LONDON (Reuters) - The British government and the Bank of England are expected to sound the alarm bell today on the dire impact of a no-deal Brexit, something Prime Minister Theresa May will be able to use to push the argument for her Brexit deal with Brussels.
How convincing this will be remains to be seen: hard Brexiters have already branded the exercise a repeat of what they called the “Project Fear” negative message of the 2016 Remain campaign, so it may merely reinforce their determination to resist.
Yet it may also give some food for thought: The Daily Telegraph said Wednesday’s report from the government would show that in a scenario resembling May’s plan, Britain’s economy would be 1-2 percent smaller in 15 years’ time than if the country remained in the EU. But it would be 7.6 percent smaller if there is no deal.
Separately the State Dept overnight noted that not all sanctions already agreed on Russia over its Crimea annexation have been fully enforced, suggesting it was time to do that more thoroughly and also to take a tougher stance on Nordstream 2, the energy pipeline project which the U.S. argues will only make Europe more dependent on Russian supplies.
Trump has suggested a planned meeting with Vladimir Putin on the sidelines of the G20 may be called off.
Further east, another country at the centre of the race for influence between Russia and Europe is going to the polls. Georgia's presidential run-off pits a candidate backed by the ruling party who favours a policy that balances ties with Moscow and the West against a rival advocating a more explicit pro-Western line.
Opposition challenger Grigol Vashadze is pushing for further integration with NATO and the European Union while the ruling party candidate, Salome Zurabishvili, argues that any aspiration to move closer to the West should also avoid antagonising the Kremlin.
MARKETS AT 0755 GMT
With the Trump-Xi showdown at this week’s G20 summit now not scheduled until Saturday, world markets are likely to be trapped for the remainder of the week.
Eyes will be on China’s President Xi’s state visit to Spain today as Beijing’s U.S. ambassador warned overnight of dire consequences if Washington trade hawks held sway and as White House adviser Kudlow held open the possibility of a deal at the weekend even though he said the U.S. side was ‘disappointed’ by China’s response so far.
Market attention will likely switch to U.S. monetary policy later on Wednesday, however, as U.S. Fed chief Powell speaks in New York amid growing speculation about a 2019 pause in the central bank’s tightening cycle.
A triple-whammy later in the day from the Bank of England – its latest Brexit assessment, bank stress tests and Financial Stability Report – takes sterling’s eyes off the buildup to the critical Dec 11 parliamentary vote on the Brexit deal.
The main U.S. stock indices closed slightly higher again on Tuesday and Asia’s big bourses amplified that move overnight – Shanghai, HK and Tokyo were all up more than 1 percent and Seoul’s Kospi rose 0.4 percent.
These equity market gains, along with an easing of the yen, suggest markets are leaning toward some sort of movement at the G20 - although little is clear yet and Kudlow said there were no scheduled talks among U.S. and China trade advisers around the summit.
Adding to the trade tensions were reports in Germany media on Tuesday that U.S. President Trump could impose tariffs on cars from next week - a report which hit the big carmaker shares yesterday afternoon.
The dollar’s DXY index was higher ahead of the Powell speech - gaining against the euro, yen and sterling.
With markets already priced for fewer interest rate rises next year than the Fed is indicating, there’s some degree of trepidation that Powell will deliver a ‘full steam ahead’ message despite growing concerns from his policymaking officials about the weakening of the wider global economy.
Ten-year U.S. Treasury yields were steady first thing but the 2-10 yield curve, a closely watched-bellwether of future growth expectations, flattened to as low as 22 basis points for the first time since September.
Brent crude oil prices were firmer as the approach of the Dec 6 OPEC meeting now dominates thinking amid speculation of supply cuts after 30 percent drop in crude prices in less than two months.
European stocks rebounded about 0.4 percent at the open. Italian sovereign bond yields were steady as Italian Deputy PM Salvini late Tuesday confirmed willingness to move on the headline budget deficit figure as long as the two main planks of the 2019 budget remained.
— 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 —