LONDON (Reuters) - No sooner had the EU's Brexit negotiator Michel Barnier yesterday declared an impasse in talks with Britain than news of a possible opening started emerging.
A draft of the expected decisions from next week’s EU summit suggest leaders could hand Theresa May an olive branch by confirming they will start their own preparations for a transition period to a new relationship with Britain. While opening up talks on a future trade deal is ruled out for now, they also said they would be ready to crack on with such discussions in December right away if May improves her offer on the divorce terms.
The contrast between Barnier's language and the tone of the summit draft is not too surprising: the former has to stick rigidly to his existing negotiating mandate, while the latter reflects the political will of the 27 European capitals, most of whom would much prefer to avoid a "cliff-edge" Brexit if possible. After this week's awkward exchanges between London and Brussels about whose court the "ball" was actually in, this is perhaps the EU's way of piling the pressure on May to make some kind of move.
Markets are moving on a Reuters story that ECB policymakers have broadly agreed to extend asset purchases at a lower volume at their October meeting, with views converging on a nine-month extension. With asset buys due to expire at the end of the year, policymakers are set to decide on Oct. 26 whether to prolong stimulus.
The next move - which can still be tweaked in discussions ahead of the meeting - is intended to signal both the need to cut support given strong euro zone growth, while at the same time committing to stimulus for a long time to come.
Two elections to keep an eye on this weekend: Austria's parliamentary vote where the 31-year-old Sebastian Kurz is expected to keep his Austrian People's Party in power after he toughened their immigration stance; and Germany's Lower Saxony state election, where Angela Merkel's conservatives hope a strong victory will boost their hand for the start of formal negotiations on a national government coalition in Berlin.
Central bank policy will be a focus of market thinking on Friday. Euro zone government bond yields are down a shade after a Reuters report that European Central Bank policymakers have broadly agreed to extend asset purchases but at lower volume. The expectation is that purchases will be extended for nine months.
Later in the day, the focus will shift to U.S. inflation data. The numbers have taken on greater significance since Wednesday’s minutes of the latest Federal Reserve meeting showed policymakers debated whether they should raise rates if inflation did not pick up. U.S. Treasury yields, which topped 2.4 percent earlier this week, stand at 2.32 percent, marginally lower on the day.
Another talking point is likely to be earnings at U.S. lenders Wells Fargo and Bank of America. Bank shares helped pull Wall Street lower on Thursday after JPMorgan and Citigroup said they set aside more money against credit card losses.
European shares are expected to open little changed at the end of a week where weakening currencies helped both the DAX and the FTSE reach new record levels, as inflows into the region's stocks continued despite a fresh focus on political risk. Futures on the FTSE were down 0.2 percent while those on the euro's blue chip index were up 0.1 percent. The pan-European STOXX 600 index is up around 0.2 percent so far this week, set for its fifth straight week of gains.
According to EPFR Global data Europe Equity Funds posted solid weekly inflows overall, but Spanish equity funds posted their second largest outflow on record and redemptions from Italy climbed to levels last seen in the second quarter of 2015.
Focus will be on BASF after the world's third-largest maker of crop chemicals agreed to buy significant parts of Bayer's seed and non-selective herbicide businesses for 5.9 billion euros in cash. Over the past year BASF shares have underperformed Bayer, which has agreed a $66 billion deal to buy Monsanto.
Still on the M&A front, eyes on Abertis after Reuters exclusively reported that builder ACS will launch a cash-and-share offer for toll road operator Abertis, sources said on Thursday, complicating a rival bid by Italy's Atlantia.
In earnings, Edenred kept all its financial targets for 2017 as the French prepaid meal voucher and card provider company reported a rise in third quarter sales, while British subprime lender Provident Financial said it had put in place a recovery plan for its struggling home credit business and confirmed it will not pay a dividend as he heads into a full year loss of 80 to 120 million pounds. UK asset managers Ashmore said assets under management rose 11 percent during its first quarter.
Asian shares, meanwhile, hit 10-year highs, as measured by MSCI’s main Asia-Pacific index, excluding Japan. Tokyo shares hit a 21-year high on bets that Prime Minister Shinzo Abe’s party will win next month’s election.
Chinese shares rose. Chinese trade data showed imports beat forecasts and signalled the economy was still expanding.
The dollar is down 0.1 percent against a basket of currencies before the inflation data. The yen is up 0.3 percent at 11.93 per dollar, the euro is up 0.1 percent at $1.1840 and sterling is up 0.3 percent at $1.3303.
Emerging market stocks inch to a new six-year high and are set for their 9th week of gains out of 10, and most currencies are firm after encouraging Chinese trade data and the dollar near a three-week low. China’s yuan rises to a three-week high but stocks are lacklustre ahead of next week’s Party Congress.
The Turkish lira like other EM currencies firms slightly but is on track for its 5th straight week of losses.
Traders will watch moves on Mexican assets, which are increasingly choppy as the NAFTA outcome approaches next week – the peso closed Thursday at a 5-month low vs the dollar.
Hungarian and Polish stocks may extend gains after closing at record highs
Editing by Gareth Jones