October 5, 2018 / 7:32 AM / 2 months ago

Daily Briefing: Brexit endgame nears

LONDON (Reuters) - Is a Brexit endgame in sight? The European Union's Brexit negotiators told national diplomats in Brussels late on Thursday that a divorce deal with Britain was "very close", according to two sources present at the meeting.

An artwork of a punch bag decorated with the EU flag is seen at the annual Frieze London art fair, October 4, 2018

That came after signs yesterday that Britain and the EU were getting closer to some sort of compromise on the vexed question of the Irish border post-Brexit.

The aim is to have the framework of a deal in place ready for fine-tuning at two summits of the bloc's leaders on Oct. 17-18 and Nov. 17-18. Sterling has risen this morning on the new whiff of optimism; the caveat is still that any deal will have to get the backing of the UK parliament.

Contrasting fortunes are on display from the euro zone's two biggest economies this morning. German industrial orders surged two percent in August, well ahead of the expected 0.5 percent gain and bouncing back from falls earlier in the summer. Meanwhile, France's trade deficit widened more than expected in August as aircraft exports fell and the energy bill rose.

While other countries are opening up their legislation to same-sex marriage, Romania looks intent on shutting it down.

Such partnerships are already banned in the country but a weekend referendum will ask whether the constitution should be rewritten to explicitly define a family as based on the union of a man and woman - replacing the vaguer reference to “spouses” currently.

Critics of the vote say it is largely intended to deflect attention from growing concerns that the government is backsliding on an anti-graft drive and are calling for a boycott of it.

MARKETS AT 0655 GMT

U.S. Treasury yields’ race to seven-year highs – on track for the biggest weekly rise since February — has been rocking pretty much every asset class on the globe.

World shares are heading into their second-biggest weekly loss since March,  while emerging-market equities are set for their worst week since February. Yields across the world have also risen sharply --  Japanese yields are at 2 1/2-year highs and the euro zone's at multi-month peaks.

Wall Street saw the worst day for the S&P 500 and Nasdaq since June 25. Today seems a touch calmer, with U.S. 10-year yields off the highs and the dollar staying off six-week peaks, though equities remain weak.

This could be the calm before the storm. This week’s robust data on jobless claims and factory orders are putting the focus squarely on the payrolls report for September due at 1230 GMT.

Thursday’s data, which showed jobless claims near 49-year lows, followed comments this week from several Federal Reserve officials, including Chairman Jerome Powell, that have raised expectations the Fed might raise rates beyond what was previously expected. The data is expected to show rising wages as well as increasingly tight labour markets.

Vol measures also bear watching after the Wall Street fear gauge, the VIX, rose yesterday to the highest since mid-August and the Treasury vol gauge is set for its biggest weekly rise in two years.

Chinese markets are shut, but investors will watch for what happens Monday when yuan and local share trading start – will they catch up with the emerging-market selloff from this week?

"China wants a different American president"

Also there will be fallout from the Bloomberg report of "spy chips" reportedly planted in software used by Western tech giants, which has led U.S. Vice President Mike Pence to accuse Beijing of a "malign" campaign. And trade war noise is likely to start up again.

On the currencies market, emerging-market currencies are flat at the end of a tough week. Sterling continues to swing like a pendulum, reacting to any headline on the Brexit front.

A Romanian nun takes part in a rally in support of a 'Yes' vote on the upcoming referendum, proposing changes to the constitution to prevent future recognition of same-sex marriages, in Draganesti, Romania, October 4, 2018

This morning, it has gained a quarter percent against the dollar and is at 10-week highs against the euro after EU negotiators said a deal with the UK was “very close”.  

The Aussie dollar, a barometer of risk sentiment and sometimes seen as a proxy for China risk, has hit 32-month lows. Oil is at $85 a barrel, its fourth straight week of gains. 

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

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