As foreign ministers from the Group of Seven major industrialised nations meet in Lucca, Italy, there’s a certain amount of confusion in the air. U.S. policy on a number of issues, from free trade, to climate change to the Middle East, is far from clear.
Apart from the mercurial nature of U.S. President Donald Trump, key positions at the U.S. State Department have not been filled, making it difficult to reach agreement on statements and strategy ahead of the meeting. This at a time of enormous geopolitical challenges.
Syria is likely to dominate proceedings in Lucca and U.S. allies will be seeking clarity here. It will be their first chance to question the new U.S. Secretary of State Rex Tillerson on whether Washington is now committed to overthrowing Syrian President Bashar al Assad. Before last week’s U.S. missile strikes, Trump had hinted he would be less interventionist than his predecessors and more willing to turn a blind eye to human rights abuses if it was in U.S. interests.
Questions still abound over his relationship with Russia. Tillerson heads to Moscow next for a meeting with Russian leader Vladimir Putin. His experience in dealing with Russia as an oil executive may prove useful.
In Sweden, people are getting on with their lives again after Friday’s truck attack – the latest case in Europe of this particular tactic by militants or otherwise disgruntled people. The main suspect is an Uzbek man wanted for failing to comply with an immigration deportation order.
Sweden takes pride in its tolerant, liberal society and has welcomed immigrants and refugees. That spirit could be tested in the next days and weeks if the attack provokes an anti-immigrant backlash.
MARKETS AT 0757 GMT
The dollar is a mite stronger against its other major currencies, thanks largely to comments from a Fed official helping push Treasury yields higher, although geopolitics – in Syria and the Korean peninsula – is putting a cap on gains.
European shares are expected to open slightly higher after modest falls on Asian bourses. Anxiety over conflict in the Middle East has helped push oil prices higher, as have reports of high demand.
U.S. 10-year Treasury yields rose after New York Fed President William Dudley said the process of shrinking its bond portfolio would lead to only a “little pause” in its rate hike plans. Coming after Friday’s U.S. jobs report massively undershot forecasts, this prompted those who had wondered whether there could be fewer rate hikes than expected this year to reassess their calculations.
The dollar is up 0.3 percent against the yen, which was one of the safe-haven assets sought on Friday after the U.S. missile strike on a Syrian airbase. The euro is down 0.1 percent at $1.0582 but sterling is up 0.3 percent at $1.2387. Syria and the news a U.S. Navy strike force has been sent close to the Korean peninsula kept limited dollar gains.
Politics is also weighing on euro zone government debt markets. The French/German yield spread widened after weekend rallies by candidates in the presidential election, whose first round is later this month.
Higher oil price are expected to lift European stocks after MSCI’s main Asia-Pacific excluding Japan index dipped 0.1 percent. Tokyo shares added 0.7 percent thanks to the weaker yen.
German drugmaker Stada is expected to open sharply higher after the company decided to support an offer from a private equity group for 66 euros per share, valuing the company at about 5.32 billion euros. The stock was up 10 pre-market trade. Still on the M&A front, Fresenius will be in focus after the healthcare group said it was in talks with the generic drugmaker Akorn, which has a market value of about $3.7 billion euros.
In London, mining giant BHP Billiton could grab interest after Elliott Advisors sent directors a plan to unlock value, envisaging a demerger and separate listing of its US petroleum business on NYSE.
Other stock movers: British regulators investigate Barclays CEO Staley over whistleblowing; Vivendi indicates it wants its CEO to be Telecom Italia's new chairman; Finland's Sanoma sells SBS stake to Dutch tycoon De Mol, lifts outlook; Rio Tinto pays $4 billion in 2016 taxes, royalties; down 12 percent; Italy says banks should be given reasonable time to sell bad loans; Roche's Alecensa notches trial win against Pfizer's Xalkori; Porsche-Piech clan to stay out of VW management - Porsche chairman; Daimler to offer workers at trucks unit voluntary redundancy; GAM CEO Friedman criticises activist investor's proposals.
Oil prices are up. Brent crude is up 24 cents at $55.48 a barrel, though a 12th weekly rise in U.S. drilling activity is capping gains. Gold, another safe haven in favour after the missiles strike, pulled back from a five-month high even on Friday but is marginally higher on the day at $1,254 an ounce.
Rising geopolitical tensions and domestic woes are weighing on riskier emerging market assets on Monday with investors showing nerves over rising tension surrounding North Korea as well as Syria. Stocks are slipping 0.3 percent in their third straight day in the red, dragged lower by hefty losses in South Korea’s KOSPI shedding nearly 1 percent to hit a four week low while bourses elsewhere in Asia also fall.
Emerging currencies suffer too - South Africa’s rand weakened 0.5 percent, still reeling from a Fitch downgrade to “junk” on Friday - the second such move by a major ratings agency in the wake of the sacking of finance minister Pravin Gordhan. Some protests against President Jacob Zuma on Friday, and we will watch out for more reaction. Russia’s rouble slipping 0.5 percent – the weakest in nearly 3 weeks despite higher oil prices. China’s yuan weakens to a three week low in the first trading sessions post the Xi-Trump meeting.
In Ukraine, Central Bank chief Valeria Gontareva resigns, though the writing has been on the wall for some time. Gontareva will hold a news conference at 0800 GMT - watching for further reaction.
Turkey Feb industrial production and Czech March inflation & jobs data out later.
(Editing by Andrew Heavens)