September 21, 2018 / 8:23 AM / in a month

Daily Briefing: Brexit hard ball for May?

LONDON (Reuters) - One of the hallmarks of a news-lite summit is that sometimes it is a picture that steals the show. That was the case in Salzburg yesterday with a striking Reuters snap showing an apprehensive Theresa May in a red bolero jacket surrounded by dark-suited fellow EU leaders - it looked like a scene out of Reservoir Dogs.

Britain's Prime Minister Theresa May arrives for a family photo during the European Union leaders informal summit in Salzburg, Austria, September 20, 2018

The photo was a natural for the UK front pages this morning and fed nicely into the "EU ambush for May" line which much of the domestic media is running.

"It was a good and brave step by the prime minister. But we all agreed on this today, the proposals in their current state are not acceptable"

Whether you believe that or not depends partly on how surprised you are that EU President Donald Tusk rejected her Chequers plan as being incompatible with single market rules - some commentators suggested even this was an example of the EU playing hard ball.

Others noted that there were encouraging words signalling progress towards a deal ahead of the next encounter in October; headlines in the continental European press tended to reflect that more nuanced line. Regardless, the deeply negative way this is playing in UK media this morning may well embolden May’s critics.

For decades, housing in general in Germany was cheap. That is no longer true as a shortage of affordable housing particularly in cities is becoming a growing social problem, not least because many Germans are struggling to keep up with rent increases.

Angela Merkel hosts a so-called "housing summit" on the problem today, aware no doubt that in Britain and France this is precisely the kind of issue that has fed into dissatisfaction ith the political mainstream and boosted populist parties.

Romania's ruling Social Democratic party decides today whether to back its leader Liviu Dragnea, after three senior party members urged him to quit because of graft allegations surrounding him. The powerful Dragnea will resist any push for him to go, heightening the in-fighting at the top of Romania's troubled politics.

MARKETS AT 0655 GMT

Wall Street indexes hit a record high again last night, with even industrials such as Caterpillar catching a bid as conviction seemed to grow that damage from the trade wars will be less than feared. The dollar is licking its wounds after posting its biggest one-day fall in a month, while emerging stocks are up 1.2 percent, and set for a second week of gains.

The safe-haven yen is at two-month lows to the dollar. The dollar’s most recent bout of weakness has helped an emerging currency index scale three week highs.

In Asia the most notable mover has been the Hong Kong dollar which has jumped to seven-month highs to the dollar. U.S. Treasuries meanwhile have also stalled after touching new 4 month highs.

Traders work on the floor of the New York Stock Exchange, September 20, 2018

Interesting moves however in long-dated Japanese yields which have jumped by 4-5 bps after the Bank of Japan trimmed how much debt it would buy at an auction – a move that caught markets off-guard even though the bank pledged at its recent meeting to make its policy more flexible. It is a reminder at least that G4 banks have their eyes firmly set on tightening super-easy policies.

Today is also flash PMI day – Japan has already reported a rise as well as higher-than-expected headline inflation (albeit driven by oil prices) and signs have been the euro zone PMIs too will show a pick-up in activity.

However trade war fears still hover over sentiment – business expectations for future output in Japan slumped to 22-month lows. The other cloud on the horizon is Brexit where some of the optimism about an exit deal has ebbed – that’s pushed sterling some 0.2 percent off 2-1/2 month highs.

European blue chips seem to be heading straight into a 10th day of gains in a row as the trade war relief rally shows it has legs even if its substance is still anyone’s guess. Futures are firmly up and let alone a disaster in French, German and euro zone sentiment indicators later this morning, the upward trend seems solid enough. In the meantime, there is also enough corporate news to animate morning trading.

Reports that Uber is in early talks to buy food delivery company Deliveroo could fuel excitement in the industry and for companies such as Just Eat. Similarly talks and denials of a tie-up between state-owned Emirates and Etihad could also trigger more speculation in the sector.

In the news-sensitive Italian banking sector, Carige's top investor secured a majority of seats on the beleaguered Italian bank's new board on Thursday, after falling out with a third chief executive in three years.  

Comcast and Twenty-First Century Fox will settle their takeover battle for Sky in a weekend auction run by British regulators, setting up a dramatic climax to a 21-month sale process that has pitted some of the world's biggest media giants against each other.

Still in the world of M&A, France’s Tikehau Capital said it had entered into exclusive negotiations to acquire Sofidy which  The company also said it had 14.8 billion euros of assets under management as at 30 June 2018.

Belgium’s Nyrstar might be under pressure this morning after warning adverse market conditions would impact its third quarter earnings. Negative news report for Deutsche Post with business daily Handelsblatt reporting slower progress than expected to turn around the group’s struggling letters and parcels uni. Alstom announced a deal worth up to 1.3 billion euros for the Paris region.

Emerging markets extended their recovery with a 2 percent weekly rise in stocks. The Hong Kong dollar rose to 7.8244 to the U.S. dollar, hitting its highest levels since late February. Since March, it had stayed near 7.85, the lower end of the Hong Kong Monetary Authority’s managed trading band. Options markets have 50 times their usual average volume.

The rand is heading for best week of the year and will be its best week since early 2016 if it can make a bit of ground today, especially if an economic package due for release pleases markets. Its also been the best two week run for the rouble in at least two years despite news of fresh sanctions from the U.S.

Turkish stocks are up for a fifth week running, but the lira is 1 percent down on the day and set for a weekly drop. Brent crude has inched higher after President Trump scolded the OPEC cartel for not lowering oil prices.

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

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