She has proposed replacing membership of the existing customs union with a “customs partnership” under which Britain would continue to collect EU tariffs for goods whose ultimate destination is member states, but which would still allow the UK to sign its own trade deals around the world. This is a complex arrangement which has been variously described as “magical thinking” (Brussels) and “bonkers” (Conservative Brexiters).
May’s finance minister Philip Hammond has come out and said he backs the plan but the BBC reports this morning that leading pro-Brexit lawmakers are demanding that she drop it. They have delivered her an ultimatum but would they go as far as threatening her majority? Not clear.
The stand-off in Armenia has deepened after the incumbent party refused to back opposition figure Nikol Pashinyan in his bid to take over as prime minister. Protesters this morning have blocked some routes into the capital, Yerevan, and a road to the airport, after Pashinyan announced a nationwide campaign of civil disobedience. The crisis is being closely watched in the Kremlin: the last thing they wants is a new “revolution” such as Ukraine’s in 2014 that pulled Kiev away from Moscow’s orbit.
Top exporter Germany always had more to lose from U.S. President Donald Trump’s protectionism than others, raising the risk of divisions between it and other EU states about what to do when a reprieve from U.S. steel and aluminium tariffs runs out. Economy Minister Peter Altmaier alluded to that risk this morning, calling on other European capitals to agree a joint approach on how to deal with it.
The official EU line is to demand a permanent exemption from the tariffs, but there are already differences in emphasis among member states themselves. Berlin, mindful of an escalation that could affect its huge auto sector, wants to seek an agreement with Washington to lower tariffs across a broad spectrum of products. Paris, meanwhile, has said it is ready to work on reducing overcapacity in the steel and aluminium sectors.
Finally, the European Commission unveils proposals today on the Union’s next seven-year budget. The total amount covered by the proposal is substantially over 1 trillion euros but EU officials insist that spending is only about 1 percent of the bloc’s total income — or roughly equal to the cost of one cup of coffee a day for 440 million citizens.
Things will nonetheless be fraught: Brexit means the EU will be losing Britain’s contribution and there is also a push to tie grants to a condition that recipient governments remain good democrats – raising the prospect of east-west clashes in coming months and years.
After several weeks of handwringing about smartphone demand, Apple beat all forecasts in the first quarter – completing another bumper three months for the giant tech stocks including Amazon, Alphabet, Facebook and Netflix. Whether, as Caterpillar put it, this is the “high watermark” for the year remains to be seen, but it does put to rest any idea that business was already struggling in Q1.
Apple stock was up more than 4 percent after the bell late Tuesday, but wider Wall St indices were more cautious ahead of tonight’s policy decision and statement from the Federal Reserve. While the tech-heavy Nasdaq ended up almost 1 percent, the S&P500 ended only marginally in the black and futures are slightly negative again first this morning.
Part of the hesitation is because the dollar has been the big market mover of the week so far, surging further in holiday-thinned trade on Tuesday amid some fears of a hawkish signal from the Fed as U.S. inflation and cost pressures pick up.
A rethink of the dollar’s trajectory – now that it’s back in positive territory for the year against the euro and against the G10 basket of most-traded currencies – could well start to affect earnings projections for the back end of the year. Euro/dollar was struggling to get a foothold back above $1.20 first thing after falling below that level on Tuesday for the first time in almost four months.
Sterling too continues to trade heavy ahead of the Fed, having dropped below $1.36 on Tuesday for the first time since early January amid a dramatic reversal of Bank of England rate rise expectationsover the past week. The pound has lost more than 5 percent against dollar in about two weeks.
Apart from the surprise weakness in first-quarter UK GDP and April business surveys traders are keeping a close eye on UK PM May’s latest move on Brexit amid speculation she will propose some hybrid customs union relationship with the European Union after Britain leaves. Some reports on Wednesday say senior pro-Brexit cabinet members have threatened to resign if she goes ahead with that plan.
Back in the euro zone, the release of first-quarter GDP numbers later today will be watched closely amid consensus forecasts for a slowdown in quarterly growth to 0.4 percent from 0.6 percent in Q4. After a couple of months of disappointing euro zone data, the plummeting economic surprise index for the region appears to have troughed and bounced tentatively over the past week.
European stock futures are pointing out to a slightly positive open with the earnings season still in full swing. One standout was Standard Chartered, which posted a better-than expected 20 percent rise in pretax profit. Novo Nordisk was also ahead of forecasts.
Elsewhere, 10-year U.S. Treasury yields were a touch higher but still comfortably below the 3 percent level breached last week. Brent crude was a fraction higher after a big retreat on Tuesday. Major Asia bourses were flat to slightly lower.