June 6, 2018 / 7:29 AM / 12 days ago

Daily Briefing: Labour makes pitch to Brexit rebels

LONDON (Reuters) - Britain's opposition Labour Party has submitted a legal text for a "soft" Brexit which it hopes will entice rebels in the ruling Conservative Party to defy Prime Minister Theresa May in a crucial vote set for next week.

Labour leader Jeremy Corbyn listens during a service of commemoration at Southwark Cathedral to mark one year since the terror attack on London Bridge and Borough, June 3, 2018

The amendment to the Brexit Withdrawal Bill calls on the government to negotiate “full access” to the EU’s single market, to keep common minimum standards, rights and protections, and to share joint institutions and regulations.

The catch is that Jeremy Corbyn’s Labour still rejects freedom of movement within the EU, a stance which is fundamentally incompatible with “full access” to the single market. So is this a real shift in Labour’s position, a clever tactical move or simply a fudge?

Some of the party’s more ardent Remainers believe its leadership has missed an opportunity to push for a genuinely soft Brexit by calling instead on its lawmakers to back an upper house amendment which urges Britain to seek continued membership of the EEA - the European Economic Area that includes EU members and non-EU members like Norway, Iceland and Liechtenstein.

That would automatically give the UK full access to the single market but also bind it to EU rules: an outcome many Remainers would now love but which is not currently favoured either by May or Corbyn. Coincidentally, May hosts Norwegian premier Erna Solberg in London today: Solberg will tell May that Norwegians largely rub along with the arrangement.

Following on from Tuesday's debate in the upper house Senate, Prime Minister Giuseppe Conte will spell out his government's policy priorities to the lower house of parliament, As with yesterday's vote in the Senate, there is no suspense about whether his coalition of immigrant League and anti-establishment 5-Star Movement pass a subsequent vote of confidence.

Conte did his best on Tuesday to play down speculation that Rome is eyeing a withdrawal from the euro, insisting that has never been on the cards; whether those kind of assurances gradually start to calm persistent market jitters on the subject is another matter.

Meanwhile in Prague, Czech Prime Minister Andrej Babis is expected to be re-appointed on Wednesday by the country’s president Milos Zeman, giving Babis a second attempt to form a minority coalition government between his ANO party and the Social Democrats.

Other parties have shunned ANO because Babis faced criminal charges dating back a decade (he denies the charges); thousands of Czechs protested against Babis in dozens of cities earlier this week. The coalition deal is still subject to an internal referendum by the Social Democrats, results of which are expected on June 15.

MARKETS BY 0655 GMT

Newly appointed Italian Prime Minister Giuseppe Conte gestures next to Interior Minister Matteo Salvini during his first session at the Senate in Rome, June 5, 2018

For all the ‘event risks’ now littering the month of June, world markets appear to have a renewed buoyancy. Global equities at least are cruising into midyear. The U.S. technology-packed Nasdaq index set another all-time high on Tuesday and the S&P500 nudged higher too. The Vix volatility gauge recorded its lowest close since Jan 26, before the volatility explosion of early February.

Asia’s major bourses - from Tokyo to Seoul, Shanghai to HK – all pushed higher again overnight too and European stocks have opened up. MSCI’s index of world stocks was up 0.25 percent and is now 0.8 percent in the black for 2018 to date.

Trepidation about U.S. protectionism, trade wars, fractious European politics and wobbly emerging markets all seem to have been trumped by the relatively comforting sound of an ongoing global business expansion, still-modest - if any - monetary tightening as well as brisk mergers and acquisitions activity and share buybacks.

May global business surveys compiled by JPMorgan on Tuesday showed growth accelerating for the second month in a row and matching the average for 2017, when world growth was running at an annualised 3.5 percent. Australia was the latest upbeat economic signal on Wednesday, recording its fastest economic expansion in almost two years for the first quarter.

While the U.S. Federal Reserve is expected to deliver its second interest rate rise of the year next week, the recent political upheaval in Italy and a string of sub-forecasts economic readings have made markets much less sure of the European Central Bank’s tightening timeline.

Overnight press reports that next week’s ECB meeting would give a firmer steer on when it will end its bond buying programme and comments from ECB chief economist Praet that growth and inflation were on track perked up the euro and euro zone bond yields slightly on Wednesday, but investors are now doubtful about when it will start to ‘normalise’ policy. Franklin Templeton on Tuesday said it now does not expect the bond buying to end until 2019 and sees no interest rate rise until 2020.

Euro/dollar is firmer above $1.17. Bond market eyes remain on Italy, where incoming PM Conte detailed the new coalition government’s high spending plans and immigration concerns on Tuesday while reiterating the stance that no party wanted to leave the euro. Italian/German debt spreads remain steady. Elsewhere, U.S. Treasury yields, the dollar and oil prices were a touch firmer.

The next big events on the trade front are U.S. April date later today and the G7 summit in Quebec on Friday.

In European corporate news, paper M&A has been in focus recently with Smurfit Kappa expected to recover some of yesterday's losses after International Paper confirmed that it will not make an offer for the Irish packaging company.

— 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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