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LONDON (Reuters) - President Donald Trump welcomes German Chancellor Angela Merkel on Friday for a White House meeting that could help determine the future of the transatlantic alliance and shape the working relationship between two of the world's most powerful leaders.
The two will discuss the global economy, funding for NATO and relations with Russia in their first meeting since Trump took office in January.
That comes as G20 finance chiefs start meetings in the German resort of Baden Baden. The main theme of those talks is likely to be how much consensus the German hosts can muster against protectionism in the presence of a new U.S. administration that is unabashedly protectionist, with policies such as the border tax on imports.
While discussions on exchange rate policies are usually conducted among the G7 countries - United States, Canada, Japan, Germany, France, Italy and Britain - the G20 has also tended to include some reference to currencies in its statement.
The early draft of the Baden-Baden meeting does not contain these phrases, but officials from several G20 members have told Reuters they would push for the words to be included in the end so as not to alarm markets that the G20 approach has changed.
Comments from a European Central Bank policymaker that the bank could raise interest rates before or after it ends its bond-buying stimulus programme have pushed up euro zone government bond yields across the board.
Money market prices, which already had a hike fully priced in for March 2018, indicate an 80 percent chance of a rise this December, up from about 60 percent before Ewald Nowotny’s comments to German newspaper Handelsblatt. German two-year yields hit their highest in about five weeks at minus 0.69 percent.
How the ECB exits its stimulus scheme, which it is due to do at the end of this year, will be a big theme in coming months.
Markets will also be keeping a close eye on a meeting of G20 finance chiefs in Germany, which is likely to focus on trade and protectionism.
European shares are expected to open lower, according to index futures, after Asian shares measured by MSCI’s main Asia-Pacific ex-Japan index gained 0.2 percent. Tokyo shares dropped 0.4 percent as the yen held steady against the dollar. Hong Kong shares hit a 19-month high, but Chinese mainland stocks pulled back as investors sought fresh evidence of a sustainable economic recovery.
In spite of the weaker start, the STOXX Europe 600 will likely end the week with a gain, having hit a 15-month high in the previous session. The pan-European index is up 1.2 percent so far this week.
European planemaker Airbus was down 1.6 percent in Frankfurt pre-market trade after French authorities opened a preliminary investigation into suspected irregularities over the use of third-party agents to win jetliner contracts, expanding a UK corruption probe. Utilities will be in focus after Germany's E.ON sold 200 million new shares, raising 1.35 billion euros, to strengthen its balance sheet ahead of steep payments to a state-run nuclear fund, while Italian power company Enel raised its dividend and confirmed its 2017 targets as net profit growth came broadly line with market expectations.
Eyes also on banking stocks as euro zone government bond yields jumped after an ECB policymaker said the central bank will decide at a later time whether to raise interest rates before or after ending its bond purchase programme.
Other potential stock movers: Builder Berkeley expects profits rise despite London slowdown; Stada give suitors more time to raise takeover bids; Fraport sees Greece, Frankfurt fees supporting profits; U.S. judge orders VW exec held until emissions case trial next Jan; BP halves stake in New Zealand's only oil refinery; Escondida striking union says invited company to talk on main demands.
The dollar, on the slide since the Federal Reserve’s “dovish hike” – it raised rates but surprised some investors who had expected them to signal a fast pace of future rises - hit a fresh five-week low against a basket of major currencies. It was last flat on the day. The euro was last down 0.1 percent at $1.0760, the yen was flat at 113.35 per dollar and sterling was down 0.2 percent at $1.2332.
Brent crude was down a shade at $51.65 a barrel, with investors still seeking clarity on whether agreed output cuts will ease a global supply glut. Gold was headed for its first weekly gain in three and copper its first in five after the Fed’s moderate rate rise outlook. Copper was down 0.5 percent at $5,887 a tonne.
Emerging equities are set for their best week since July 2016, up more than 4 percent, and trading near the 20-month highs hit on Thursday. The lira firmed 0.3 percent, trading at its strongest level since the start of March after the central bank pushed up funding costs by some 50 basis points a day after raising the cost of funding from its late liquidity window by 75 bps. Turkish stocks also gained 0.5 percent.
Chinese stocks posted their worst day in 3 months as investors dumped sectors exposed to higher borrowing costs. The central bank raised short-term interest rates on Thursday in what was seen as a bid to stave off capital outflows and keep the yuan currency stable after the Fed raised rates on Wednesday. The yuan weakened 0.16 pct against the dollar but was on track for its best week since mid-January, up 0.2 percent. Other Asian stock markets made gains, with Korea up 0.7 percent to a near 2-year high, chalking up its best weekly gain since July 2016. Taiwan stocks were also up 0.7 percent to their highest since April 2015.
Asian currencies were also set for big weekly gains, with the Taiwan dollar up around 1.4 percent, its best week in more than five years, and the won up more than 2 percent, its best week in 8 months.
S&P rates Russia and Nigeria later today, Fitch rates Angola and Moody’s Oman.
Editing by Hugh Lawson