February 13, 2019 / 8:43 AM / 5 months ago

Daily Briefing: Spain - a spring election beckons

LONDON (Reuters) - Spain's minority government is dropping hints that it will call an early general election if, as expected, it loses a vote on the budget due today.

People hold Estelada flags as they protest against the Supreme Court at Catalunya Square in Barcelona, February 12, 2019

Two small Catalan pro-independence parties, on whose votes the government has been relying to pass legislation, have so far maintained their blanket rejection of it. The two most likely election dates are April 14 followed by April 28.

Prime Minister Pedro Sanchez knows that the last thing left-leaning voters want - including even those who favour Catalan independence - is for the right to come back into power.

The new twist in Brexit is a media report of an overheard conversation in a Brussels bar in which Theresa May's chief negotiator said he expected a major delay of Brexit if UK lawmakers don't back a reworked version of her deal.

The report is generally being interpreted as undermining May’s insistence that there should be no delay, thus keeping her threat of no-deal Brexit on the table. But an alternative reading would be that, if there was one thing calculated to put the real frights up hard Brexiters, it would be the prospect of a substantial postponement to their cherished project.

In that sense, it might actually help focus their minds in favour of May's deal. In any case, reports of overheard conversations should generally be taken with a pinch of salt: the eavesdropper can never be sure of the context or sincerity of the conversation listened in on. Sure enough, the government has simply restated its official policy this morning.

Poland as a major new player in Middle East politics? More than a few diplomats are scratching their heads. Warsaw today is the venue of a global summit focused on the Middle East and Iran.

U.S. Secretary of State Mike Pompeo will be there, but his counterparts from European powers like Germany and France won’t be. Tehran has denounced the summit as “a circus”. The United States hopes to ratchet up pressure against Iran, but beyond that, it is not quite clear what it will achieve.


Slipping deadlines and deal hopes have buoyed world markets again overnight, with U.S. President Donald Trump signalling he may push back the March 1 date for higher tariffs with China if enough progress is made in talks in Beijing this week and also that he’s likely to support a government funding agreement thrashed out in Congress this week that will avert another federal shutdown.

The latest reports on Brexit, meantime, centre on reported comments from UK negotiator Oliver Robbins that there will be a long delay in Brexit if UK PM Theresa May’s deal is not backed by parliament.

But perhaps the most powerful boost to risk assets came from Cleveland Federal Reserve chief Loretta Mester, who said on Tuesday that the Fed will chart plans at coming meetings to stop running down its balance sheet – easing concern that the Fed would continue its $50 billion-a-month reduction of the balance sheet until incoming economic data warranted it. U.S. CPI inflation numbers are released later on Wednesday.

Wall Street stocks added more than 1 percent overnight, with the S&P500 closing at its highest level of the year so far and above its 200-day moving average. The Vix volatility gauge briefly touched its lowest level since October.

Ten-year U.S. Treasury yields touched 2.70 percent overnight before backing off slightly. The dollar steadied after a retreat across the board on Tuesday.

U.S. stock futures continued their advance overnight, with Asian markets rallying on easing trade war fears. Shanghai stocks advanced almost 2 percent, with Japan’s Nikkei and Hong Kong’s Hang Seng both up more than 1 percent. Seoul’s Kospi lagged with gains of 0.5 percent.

China’s yuan gained and MSCI’s emerging-market currency and equity indices both rallied further, despite the latest investor survey from Bank of America Merrill Lynch showing, ominously, that emerging market assets were the most crowded trade this month for the first time ever.

European stock futures joined the global push higher with gains of about 0.5 percent ahead of the open. Sterling was higher against the dollar and euro on the indications that the UK government, at least privately, prefers a delay rather than no-deal Brexit on March 29. UK January inflation data is due for release this morning.

Brent crude oil prices rose above $63 after Tuesday’s jump on signs of more output cuts from Saudi Arabia and amid the ongoing Venezuela crisis.

On the European corporate front, data from Refinitiv shows that earnings expectations are no longer falling for the fourth quarter and have risen from a gain of 2.3 percent to 3 percent – a relief after steep downward revisions since November.

Wednesday's heavy earnings slate included ABM Amro posting profits below consensus, Akzo Nobel above forecast and Heineken expecting profit growth to be stable in 2019. Setbacks for industrials included German copper producer Aurubis reporting falling profits as plants were shutdown for maintenance and Switzerland’s chemical group Clariant hurt by softening demand in Asia.

— 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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