* 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.
LONDON, May 23 (Reuters) - It looks more and more as if Theresa May's premiership is effectively over, with the only suspense now over when she will announce the date of her departure. The Times and other local media are betting on Friday, others that she will wait until after the official release of European Parliament election results on Sunday. Today may see the resignations of more cabinet ministers as they leave a sinking ship and position themselves for the leadership battle ahead. For May, the personal stakes are that she will have broken a promise to deliver Brexit and so will have a devastatingly empty legacy; but the real question now is who will lead the country next and what Brexit will emerge. Logically, the removal of the player who negotiated the only agreed deal with Brussels makes the more extreme scenarios - no-deal Brexit and no Brexit at all - more likely. If we assume that May is replaced by someone advocating a harder Brexit - say, Boris Johnson - the next step would be for that person to go to Brussels and demand a renegotiation. If, as many expect, the EU gives them short shrift, their default position would then be to wield a no-deal Brexit as a threat. The only snag is that this parliament has ruled out a no-deal Brexit on more than one occasion - so their next move might have to be getting a brand new parliament via a general election. That opens up a whole new Pandora's Box. In a way, the Brexit end-game is only just starting.
Feeding into the Brexit saga, as mentioned above, are the European Parliament elections starting today in the UK and the Netherlands and closing in most of the rest of the bloc on Sunday night. In Britain, polls suggest May's Conservatives are heading for a wipe-out with Nigel Farage's new Brexit Party the main beneficiary; Labour looks set to be punished for a halfway-house position on Brexit which doesn't seem to be going down well with either Leavers or Remainers; while the Liberal Democrats and the Greens look like being the main receptacles of the Remain vote. Take Brexit out of the equation, and the scenario is not too dissimilar in the Netherlands where ruling conservatives also risk getting beaten by an upstart far-right populist called Thierry Baudet.
MARKETS AT 0655 GMT Not much good news out there for markets so all the assets dubbed ‘safe' – the yen, Swiss franc, U.S. and German govt bonds – are getting a boost, while share markets are taking a hit. It looks like the U.S.-China trade conflict is fast morphing into a technology Cold War, with Reuters reporting that the United States was considering Huawei-like sanctions on Chinese video surveillance firm Hikvision. The list of firms severing ties with Huawei is also likely to grow – the latest being British chip designer ARM and Japan's Panasonic.
The U.S. military also said it sent two Navy ships through the Taiwan Strait and there's been some bellicose rhetoric from Chinese state media. Shanghai blue chips shed 1.2% to near their lowest since February, while a telecoms index fell 2.7%, led by Huawei suppliers. Asian shares are at four-month lows while Japan and Korea also fell. Wall Street is set to open weaker.
There's no respite on the economic or political front either - EU parliament elections will see 400 million people go to the polls between now and Sunday in a vote that's likely to yield significant gains for eurosceptic and anti-establishment politicians, not least Nigel Farage in the UK. Also in the UK the clock is ticking down on PM Theresa May's departure and trepidation over what will follow has taken sterling to 4-month lows. The resignation of Andrea Leadsom from the cabinet is likely to be followed by more and with no-deal Brexit chances rising, there seems to be only one way for sterling to go -- down. 10-year British govt bonds are rallying, with yields under 1 percent for the first time since end-March.
Finally, markets got no joy from the Fed minutes, which merely signalled rates would be on hold "for some time" as officials "patiently" assess incoming data. Most Fed officials also seemed to agree that recent weakening in inflation is due to "transitory" factors, so no hope of a rate cut any time soon. So the dollar is approaching a one-month high against G10 currencies (though it's weaker versus the yen) while Treasury yields are also down. The yuan weakened but losses were capped by the central bank setting the midpoint rate vs dollar a touch firmer than expected and also continued verbal reassurance from officials.
On the data front, flash PMIs for Japan painted a gloomy picture with manufacturing snapping back into contraction and new export orders falling at the fastest pace in four months. In the euro area, we will get both the flash PMIs and German IFO for May, as well as the ECB minutes from the April meeting. The negative developments on the trade front mean the IFO Institute survey could reflect weakened business expectations. There's also flash PMIs in the United States which could confirm - or belie - the weakness seen in manufacturing most recently.
So is there any good news anywhere? Well Indian markets are cheering as Prime Minister Modi looks set to seal victory in the recent election, with the stock market rising more than 2.5% to hit record highs and the rupee and bonds also enjoying rallies. But that's being counteracted by gloom elsewhere in emerging markets, where the Turkish lira continues to weaken.
Oil prices are on the cusp of falling under $70 as growth outlook darkens and inventories build.
European stocks look set for heavy losses and all the major European stock futures are down 0.7-0.8%. The trade-sensitive DAX is down the most, while FTSE 100 is off 0.6% as concerns about damage to the economy from the UK's deepening political crisis and trade tensions offset the benefit of the weaker sterling on its multinational constituents.
Headline-watching around the trade dispute are dominating. The list of companies severing ties with Huawei is growing, with Britain's ARM and Panasonic the latest to comply with the U.S. blockade of the company, underscoring worries about the fallout across tech supply chains from the restrictions.
Aside from a slew of ex-divs that will keep stocks under pressure from Imperial Brands to Daimler and Commerzbank, there's some earnings and dealmaking to drive individual moves. Pfeiffer Vacuum shares are down 5% in pre-market trading after the industrial vacuum firm gave a weak full-year guidance for sales and margin and Tate & Lyle is seen falling after reporting lower FY profits and forecasting flat growth for 2020. Shares in Merlin Entertainments, the owner of Madame Tussauds, are expected to get a boost after activist investor ValueAct urged the company to go private, and WPP is seen higher after private equity fund Vista Equity emerged as one of four U.S. bidders vying for a majority stake in itss data analytics firm Kantar.
There are more positive signs that Italy's banks are making headway with their efforts to get rid of their mountains of bad loans. UniCredit planning to sell up to $5.6 bln of soured loans, according to a Bloomberg report and Intesa Sanpaolo plans to offload only up to 50% of a 10 billion euro portfolio of so-called "unlikely-to-pay" (UTP) loans.
* Market events for Thursday
* Flash May PMI business surveys from around the world
* European Parliament elections
* Europe corp events: Ackermans & van Haaren, Autogrill (Sales), CD Projekt, Intertek (Sales), Renewi, Seadrill, Tate & Lyle, United Utilities
* Swiss Q1 industrial production
* France May business climate, Q1 jobless
* German May Ifo business confidence, Q1 GDP breakdown
* Turkey May manufacturing confidence
* Spain auctions government bonds
* Irish central bank chief and European Central Bank chief economist nominee Lane speaks in Dublin
* Swiden April jobless, Riksbank chief Ingves speaks in Kiev
* SAfrica Reserve Bank policy decision
* Egypt, Ghana central banks' policy decisions
* US Q1 earnings: Best Buy, Hormel Foods, Medtronic, Patterson Companies, Toll Brothers; (after-mkt): Autodesk, DXC Technology, HP, Intuit, Ross Stores, Splunk.
* US weekly jobless claims
* Argentina April trade balance
* Dallas Fed chief Kaplan, San Francisco Fed chief Daly, Richmond Fed chief Barkin, Atlanta Fed chief Bostic all speak in Dallas
(Editing by Gareth Jones)
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