future of the European Union. Many Westerners are keen for EU countries to integrate further after Britain’s decision to leave, but that is strongly opposed by eastern members like Poland and Hungary, whose governments are also pushing a more authoritarian approach to running their countries.

As widely expected, Poland's new prime minister, Mateusz Morawiecki, used his first trip to Brussels last night to insist Warsaw will plough ahead with a controversial revamp of a judiciary that Brussels argues undermines the rule of law. The two sides have agreed to meet again next month but there is little sign of Poland backing down.

Two snapshots of the mood in Britain at the start of the new year came with a British Chambers of Commerce's survey showing the economy looks set for an "underwhelming" 2018 as companies grapple with cost pressures and are reluctant to invest more.

Meanwhile, pollster John Curtice released a survey showing British pessimism on the economic consequences of leaving the EU is growing, but Britons have not broadly changed their minds about how they voted. "'Leave' voters are saying the government is mucking up, not that the decision we made (to leave the EU) was wrong," he concluded of the findings.

GLOBAL MARKETS

Asia markets have hesitated at last after a breakneck new year surge, with attention in world markets on Wednesday turning to a jump in benchmark bond yields.

Although Wall Street equity indices hit another set of records overnight ahead of the start of the fourth-quarter earnings season later this week, Japan’s Nikkei225 and South Korea’s Kospi took a breather and ended in the red. Some of that was reverberations from the Bank of Japan’s perceived slowdown in bond buying on Tuesday, a move that lifted the yen despite being a continuation of a long-standing "stealth taper". Disappointing profit guidance from Korean tech giant Samsung was also cited.

Shanghai and Hong Kong stock markets bucked the trend, in part because of below-forecast inflation figures, and Chinese shares completed their ninth straight daily gain.

The BoJ speculation has rippled across the world, however. Already lifted by signs of accelerating growth and surging equity markets, ten-year U.S. Treasury yields have jumped as high as 2.5730, their highest since March last year. The 2-10-year U.S. yield curve, meantime, has steepened sharply to as high as 59 basis points – a jump of 10 bps this week.

The bond market fright extended into European hours on Wednesday, with Germany’s 10-year bond yield rising to its highest since October, exaggerated by this week’s wave of new year bond sales.

A rise in the Brent crude oil price to more than two-year highs above $69 also contributed to the bond yield surge. Europe’s stock markets are expected to open slightly lower in light of the change of tone.

Editing by Larry King

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