March 20, 2019 / 8:34 AM / 3 months ago

Daily Briefing: Dear EU - May bites bullet on extension letter

LONDON (Reuters) - British PM Theresa May is widely expected to write to the European Union today requesting a short extension of the Article 50 process on leaving the bloc.

FILE PHOTO: Prime Minister Theresa May talks with European Council President Donald Tusk during a summit between Arab League and European Union member states, in the Red Sea resort of Sharm el-Sheikh, Egypt, February 24, 2019

The 27 EU capitals who must decide on whether to grant such a request want detailed explanations of what she will do with the extra time before, most likely, granting it to her. Questions remain around exactly how long such an extension will be and whether there will be an option for a longer one.

For now it is not even clear that EU leaders will be ready to grant it at this week's summit: they may wait until next week to see whether she really does have a plan to break the impasse at home. Overall, while it is increasingly hard to see Britain crashing out on March 29, the two most diametrically opposed outcomes - a no-deal exit at a later date, and no Brexit at all - remain in play.

Hungarian Prime Minister Viktor Orban may learn today whether his nationalist, anti-immigrant Fidesz party will be allowed to stay in the European Parliament grouping of mainstream conservatives.

They point to Hungarian poster campaigns with anti-Semitic tinges and evidence of disregard for rule of law in a years-long stand-off with Orban, who in turn has branded them “useful idiots”. The risk for them in banishing Orban from the bloc is that he then sets up as a rival grouping further to the right to lure voters in May’s EP elections.

Dutch voters go to the polls in provincial elections today that determine the make-up of the country's upper house Senate, in which the four-party governing coalition holds a narrow one-seat majority.

Polls suggest the coalition will lose its majority, forcing it to seek support from other parties for legislation. Far-right leader Geert Wilders has upped the anti-immigrant rhetoric following the Utrecht shooting blamed on a Turkish-born suspect - it will be seen whether his share of the vote is boosted as a result.


World markets have largely frozen ahead of the Fed policy decision later and amid the Brexit impasse, although the outperformance of European stocks on Tuesday was a standout after the latest global investor survey from Bank of America showed short euro stocks positions replacing emerging markets as the "most crowded trade" this month.

Helped by a rallying auto sector amid merger talk surrounding Fiat Chrysler and Peugeot, euro zone stocks gained almost one percent to hit their highest since September. With a dovish Fed message now largely priced in to world markets, the recent equity market surge elsewhere has stalled before tonight’s decision.

Wall St indices and the major Asia bourses ended little changed overnight. Euro stocks futures gave back some of Tuesday’s gains first thing.

Sterling slipped lower against the dollar amid reports UK PM May will now seek only a short delay in the Brexit deadline from European Union leaders at Thursday’s summit – knocking back some speculation of a delay of a year or more and the possibility of a second referendum or even Brexit reversal. What EU leaders will accept is less clear before they receive the formal request, which EU Commission chief Juncker said had not yet arrived in Brussels.

The pound was also eyeing this week’s Bank of England meeting for signals about what happens to UK interest rates if Brexit goes ahead with some sort of a deal. Futures markets show the BoE is now the only G7 central bank still even partly priced for an interest rate rise later this year. A strong UK jobs report on Tuesday underlined that, although inflation numbers due out later today are expected to be soft.

Emerging market currencies firmed ahead of the Fed decision, meantime, with Russia’s rouble continuing to strengthen. Kazakhstan’s tenge was an outlier, weakening 0.4 percent in a second straight session in the red after the surprise announcement by President Nursultan Nazarbayev that he would resign after nearly three decades in power with his successor Kassym-Jomart Tokayev already sworn in. Kazakh hard-currency bonds eke out small gains after clocking losses on Tuesday in the wake of the resignation.

On the European corporate front, Bayer was the top mover in pre-market trading, tumbling 10 percent after a second U.S. jury found its glyphosate-based Roundup weed killer causes cancer. It was another blow to the German company eight months after another jury issued a $289 million verdict over similar claims in a different case.

Inmarsat was expected to jump 20 percent after it said it received a cash takeover offer from a private equity-led consortium which would value the British satellite company at about $3.3 billion and take it private.

— 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 —

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