June 1, 2017 / 7:35 AM / 3 months ago

Daily Briefing: Europe braces for Trump exit from Paris deal

U.S. President Donald Trump interacts with reporters as he welcomes Vietnam's Prime Minister Nguyen Xuan Phuc in the Oval Office at the White House in Washington, U.S. May 31, 2017.Jonathan Ernst

LONDON (Reuters) - The big news of the day, already well trailed in various tweets and by sources close to the White House, will be Donald Trump's announcement at 1900 GMT on whether the United States will withdraw from the Paris Agreement on tackling climate change.

If, as widely expected, he confirms a withdrawal, it will mark the biggest breach yet in transatlantic relations since the start of his presidency and his further alienation from European leaders - notably Germany's Angela Merkel - who sought to persuade him to remain in the pact.

The head of the European Commission was out late yesterday vowing to make it his duty to ensure the United States did not shirk its legacy commitments to the accord even as it embarks on the process of leaving it.

British PM Theresa May was notable by her absence from last night's televised debate ahead of next week's general election, and was inevitably scorned by the other party leaders for choosing to stay away. Whether she was right or wrong to decide from the start to limit her TV appearances in such events, the recent poll evidence suggests that overall her campaign has been weak, allowing Jeremy Corbyn's Labour to rub out much of the commanding lead her party had only a few weeks ago. The latest survey out last night suggests the difference has narrowed to just three points.

It is unfortunate for France's Emmanuel Macron that on the day he decides to unveil a long-promised new law upholding on ethics in public office, prosecutors announce that they are opening a preliminary inquiry into the financial dealings of one of his ministers and his former campaign chief, Richard Ferrand. That, as they say, is politics.

Britain's Prime Minister Theresa May speaks during a Q&A at Cross Manufacturing Company in Odd Down in Bath, Britain, May 31, 2017.Leon Neal/Pool

MARKETS AT 0655 GMT

With financial market volatility slipping back into a slumber, the fallout for financial firms is seeing another of the post-U.S. election "Trump trades" unwinding. U.S. financial stocks closed down almost 1 percent late Wednesday after JPMorgan and Bank of America warned about a double-digit drop in trading revenue in the current quarter compared to last year due to the evaporation of volatility.

French President Emmanuel Macron visits the STX Les Chantiers de l'Atlantique shipyard site in Saint-Nazaire, western France, May 31, 2017.Stephane Mahe

With the ViX index of implied U.S. equity market volatility near its lowest in a generation at about 10 percent and U.S. Treasury market volatility at its lowest in almost three years as we enter the final month of Q2, there are few sign of a late recovery of fortunes on that front.

U.S. financials, which surged more than 20 percent after the election on hopes of some deregulation of the sector, are now in the red for the year and the post-election gains are down to 16 percent. Apart from the bank revenue warnings, overnight macro indexes show little sign of shaking things up. The S&P500 closed basically flat on the day , with the dollar index and 10-year Treasury yields a fraction higher after the U.S. Federal Reserve’s latest "Beige Book" economic assessment and latest Fed speeches kept futures markets pricing a near 90 percent chance of another interest rate rise this month.

There were a few more signs of life in Asia earlier, with Shanghai stocks closing down after private business survey showed an unexpected contraction of Chinese manufacturing activity last month. The yuan strengthened to a 7-month high, however, as the Chinese central bank surprised traders by pushing up its daily reference rate by 0.8 percent – the second-largest rise in the midpoint since the currency was de-pegged from the dollar in 2005.

A firmer dollar, meantime, helped Japan’s Nikkei outperform and it closed more than 1 percent higher. The prospect of higher volatility in Europe may centre around next week’s UK general election meantime, with opinion polls narrowing sharply and the latest from YouGov putting PM May’s Conservatives just three percentage points ahead of opposition Labour and losing her overall majority of seats. Sterling has been buffeted by the increased uncertainty and prospect of a "hung parliament" although losses have been limited and it recovered some ground overnight as other polls showed May’s lead widening again. European stocks are marked slightly higher, with Brent crude oil prices bouncing back above $51 after their post-OPEC retreat.

Editing by Tom Heneghan

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