January 12, 2018 / 8:54 AM / in 9 months

Daily Briefing: Breakthrough in sight for German coalition talks

LONDON (Reuters) - German Chancellor Angela Merkel's conservatives and rival Social Democrats have reached a breakthrough in coalition talks, sources close to those negotiations are reporting just now.

Acting German Chancellor Angela Merkel arrives for exploratory talks about forming a new coalition government at the SPD headquarters in Berlin, Germany, January 11, 2018. REUTERS/Hannibal Hanschke

More details will emerge later but the two sides have been working through the night to resolve differences on taxes, migration and other issues. Bavaria’s CSU, sister party to Merkel’s Christian Democrats, was apparently blocking an agreement on raising tax rates for the wealthiest. The big refugee question — whether to allow Syrian asylum seekers to bring their closest family members to Germany — has also been a sticking point.

A good piece of news for Theresa May? U.S. President Donald Trump has cancelled a visit to London scheduled for early this year, giving as his reason the fact that he did not want to associate himself with the relocation of the U.S. embassy to a new site in London.

In his Tweet, he blamed the Obama administration for what he called a bad real estate deal — however the embassy’s own website showed the decision to move the location was taken months before Barack Obama took office in January 2009. Whatever Trump’s real reasons, it spares May what would have been a deeply unpopular and diplomatically tricky visit.

Today is the first round of the Czech presidential election, with incumbent Milos Zeman expected to win after a run-off round later this month. The outspoken leader has pushed for better ties with Russia and China and backed Donald Trump in the U.S. presidential race last year.

His first term has been marked by battles with a Social Democrat-led government, sniping at reporters, warnings about Muslim immigration to Europe and efforts to improve relations with powers to the east. Zeman has also backed Prime Minister Andrej Babis’ efforts to form a government despite misgivings among potential coalition partners about the billionaire premier, the target of a police investigation into fraud.

MARKETS

What a week. Wednesday's selloff (the only down day so far for world stocks this year) is already a memory, as the MSCI all-country index scales another record high, following on from a record close for Wall Street yesterday. So what if China’s trade data showed a slowdown in December! 

The yen is down a touch today but still on track for its best week against the dollar since September after the BOJ spooked markets on Monday by suddenly cutting its bond buying. And yesterday's star, the euro, is up again today, approaching a four-month high to the dollar and set for its fourth week of gains as ECB minutes hinted the bank is preparing to reduce its asset buying programme.

That’s provided fuel to the upside move in government bond yields, taking German Bund yields to 5-1/2 month highs. U.S. Treasury yields meanwhile are off the highs near 2.6 percent hit on Wednesday but still up nearly 10 bps on the week. 

And the week is not over yet, with the U.S. reporting season kicking off (JPM and Wells Fargo the two big-name banks reporting) and a bunch of inflation data due, including in the United State and Sweden (the latter’s currency is at the highest in nearly three months against the dollar).

Finally, oil prices are just off three-year highs and Bitcoin is trading close to this year’s low, hit on Thursday.

Editing by Catherine Evans

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