April 26, 2019 / 8:21 AM / 4 months ago

Daily Briefing: Big questions for Spain; answers elusive

LONDON (Reuters) - If general elections often revolve around the economy and voter calculations about which party is best for their pockets, Spain's vote on Sunday is being played out on broader terrain.

Pablo Casado of the People's Party, Pablo Iglesias of Unidas Podemos, Pedro Sanchez, Prime Minister and Socialist Workers' Party, and Albert Rivera of Ciudadanos pose before a televised debate in Sebastian de los Reyes, outside Madrid, Spain, April 23, 2019. REUTERS/Juan Medina

The simmering row over Catalonia’s independence aspirations is one of the battle lines, with some voters seeing this as a threat to Spain’s very existence.

The big question over what sort of society Spain wants to have in future has found expression in impassioned debates about women's rights and a more abstract dispute over the resting place of former dictator Franco's remains, with those yearning for a more traditionalist, nationalist country eager to preserve his legacy.

As fascinating as all this has been, the election is unlikely to produce a clear winner: Prime Minister Pedro Sanchez’s Socialists are in the lead and tipped to win just under 30 percent of votes, but will not secure a majority.

Separately, the fact that a far-right party will take seats in parliament will also make coalition-building harder. Depending on what happens on Sunday, months of negotiations over the next government could be in store, and even new elections if no majority is found.

Emmanuel Macron doesn't often give news conferences, but when he does, make sure you have got nothing planned for your evening. The French president took questions for a solid two-and-a-half hours last night as he set out plans including five billion euros of tax cuts and promised further reforms to assuage the anger of the "yellow vests".

He again apologised for a public persona that all too frequently comes across as arrogant and distant, but also repeated his argument that the French need to work more.

Macron desperately needs to see an end to the unrest which has led to street clashes for 23 successive weeks and which has had a draining effect on business, tourism and the economy. It has also done little to help his performance in next month’s European Parliament elections, with polls showing the far-right party of Marine Le Pen is likely to do well and even beat his En Marche movement.


All eyes are now on U.S. GDP numbers which could either knock the dollar off its pedestal or send it zipping even higher. Consensus is for 2 percent but some estimates put Q1 growth as high as 2.7 percent, which would leave the rest of the developed world trailing far behind. No wonder the dollar is zooming up against its rivals, gaining 0.8 percent so far this week.

The euro, which is off around 1 percent for the week at $1.1133, could well test $1.10 if GDP surpasses expectations while emerging markets must brace for a torrid time. Against a basket of currencies, the dollar was 0.8 percent firmer for the week so far at 98.145, having touched its highest since May 2017.

The dollar index would have been even higher were it not for investors buying yen to guard against any thin-liquidity “flash crashes” over Japan’s coming 10-day holiday - the one on Jan 3 had seen the yen shoot massively higher in a matter of minutes.

As a result the yen has risen against most currencies this week, though possibly not as much as one would have expected given all the stories of panic yen buying that are out there.

But back to growth – and central banks. If U.S. growth surprises to the upside its position as an outlier in the developed world would be confirmed – we’ve heard in recent days from policymakers in Sweden, Japan, Canada and New Zealand who have sounded dovish on the future interest rate path.

And ECB Vice President Luis de Guindos hinted at being open to more money printing if the euro zone malaise doesn’t lift. After the recent IFO and last week’s flash PMIs his comments don’t look surprising. 

Little reaction from French bond yields after President Emmanuel Macron tried to pacify the ‘yellow vest’ protesters by promising income tax cuts and more. German yields hover below zero percent. Italy investors are jittery before credit ratings reviews after close of trade.

What of equities? Wall Street had a lacklustre close but Amazon shares firmed after the market shut, having reported forecast-beating first-quarter profits. Shares of Facebook and Microsoft Corp both jumped also but Intel Corp fell 7 percent after downgrading revenue forecasts.

Wall street futures are flat but after the impressive tech results so far, Refinitiv data shows S&P500 earnings Q1 are expected to be flat year-on-year, an improvement from the 1.1 percent decline predicted a few weeks ago,.

European shares are opening marginally higher and world shares, despite flatlining in recent days, look set, at least for now, for a fifth week of gains. Investors are staying on the sidelines as updates from European corporates show divergence.

Chipmakers, autos and drugs are in focus today. Chipmaker Intel's warning adds to concerns that industrywide slowdown could persist until the end of 2019. Bellwether semiconductor stocks, Texas Instruments, Xilinx and Intel warning investors not to expect a "V" shaped recovery, while STMicro and TSMC expect a second-half rebound. Germany-listed Intel shares are down 8 percent.

European autos and parts supplier stocks are something to watch out for after U.S. auto part makers sold-off weighed down by Visteon Corp’s Q1 miss. French auto parts maker Valeo and Renault reported Q1 sales broadly in line with consensus amid a difficult market environment. 

Renault, however, revised its global market outlook downward to negative 1.6 percent from stable. The auto slowdown was further evident after Daimler said its Q1 profit was hit by a slowdown in China and higher raw material costs. Swiss elevator and escalator maker Schindler also blamed higher labour and raw material costs as factors denting its Q1 net profit.

Moving to health stocks, stellar sales increase at Sanofi's rare diseases Genzyme unit boosted profits and revenues for Q1. British drugmaker AstraZeneca's product sales beat expectations, benefiting from higher demand for its cancer medicines.

In emerging markets China shares edged down 1 percent on Friday, on course for the steepest weekly decline since October amid worries Beijing will trim the pace of measures to support the economy and over Sino-U.S. trade concerns.

U.S. President Donald Trump said late Thursday he would soon host Chinese leader Xi Jinping at the White House, laying the foundations for a potential agreement on trade between the world's two largest economies.

MSCI’s Emerging Markets Currency Index is back in positive territory after hitting a three-month low yesterday but Turkey and Argentina will remain in focus. The Turkish lira is 0.8 percent down as it continues to be battered after the dovish shift by the central bank yesterday. Argentina’s peso and its bonds will be on radars again on political fears ahead of elections later this year.

The Russian central bank is expected to leave interest rates unchanged at 7.75 percent – the rouble is flat around 64 per dollar, having barely flinched at the prospect of more U.S. sanctions as high oil prices support.

Investors don’t seem concerned either, they have taken their share of the local OFZ bond market to the highest since last August, data showed this week, and they will be hoping Governor Nabiullina offers some hints on when rates may start falling.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA deputy markets editor Sujata Rao. The views expressed are their own —

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