LONDON (Reuters) - The new twist in Italian coalition-building this morning is that Silvio Berlusconi has backed Matteo Salvini, leader of the eurosceptic far-right League, to try and form a government.
Salvini has insisted he should be the Right’s candidate for prime minister given that his party emerged from the election well ahead of Berlusconi’s Forza Italia. Where this leaves prospects for a tie-up between the right-wing bloc and election-winner 5-Star remains to be seen; Claudio Borghi, the League’s economics chief, predicted yesterday the most probable government would still be a tie-up between 5-Star and the centre-left PD.
Saudi Crown Prince Mohammed bin Salman starts a three-day visit to the UK today aimed at broadening ties beyond Britain's longstanding - and controversial - role as arms supplier to the Saudi military. Britain is looking for trading partners as it exits the European Union, and Saudi Arabia needs to convince sceptical investors about its domestic reforms.
Aside from various business deals on the table, Britain is also vying to land the stock market listing of state oil firm Saudi Aramco. The visit kicks off with a lunch hosted by Queen Elizabeth; demonstrations to protest at both countries’ roles in the Yemen conflict are expected.
Lots to chew over on Brexit, meanwhile, as EU Council President Donald Tusk presents draft guidelines for the EU's future trade deal with Britain and British finance minister Philip Hammond separately will make the argument that the EU must allow financial services to be part of any future pact. His French counterpart already said yesterday, however, that there was little chance of agreeing the kind of market access Britain is after: Bruno Le Maire said finance companies would have to rely on "equivalence", the legal mechanism allows countries from outside the EU to access the single market in limited circumstances.
The nervousness in world markets over U.S. trade tariff threats is palpable. Just as some began to speculate that the White House trade threats may be just bluster, the President’s chief economic adviser Gary Cohn resigned overnight.
Wall St stock futures have lunged more than 1 percent amid concerns Cohn’s supposed moderating influence on policy would go with him and that leading trade hawk Navarro was one of the names tipped to get the job instead. The drop in S&P futures would more than reverse the modest cash gains recorded on Tuesday, with Asia bourses feeling the heat again too. Shanghai, Hong Kong and Tokyo benchmark indices were all down between 0.5-1.0 percent, with South Korea’s Kospi down too but slightly outperforming after Tuesday’s news of the first planned summit between North and South Korea in more than decade.
Signs of further détente on the Korean peninsula knocked the dollar sharply on Tuesday as it removed a certain ‘safety’ bid, but Cohn’s exit has kept the greenback on the backfoot this morning. U.S. Treasury yields have also slipped slightly in sympathy with stock futures. European bourses are expected to open about 0.7 percent lower in the slipstream of other world markets, with euro/dollar back above $1.24 for the first time in over two weeks.
Elsewhere in currency markets, the trade jitters sent Mexico’s peso and Canada’s dollar down about 0.5 percent each as concerns about the future of NAFTA grew. The Bank of Canada decides on policy later on Wednesday, but no change in interest rates is expected.
Members of the World Trade Organisation meet in Geneva later to consider the U.S. tariff proposals amid widespread condemnation and talk of retaliatory action in Asia and Europe. IMF chief Lagarde said in Paris on Wednesday that nobody wins from a trade war and the global macroeconomic impact of that would be “serious”. U.S. January trade data are released later in the day, alongside ADP’s reading of private sector job creation last month.
Sterling was slightly lower first thing, with traders eyeing two key Brexit-related speeches later – one from UK finance minister Hammond on how London’s financial industry might be accommodated after the exit and one from the European Union leader’s chairman Tusk on the draft guidelines on UK/EU relations after Brexit.
In emerging markets, the focus is on Ankara, where the Turkish Central Bank will announce its decision on interest rates at 1100 GMT. In a Reuters poll, the bank was forecast to keep key rates steady despite inflation being still high. Poland’s central bank is seen keeping interest rates on hold at their all-time low until hiking in the first quarter of 2019.
— 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. —