October 3, 2018 / 7:27 AM / 15 days ago

Daily Briefing: May aims to stave off leadership questions

LONDON (Reuters) - After last year's disastrous performance (remember the coughing fit and the disintegrating stage decor?), Britain's Theresa May looks set to play it safe with her keynote speech to party conference today.

Prime Minister Theresa May walks through the conference centre on the third day of the Conservative Party Conference in Birmingham, October 2, 2018

According to pre-released extracts, she will make a plain-vanilla pitch based around Brexit being a "moment of opportunity" for Britain, while attacking Jeremy Corbyn's Labour for being too radical.

That is unlikely to generate wild excitement after Boris Johnson stole the headlines yesterday with a speech specifically designed to get Tory juices flowing, but it will likely be sufficient to stave off leadership questions for now.

"There cannot be a border down the Irish sea, a differential between Northern Ireland and the rest of the UK. The red line is blood red"

The creeping threat to May comes from her Northern Irish DUP allies who are getting worried that she is preparing to sell them down the river to get a Brexit deal. They are out this morning reiterating that they would never accept an arrangement in which Northern Ireland was put on a different regulatory footing to the rest of the UK.

New details emerging this morning on Italy's budget plans show the government is promising over three years to shave the deficit down from 2.4 percent of GDP next year to two percent in 2021. That has calmed financial markets somewhat and presumably it is also an effort to reassure Brussels - despite still not chipping away at Rome's accumulated debt load.

Prime Minister Giuseppe Conte is due to meet key ministers to discuss the budget targets for 2019-2021 at around 1100 GMT, sources said.

NATO defence ministers will discuss military spending and the alliance's readiness to face down any threat from Russia at a meeting today in Brussels. Ahead of the talks, the United States signalled it would announce in the coming days that it will use cyber capabilities to combat similar tactics by Russia.

Baltic and British security officials say they have intelligence showing persistent Russian cyber hacks to try to bring down European energy and telecommunications networks, coupled with internet disinformation campaigns. But in Europe, the issue of deploying malware and other tools is sensitive because governments do not want to be seen to be using the same tactics as Vladimir Putin.

U.S. President Donald Trump dons a hard hat presented by the National Electrical Contractors Association before addressing their convention in Philadelphia, Pennsylvania, October 2, 2018

MARKETS AT 0655 GMT

World markets are absorbing a bit more optimism about Italy’s budget overnight and a little less about the reconstituted NAFTA trade pact.

After a turbulent start to the week for Italian government bonds, sovereign yields retreated sharply from 4-1/2 year highs set on Tuesday after reports that the government’s proposed budget deficit of 2.4 percent of GDP for next year would be followed by 2.2 percent and 2.0 percent targets for the subsequent two years.

The reports have taken the edge off worries about the higher-than-expected 2.4 percent figure for 2019, which many had assumed would be sustained over the three years and risk boosting overall debt/GDP levels if many investors see as optimistic growth assumptions fail to be realised.

Ten-year Italian sovereign yields fell 9 basis points to 3.34 percent first thing, euro/dollar rallied back close to $1.16 and European stock futures were up more than half a percent.

An increasingly angry war of words between Italian leaders and other European Union officials and finance ministers is keeping markets on edge, not least amid public comments on the desirability of Italy leaving the euro by senior coalition figures – comments which forced the Prime Minister on Tuesday to insist Italy’s membership of single currency was irrevocable.

The more positive mood in Europe was in contrast to more downbeat markets elsewhere, with ebullience over the renewed U.S. trade pact with Canada and Mexico offset by jitters about embedded clauses that would effectively give Washington a veto over subsequent free trade agreements between Canada and Mexico and non-‘market’ economies, such as China.

Even though Shanghai markets are closed for the week, Japan’s Nikkei, HK’s Hang Seng and other regional bourses closed in the red. Fresh dollar strength this week against many emerging market currencies has seen Indonesia’s rupiah hit a new 20-year low and India’s rupee hit another record low earlier today.

Turkey’s lira was slightly weaker first thing Wednesday ahead of September inflation numbers. The lawyer for U.S. evangelical pastor Andrew Brunson filed an appeal to Turkey's constitutional court for his release from house arrest, according to broadcaster CNN Turk.

Wall St stocks were more mixed overnight. Even though the Dow Jones index set another record closing high on the weekend trade news, the S&P500 and Nasdaq slipped back and Facebook slipped again by almost 2 percent amid nerves about last week’s huge data breach. Brent crude oil prices hovered close to this week's 4-year highs above $85 per barrel.

— 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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