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Daily Briefing: Trump in Warsaw as world eyes North Korea standoff
July 6, 2017 / 7:31 AM / a month ago

Daily Briefing: Trump in Warsaw as world eyes North Korea standoff

U.S. President Donald Trump and First Lady Melania Trump arrive at Warsaw military airport in Warsaw, Poland July 5, 2017.Laszlo Balogh

LONDON (Reuters) - Donald Trump will have a chance to weigh in on North Korea at an 0830 GMT press conference in Warsaw with his Polish hosts today.

Washington warned on Wednesday it was ready to use force to stop North Korea's nuclear missile programme but said it preferred diplomacy against Pyongyang after it launched a ballistic missile that could hit Alaska. The question is whether Trump, who appears to have overestimated China's influence on this issue, will take a more belligerent tone.

The European Union's ambivalent (arguably outright split personality) stance on Turkey will be on full display today as the European Parliament votes to suspend formal talks on Turkey's membership of the bloc just as the EU official in charge of membership bids travels to Ankara to stress how import Turkey is to Europe. Confused? Join the many Turks who lost patience with Brussels on this many years ago.

The problem is that while Europe needs Turkish help to curb migrant flows it can't abide its leader Recep Tayyip Erdogan's authoritarian tone and stance on human rights. The latest blow-up between the two sides has involved the EU assembly scolding Erdogan on the detention of German-Turkish journalist Deniz Yucel - suggesting the lawmakers are minded to vote for a formal suspension.

As central bankers around the world negotiate a path towards tightening, the ECB at 1130 GMT releases minutes of its June policy meeting that will be scrutinised for more clues on its stance later this month; and in the UK, one of the Bank of England hawks, Ian McCafferty, will explain why he voted for a rate hike last month as he fields questions from LBC radio listeners.

MARKETS AT 0655 GMT

North Korean leader Kim Jong Un reacts with scientists and technicians of the DPRK Academy of Defence Science after the test-launch of the intercontinental ballistic missile Hwasong-14 in this undated photo released by North Korea's Korean Central News Agency (KCNA) in Pyongyang July, 5, 2017. KCNA/via REUTERS

Some of the biggest casualties of this week’s shift in focus back onto U.S. monetary policy have been emerging market currencies, which fell sharply in tandem on Wednesday on mix of worries about Fed tightening, a sudden plunge in the oil price, nerves about political moves against the independence of South Africa’s Reserve Bank and wariness ahead of today’s G20 summit in Hamburg.

The rand led the way down, but Turkey’s lira and Russia’s rouble also fell more than 1 percent and the moves appeared independent of any wider move in the dollar against the G10 currencies. There has been some stabilisation this morning, not least because Brent crude has bounced back above $48 and also because last night’s meeting minutes from the Federal Reserve were more equivocal about the timing of future rate rises and balance sheet unwinding that many had been expecting. 

Futures markets are still evenly split on another rate hike by December, with probabilities slightly higher over the past 24 hours at about 53 percent. But the Fed outlook will likely hinge as much on tomorrow’s June payrolls report, where consensus forecasts pencil in another 180,000 rise in jobs last month. May trade, June ADP private sector jobs and service sector sentiment are all out later today. And after the G20 mulls trade, climate and geopolitics over the weekend, Janet Yellen testifies to Congress next Wednesday.

But the move in emerging market currencies, which have weakened roughly 0.3-0.5 percent across the board against the dollar again this morning, appears to be against G10 currencies en masse and possibly speaks more to the generalised fears of the past week of a broader removal of stimulus from the European Central Bank, Bank of England and others and not just the Fed.

On that score, ECB meeting minutes out later today will be an interesting glimpse at the council’s thinking in the light of ECB chief Draghi’s seemingly hawkish tilt in Portugal last week. BoE hawk McCafferty is also speaking today.

Despite ongoing North Korea anxiety, stock markets were relatively buoyant overnight. Wall St pushed higher, led by a Nasdaq bounceback, and Asia bourses mostly followed suit.

Eurostocks are marked higher for the open too. The dollar index is flat, as are 10-year Treasury yields. European sovereign debt yields are higher ahead of the ECB minutes.

Editing by Toby Chopra

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