UKIP looking for next advance

November 20, 2014

United Kingdom Independence Party leader Nigel Farage reacts duing a photocall outside the party campaign office in Rochester southeast England

Never heard of Rochester and Strood? You might have by tomorrow. The southern England constituency votes today following the defection of its Conservative parliamentarian to anti-EU UKIP.

Mark Reckless is likely to win the seat from David Cameron’s ruling party. We will know in the early hours of Friday.
Cameron’s effort to stop his ruling Conservative party banging on about Europe is failing abjectly and obscuring attempts to focus on a robust economic recovery in the run-up to May 2015 elections.

The loss of a second parliamentary seat to UKIP will focus minds on the threat it poses to any number of Conservative parliamentarians at the general election, possibly splitting the right-wing vote to the opposition Labour party’s advantage. For many, the answer is to adopt a more starkly anti-European stance. Further defections could follow and Cameron’s position could come under fresh scrutiny.

That makes it all the more peculiar that Labour recently engaged in a bout of agonizing about its leader, Ed Miliband, and whether he is up to the job. There are reasons to think he is not but to indulge in a bout of internecine warfare when your opponents are in strife.

After Germany’s ZEW index showed analyst and investor sentiment rose this month for the first time in almost a year, close attention will be paid to flash PMIs for the euro zone, Germany and France this morning. The euro zone eked out growth in the third quarter. The question is whether the fourth quarter will be any better for the currency bloc.

China’s PMI, out earlier, showed factory output fell for the first time in six months in November while Japan reported surprisingly strong export growth. Third quarter GDP data in Norway are forecast to show a marked slowdown.

Markets seem to be expecting both moderate economic growth in the euro zone and a European Central Bank quantitative easing programme. The likelihood is that they are far more likely to get one or the other. Mario Draghi is speaking later today.

On Monday, Draghi said the ECB’s existing stimulus was gaining traction, that the trough in lending may have been passed and that next year should see a moderate recovery if governments pursued structural reforms. That was balanced with the caveat that the ECB would do more if it proved necessary, up to and including buying sovereign bonds.

Spain will sell up to 3 billion euros of bonds due 2017, 2020 and 2041. France will auction up to 8.8 billion euros of medium-term fixed-rate bonds maturing in 2017 and 2019 plus some inflation-linked bonds. Japanese investors, awash with central bank money, seem to be particularly keen on French bonds once more.

South Africa’s central bank has a policy meeting and is likely to sit tight for now but it will be a close call. Reuters polling predicts it will push rates higher, from 5.75 percent to 6.5 percent over the course of 2015. Emerging economies such as Russia, Ghana, Brazil and Ukraine have raised rates to support their currencies, and it is probably only a matter of time before South Africa and Nigeria follow suit.

Turkey’s central bank meeting is also meeting and faces conflicting pressures. President Tayyip Erdogan has consistently called for lower interest rates to boost growth but the lira has lost over 3 percent so far this year and is expected, according to Reuters polls, to shed another 5 percent over the next year.

Vienna talks between the six major powers and Iran are ongoing in an effort to reach an agreement under which Tehran would agree to curb its nuclear programme in exchange for relief from economic sanctions by a Nov. 24 deadline.

Washington has now said what has been suspected for a long time – that a comprehensive deal by Monday will prove elusive. The two sides may settle for another interim agreement that builds on limited sanctions relief agreed a year ago as they spend working on their deep disagreements.

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