July 7, 2017 / 7:52 AM / 2 years ago

Daily Briefing: G19 - Merkel's gamble

LONDON (Reuters) - Often noted for her caution, Angela Merkel has taken a couple of big gambles with today's nervously watched G20 meeting.

Firefighters work at the scene where a number of cars burnt down during the G20 summit in Hamburg, Germany, July 7, 2017. REUTERS/Hannibal Hanschke

By staging the talks in Hamburg - a historic port trading city that is also home to many far-left radicals - she wants to show those autocratic leaders among her guests that it is possible to be open to the world and even dissent while remaining strong. That could backfire if the violence that accompanied anti-capitalism protests overnight gets worse in coming days.

Merkel's camp have also deliberately sought to highlight Donald Trump's isolation on climate change with a draft summit communique that makes his opposition to the Paris Agreement stand out like a sore thumb: This is essentially a G19 joint declaration rather than a G20 one. For that to work, all leaders except Trump have to get behind it - and as things stand, Saudi Arabia and possibly others are holding out.

A first, unpredictable encounter between Trump and Vladimir Putin adds to what could be an action-packed 48 hours. If Merkel can pull off a summit that suggests the world's battered system of multilateral rules is still just about working, it will cement her status as de facto leader of the West; if her gamble fails, not only will her authority suffer but those that don't believe in rules - from Trump to Putin - may smile.

Talks in Switzerland to reunify the divided island of Cyprus collapsed amid anger and recriminations in the early hours of Friday, marking the end of a process seen as the most promising in generations to heal decades of conflict.

Diplomatic efforts to reunite Cyprus have failed since the island was riven in a 1974 Turkish army invasion triggered by a coup by Greek Cypriots seeking union with Greece. Without a fallback option, it is now unclear what, if any, peace process can continue.

CEOs and top business lobbyists meet Britain’s Brexit minister David Davis today in a country mansion where they are expected to press their case for a business-friendly exit from the EU with a smooth transition period to ease the economy into its new relationship with the bloc. The CBI on Thursday angered some Brexit supporters by upping the ante and saying Britain should stay in the single market during its transition.

The meeting comes alongside a heavy drop of new data on the British economy, including industrial and manufacturing output figures, house price growth, construction and trade data.


Worries at the prospect of higher interest rates are to the fore in global markets again on Friday, with the Bank of Japan offering to buy unlimited amounts of bonds after 10-year yields climbed well above its 0 percent target.

Ten-year JGB yields climbed as high as 0.15 percent but later dropped back to 0.085 percent. U.S. Treasury yields hit near eight-week highs in U.S. trading and German 10-year Bund yields are close to 18-month highs, though down very slightly on the day.

After European Central Bank minutes scared the horses on Thursday by showing that policymakers were open to further steps towards reducing the stimulus that has supported economies and markets for years, board member Benoit Coeure told two newspapers the ECB should adjust its policy carefully and flexibly.

All this comes on a traditionally nervy day for markets, when the latest monthly U.S. labour market data is released. Private-sector data on Thursday undershot expectations. Economists polled by Reuters expect 179,000 jobs were added last month.

Thursday’s weaker-than-expected data pushed the dollar lower but the BOJ buying saw it make solid gains against the yen. It was last up 0.5 percent at 113.71 yen, a seven-week high. The euro was down 0.1 percent at $1.1415 and sterling was down 0.1 percent at $1.2959.

Nerves before the jobs report and the prospect of higher interest rates is weighing on share prices. Wall Street closed lower and Asian markets also fell.

European shares are expected to open little changed but are set to end their first week in five in positive territory as the market seeks a floor following a sell-off sparked by expectations of tightening monetary conditions.

Futures were last trading between a rise and a fall of 0.1 percent, comforted by data in Germany showing industrial production rose more than expected in May. The STOXX 600 index is up 0.3 percent so far this week following four straight week of declines.

Shares in Carrefour will be in focus after the world's second-largest retailer said sales growth accelerated in the second-quarter, beating expectations and reflecting an improving performance in its core French market and robust sales in the rest of Europe. Eyes also on Aurelius, the German asset manager targeted earlier this year by short seller Gotham City, which raised its earnings forecast for 2017.

Stada will also be watched after Bloomberg reported that Elliot had built a 5 percent stake of in the German generic drugmaker, a move a dealer said could spur “fantasy” that the activist investor could aim to get a better price than the 66 euros initially offered by Bain/Cinven.

Speciality diesel engine maker Deutz could see pressure after Volvo placed its 25 percent stake in the company. Deutz will remain an important Volvo supplier.

In rate-sensitive utilities, already pressured by the bond sell-off, Iberdrola and Gas Natural could be hit by a Goldman Sachs downgrade to "neutral" and "sell" respectively. Both stocks have a dividend yield of above 4 percent.

Other stock movers: BMW looking to cut 1 billion euros in indirect costs; Maersk says too early to predict financial impact of cyber attack; China urges GM, Mercedes-Benz and Volkswagen to recall cars with faulty air bags; U.S. charges ex-Audi manager in emissions cheating case; Polish regulator insists on Raiffeisen Polish unit listing; Howden Joinery founder and CEO to retire next year; Germany's GOAL to finance Vietjet's Airbus plane purchase worth $464 million.

MSCI’s main index of Asia-Pacific shares, excluding Japan, fell 0.4 percent. Tokyo shares closed down 0.3 percent, having recovered some ground on the BOJ bond-buying.

Oil prices fell 1 percent on a rise in U.S. production and reports OPEC output was also on the up. Brent crude last traded at $47.56 a barrel, down 1.2 percent.

Slideshow (4 Images)

Gold, hit by dollar strength, was down 0.3 percent at $1,221 an ounce and on track for its biggest weekly drop in two months.

Caught up in the wider market sell-off, emerging stocks slipped 0.2 percent to hit a more than two week low, on track for their second week in the red. Adding to the pressure are oil prices falling more than 1 percent with the rouble trading some 0.4 percent weaker against a slightly stronger dollar.

Turkey’s lira and South Africa’s rand both on track for steep weekly falls – their third straight week in the red.

Editing by Hugh Lawson

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