LONDON (Reuters) - "Paris will always be Paris": that is the message Emmanuel Macron will send to Donald Trump by inviting him and First Lady Melania to dine at restaurant on the second floor of the Eiffel Tower tonight, thus rejecting Trump's campaign reprimand that France had bowed its head in the face of jihadi terrorist attacks.
A solid 59 percent of French welcome Macron’s move to invite Trump to France to mark the centenary of America’s entry into World War One and for Friday’s Bastille Day - in contrast to polling in the UK which suggested a majority of Brits opposed a trip there.
Macron will use the visit to argue it would be counter-productive to isolate the United States on the world stage, although he will have no illusions about what it can achieve on policy: progress on joint approaches to counter-terrorism is possible, but few expect breakthroughs on issues such as climate policy of trade.
Before that, Macron hosts Angela Merkel and her team for one of the joint cabinet meetings that have been regular features of Franco-German cooperation since a 1963 friendship pact. With Merkel herself facing an election in September, it is probably too early to see the first outlines of any grand plan to further European unity after the 2016 Brexit vote, but moves are expected on harmonising corporate tax rates and EU defence (with defence chiefs from other EU states also in town).
Britain starts publishing today the legislation required to sever its political and legal ties with the EU. The so-called Repeal Bill provides both the mechanism for decades of EU law to be turned into British law, and to enact Brexit by repealing the 1972 legislation that made Britain a member.
In coming months it will become a messy battlefield for dogfights between hard and soft Brexiteers and even closet Remainers: May’s slender majority means a rebellion by just seven of her own MPs could hand her a potentially fatal defeat on any one of a number of hot topics.
Is the bond scare over already? The reaction of world markets to Federal Reserve chair Yellen’s congressional testimony on Wednesday suggests some think it might be, with U.S. Treasury yields falling sharply and Wall St stock ringing out new records yet again with daily gains on the S&P500 of more than 0.7 percent.
For good measure, the Vix index of equity market volatility fell to within a whisker of 10 percent at one point. Yellen insistence on monitoring core inflation in deciding future monetary tightening going forward was hardly controversial, but she did acknowledge that the neutral rate of interest had fallen over time and would cap the horizon for future hikes. This seemed to be enough to encourage investors that the Fed was heading off on some aggressive rate rise cycle, even if another move this year is likely alongside the start of its balance sheet wind down.
Of course, Yellen may not be in the Fed chair after her term ends in January so it’s also a bit surprising her long-term guidance was taken on board so squarely. So are markets now satisfied that the central bank warnings since late June on the need to end extraordinary monetary stimuli were all bluff? Well, the Bank of Canada’s first rate hike in 7 years on Wednesday, which spurred the Canadian dollar to its highest level in a year and also lifted domestic bond yields there, might give pause for thought on that score.
What’s more, the 10-year U.S. Treasury yield has only given back about 9 basis points of a 28 basis point move since the European Central Bank chief Draghi started off the global bond fright in Portugal a couple of weeks ago. The ECB too has rowed back somewhat since on any message of imminent tightening, the Bank of Japan continues to intervene heavily to keep a lid on its bond yields and the key swing voter at the Bank of England, deputy governor Broadbent, said he was not in favour of a rate rise at this point.
Heading into the Q2 earnings season, that should be delivering aggregate annual profit growth of about 7 percent, U.S. stocks seem comforted whatever.
The rally also extended across Asia overnight, with the Nikkei225 underpeforming due to dollar/yen’s sharp relapse. MSCI’s index of world stock markets also hit a record high. The worst affected emerging market currencies over the past couple of weeks – South Africa’s rand, Russian’s rouble and Turkey’s lira – have also rallied sharply. With monetary tightening fears receding, the global growth picture also looks relatively rosy.
Above-forecast Chinese export and import growth for June, released overnight added to the upbeat picture. Australian and New Zealand dollars also rallied overnight. Euro/dollar is firmer but well below Wednesday’s peak of $1.1489.
European stocks are expected to open higher after staging their biggest one-day gain on Wednesday since the day after the French Presidential election. Crude oil prices were flat.
Editing by Toby Chopra