LONDON (Reuters) - British PM Theresa May will chair a meeting of her National Security Council this morning to decide on next steps as Russia failed to explain by midnight how a Soviet-era nerve toxin was used to strike down a former Russian double agent in southern England.
Britain could call on Western allies for a coordinated response, freeze the assets of Russian business leaders and officials, limit their access to London's financial centre, expel diplomats and even launch targeted cyber attacks. It may also cut participation in the soccer World Cup, which Russia is hosting in June and July.
There is a central banking fest in Frankfurt today as ECB President Draghi, ECB chief economist Peter Praet and the bank’s Vice President Vitor Constancio are among those speaking at an all-day event.
It is now generally accepted that the ECB’s massive stimulus programme is slowly coming to an end, but question marks remain over how it will communicate that to jittery financial markets. Meanwhile, monetary policy hawks are already pushing for defining more clearly how long the ECB would wait before raising interest rates.
The German parliament sits today, finally, to approve a new grand coalition led by Angela Merkel. As even Merkel herself acknowledged earlier this week, this is more of a shotgun marriage than a love match: had her conservative bloc not got together with the rival SPD, they both could have faced further setbacks in new elections up against the far-right AfD.
The array of challenges facing the new alliance is huge: domestically, tensions have already surfaced on policy ranging from anti-poverty measures to abortion; abroad, Germany is one of those countries most exposed to a trade stand-off with Donald Trump's United States. This is likely to be Merkel's final term - it could also be her most challenging yet.
World markets have tended to quickly shrug off geopolitical tensions over the couple of years, concentrating on building global economic momentum instead. But anxiety about the latest hawkish turn of U.S. President Trump’s administration on diplomacy, trade and investment is jangling nerves yet again.
Fresh from proposing tariffs on steel and aluminium imports, sources now say Trump is seeking to impose tariffs on up to $60 billion of Chinese imports due to concerns about intellectual property theft and will target the technology and telecommunications sectors.
The move comes just a day after the President blocked Singapore-based Broadcom’s bid for U.S. chipmaker Qualcomm on national security grounds. And the mounting threats to U.S./China trade relations follows Trump’s dismissal on Tuesday of his secretary of state Tillerson, widely seen as relatively moderate voice in the president's administration.
Tillerson’s departure follows the exit last week of White House economic adviser Cohn, also seen within markets as a moderating influence on Trump’s trade and economic policies.
Coupled with the increasingly belligerent standoff between Britain and Russia over allegations of a state-sponsored assassination of a former Russian double agent in the UK, international political tensions seem to be building everywhere. With Russia refusing to respond formally to the allegations, Britain is now expected to ratchet up sanctions against Moscow and Russian interests and ask its allies to do likewise.
The overall anxiety about trade and politics was enough to knock the S&P500 back by more than 0.6 percent overnight, with 10-year U.S. Treasury yields slipping lower on a marginal safety bid, fears of damage to U.S. growth from rising trade tension and a benign U.S. CPI inflation report for February.
The 2-to-10-year U.S. yield curve flattened to its lowest level since January – just above 57 basis points – and the dollar has weakened over the past 24 hours both on those softer yields and also on the assumption that a trade war will also involve U.S. attempts to talk the dollar down too. It remained on the back foot first thing Wednesday. G20 finance chiefs meet in Buenos Aires at the weekend.
The stock market retreat rippled across the world overnight. Shanghai and HK stocks lost more than half a percent each – with the U.S. tariff threats overshadowing a set of robust Chinese economic readings for February, including above-forecast industrial output and investment growth and a still-rapid annual retail sales expansion of almost 10 percent. Japan’s Nikkei was down 0.8 percent and Seoul’s Kospi was down 0.4 percent.
European stock futures are pointing to another negative day after heavy losses of more than 1 percent on Tuesday. European central bank chief Draghi, chief economist Praet and Vice President Constancio all speak at a conference in Frankfurt later. U.S. February retail sales and producer price data top the economic reports.
— 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. —