July 21, 2017 / 7:19 AM / a month ago

Daily Briefing: Poland - more trouble down the line for EU

People protest against supreme court legislation in Wroclaw, Poland, July 20, 2017. Agencja Gazeta/Mieczyslaw Michalak/via REUTERS

LONDON (Reuters) - Tens of thousands of Poles came out last night to protest against a new law allowing politicians to appoint Supreme Court judges, but despite that and an EU warning that it undermines the rule of law, the bill should pass easily through the upper house of parliament later today.

This is turning into a major showdown over some of the EU's core liberal democratic values and has the long-term potential to be as existentially troublesome for the bloc as Brexit. Poland's rulers in the ironically named Law and Justice Party know it - and they have the backing of others in central and eastern Europe, which weakens Brussels' leverage in the showdown. This one will run and run.

Greek PM Alexis Tsipras will deliver a speech on government policies at his Syriza party's central committee meeting in central Athens this evening. It will above all be closely watched for any references to an expected bond market return after three years of market isolation, not least after it emerged yesterday that Athens had hired six banks to help with the issue.

Separately, the IMF agreed a $1.8 billion standby loan for Greece, essentially making a conditional commitment to help underpin its bailout for the first time in two years.

Expect more tensions in the stand-off between Germany and Turkey over Ankara's detention of human rights activists, after Berlin on Thursday took aim at the country's tourist sector and warned on future investments. German Finance Minister Wolfgang Schaeuble is already out there telling Germans who go on holiday to Turkey do so at their own risk and drawing parallels between Ankara's style of ruling and that of Germany's former Communist East.

MARKETS

The euro is trading not far from the almost two-year peak against the dollar it hit on Thursday after European Central Bank chief Mario Draghi said officials would discuss possible changes to the bank’s bond-buying scheme later this year. Thursday’s high of $1.1659 looks to be in easy reach as European trading picks up.

The dollar, which retreated broadly on Thursday, partly on concerns over U.S. President Donald Trump’s ability to push through his campaign pledges, was down 0.2 percent against basket of six major currencies.

European shares could again feel the impact of the strong euro after it hit exporters and pushed the main STOXX 600 index lower on Thursday. Futures indicate a slightly lower start. The STOXX is set for its biggest weekly loss since the end of June.

People protest against the Supreme Court legislation in Czestochowa, Poland, July 20, 2017. Agencja Gazeta/ Grzegorz Skowronek/via REUTERS

Earnings continue to roll in, with updates from Vodafone, Valeo, Swatch, Hermes and heavily-shorted Fingerprint Cards to keep investors busy. In M&A action, further consolidation in the payments industry is in prospect as Paysafe says it has received a takeover proposal from funds managed by Blackstone and CVC Capital, and Spanish builder ACS explores a counter-bid for highway infrastructure firm Abertis.

Stock movers/company news: Vodafone reports better-than-expected 2.2 percent growth in Q1; Valeo profit up 20 percent on LED lights, thermal systems; Swatch upbeat about remainder of 2017 after 7 percent rise in H1 profit; Philips Lighting Q2 earnings beat expectations, but performance mixed; Bearings maker SKF Q2 core profit tops forecast; Luxury goods group Hermes sales growth slows in Q2; Fingerprint Cards says teams up with Qualcomm as Q2 profit misses forecasts; Acacia Mining aims for lower end of FY guidance after tough H1; Beazley's H1 profit buoyed by speciality lines, investment gains; Spain's ACS studying counter-bid for Abertis (- Expansion newspaper); Blackstone, CVC make $3.7 billion bid for payments firm Paysafe; AB Inbev to buy soft drinks firm Hiball; Siemens to exit Russian power-plant JV Interautomatika.

MSCI’s main index of Asia-Pacific shares, excluding Japan, was down 0.2 percent and Tokyo shares closed down a similar amount.

Euro zone government bond yields, which rose only briefly after Draghi’s comments, were generally lower with little sign of looming inflation. The German 10-year benchmark dipped 2 basis points to 0.52 percent.

Oil is not doing much to fuel inflation. Brent crude, which topped $50 a barrel for the first time since early June on Thursday, was flat at $49.30. The weaker dollar and political uncertainty in Washington pushed copper and gold higher, the latter holding close to its highest in almost three weeks.

With the dollar near 10-month highs it would seem like a green light for EM assets, so stocks are on track for their second straight week of gains.

Currencies however seesaw around flat, possibly unnerved by the prospect of policy tightening in Europe as well as the US. Eastern European currencies slip with the zloty and local bonds at one-week lows and the forint sliding off eight month highs.  

Turkish assets may come under pressure as Germany, its biggest export partner, steps up criticism of the Turkish government and says it “cannot advise” companies to invest there. The lira is flat so far. South African bond yields are near one-month lows after a surprise rate cut on Thursday.

JPMorgan data shows EM bond fund inflows rebound after two weeks of outflow taking $1.5 billion while equities receive $2.4 billion.

Editing by Andrew Heavens

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