LONDON (Reuters) - Theresa bares her teeth. If The Times of London is to be believed, the UK prime minister threatened pro-EU rebels with a general election this summer if they inflicted another parliamentary defeat on her Brexit plans for customs.
The last snap poll she called was a disaster for her party - she lost her majority - and the move seems to have forced some rebels to blink. Still, May only defeated an amendment to trade legislation by six votes.
The proposed measure would have required the government to try to negotiate a customs union arrangement with the EU if, by Jan. 21, 2019, it had failed to negotiate a frictionless free trade deal with the bloc.
The prime minister is not out of the woods yet, however. She only won Tuesday’s vote because four pro-Brexit MPs in the Labour opposition defied their own party to vote with the government.
Hardline Brexiteers forced her to accept a number of their demands as the price for avoiding defeat in votes earlier this week, and May lost a separate vote on medicines' regulation on Tuesday.
For all the sound and fury in Westminster, the final document still has to pass muster with Michel Barnier, the EU's Brexit negotiator and EU member states. That's not a given.
MARKETS AT 0720 GMT
An upbeat assessment from the Fed’s Powell on the state of the economy has given a fresh lease of life to the dollar’s rally which had seemed in danger of flagging. So the greenback is up against a basket of G10 currencies, having added half a percent after the testimony and 0.3 percent so far today.
That’s put the squeeze on emerging markets and commodities, with gold at a one-year low, oil touching new 3-month lows and global equities suffering a dampening effect.
Wall Street however roared higher last night, boosted also by rosy earnings - more than 80 percent of U.S. companies that have reported results so far have beaten expectations and earnings projections have risen further.
Tech giants in particular hit new record highs, shrugging off disappointing subscriber numbers at Netflix. The S&P500 is now less than 2 percent off the January record highs.
On the other hand Powell’s comments did little to erase expectations of two more rate hikes from the Fed this year; that boosted two year yields to a fresh 10-year high, flattening the curve further - the 2-year and 10-year yield gap touched a new 11-year low, ironically getting closer to the inversion mark that signals a recession lies ahead.
In Asia this morning, dollar strength has pushed the yen to six-month lows, lifting the Nikkei. Most Asian stock markets are flat to weaker, with mainland China pulling back 0.3 percent, while world stocks down modestly down.
But the bulls look poised to leap back in, with Europe opening higher (albeit mostly due to euro and sterling losses) and futures signalling a modestly firmer open for Wall Street.
The European earnings season kicks off in earnest and in the U.S. Morgan Stanley and Northern Trust continue the run of financials reporting Q2 results.
On currencies, Powell’s testimony (to be continued today) and dollar gains spell bad news for emerging markets where currencies, led by the Turkish lira, fell against the greenback though this morning the lira appears to have stabilised and the rand has tanked half a percent.
The rouble is at one-week lows to the dollar as there are fears also of fresh Treasury sanctions to show Congress support for U.S. intelligence agencies. The main currency focus is likely to be on sterling though - after falling to a four-month low versus the euro and three-week low to the dollar, the currency is hitting the skids again this morning.
Theresa May narrowly won a vote to push through her Brexit proposals but the process overall looks set to run into more trouble and many banks now see a greater danger of falling out of the EU without a deal.
June inflation numbers to be closely watched for indications on what the Bank of England could do at its August 2 meeting but a rate rise is more or less now expected. The yuan is at a two week low to the dollar.
On European markets, shares have opened as much as half a percent higher, helped by currency weakness as Brexit challenges further depress the pound and the euro surrenders to a bounce in the dollar following the Federal Reserve Chairman's upbeat assessment of the U.S. economy.
Futures on main country benchmarks were up 0.4 percent, indicating that the pan-European STOXX 600 index could climb back to the three-week peak hit earlier this month.
A string of good-looking earnings updates could also provide support while trade worries ease, partly helped by yesterday's wide ranging trade deal between the EU and Japan which Credit Suisse WM said offered some relief to markets. Among the European companies that could benefit from the deal are exporters such as Pernod Ricard, LVMH, Danone and Nestle.
On the earning front, shares in ASML, Ericsson, Novartis and BHP are all 3-8 percent higher following their updates, while Akzo Nobel is seen falling after its results fell short of expectations.
— A look at the day ahead from EMEA Head of Desk Jon Boyle and Deputy Markets Editor for Europe, Middle East and Africa Sujata Rao-Coverley. The views expressed are their own —