September 14, 2018 / 7:46 AM / 2 months ago

Daily Briefing: Carney joins Brexit no-deal alarm call

LONDON (Reuters) - As troubling as the British government's own warnings yesterday of a no-deal Brexit's implications for consumers and business were, many will find overnight reports of Bank of England Governor Mark Carney's dire predictions for the housing market even more alarming.

Mark Carney, Governor of the Bank of England, and his private secretary James Benford leave Downing Street in London, September 13, 2018

The Times reported that he told ministers that British house prices would crash by 35 percent over three years in the event of a no-deal Brexit amid spiralling mortgage rates. The Guardian separately reported that he described the scenario as similar to that of the 2008 financial crisis.

Hard Brexiters will write off such comments as a continuation of what they labelled “project fear” ahead of the Brexit vote; PM Theresa May, on the other hand, may see it as useful in frightening Conservative voters and their elected representatives, thereby giving momentum to her Chequers compromise.

Hungary's Viktor Orban gave notice this morning that he plans to milk his country's stand-off with the European Union for all that it is worth in terms of domestic opinion.

He used his regular Friday morning radio interview to announce that he will decide on Monday on legal steps to challenge this week’s European Parliament censure of his government for flouting democratic standards, predicting a “serious legal debate”. Such tactics are likely to boost his Fidesz party in next year’s European Parliament elections; the risk for Hungary is that it starts putting off investors, too.

Meanwhile, the European Commission has seized on what it thinks could be an easy win for its own popularity: ending the twice-a-year switching between summer and winter time across Europe.

Polls suggest a broad majority of Europeans are fed up with the switch and want it scrapped; by saying it will no longer enforce it, Brussels would like to dispel criticism of meddling in areas where it is not needed. It has called a news conference to discuss the plan today.

MARKETS AT 0655 GMT

Turkey, tech, trade, Trump –  a bit of calm-down on all these fronts has improved the mood on world markets. Global stocks are up for the fifth straight day and emerging markets are rallying, with shares up 1 percent and an EM currency index likewise firmer.

After Turkey’s whopping rate rise, Finance Minister Berat Albayrak pledged to tackle the current account deficit. The result yesterday was a 4 percent jump in the lira that's continuing this morning and lifting the entire emerging markets complex and Europe.

The positive momentum was aided by a retreat in the dollar to six-week lows following weaker-than-expected inflation data and signs that underlying price pressures were easing. Focus today on the U.S. data front will be on retail sales – these are normally pretty solid in August.

And safe-haven demand for the dollar has diminished on news that the U.S. government had reached out to China on trade and Beijing had responded positively. (Note, however, that President Donald Trump tweeted the United States is "under no pressure to make a deal with China", but let's put that aside for now.)

This morning, China posted solid retail and industrial data. Softer readings on trade and credit growth reinforced the view the world’s second-largest economy is cooling but not at risk of a sharp slowdown yet.

U.S. shares closed higher on Thursday, again led by Apple.  But the news isn't not uniformly bullish. The United States is accusing Russia of covering up breaches of North Korean sanctions – Washington has imposed sanctions on a China-based tech firm and a Russian subsidiary in relation to this.

The rouble has not reacted yet, possibly lifted by the general emerging-market buoyancy and the possibility of a rate rise when the central bank meets later today. That is by no means certain – Russia still has some of the highest real interest rates in the world and, unlike Turkey, politics and sanctions risks are driving investors out of Russia rather than doubts over monetary policy.

The second cloud is Brexit, of course. Sterling has been lifted in recent days to six-week highs versus the dollar on hopes a deal on trade will be reached. That is far from certain, though.

A warning from the BoE’s Mark Carney that house prices could fall a third in the event of a chaotic no-deal Brexit has set up UK housebuilders’ shares to open 1 to 2 percent lower. Carney is due to speak again today.

European shares are set to end the week on a strong footing after Asian markets climbed overnight on hopes of a fresh round of trade talks between the U.S. and China.

Corporate earnings were thin on the ground, but German retailer Metro was indicated up 3 percent after its chief executive said its decision to put Real hypermarkets up for sale will be met with interest. Traders also said reinsurers’ shares could see a small relief move after Hurricane Florence was downgraded to a Category 1 tropical storm.

In other corporate news and potential stock movers: Close Brothers Group to sell retail finance unit to Sweden's Klarna Bank; Mediaset CFO says no talks for now on idea to create pan-Europe player; J D Wetherspoon's annual profit jumps 16.5 percent; UK Co-op's profit rises on strong food performance; Britain's Nationwide announces $1.7 billion in additional technology spend.

A man rides his bike around the waterfront docks before Hurricane Florence comes ashore in Washington, North Carolina, September 13, 2018

Emerging markets enjoyed a strong finish to the week. Shares rose for a third day and Turkey’s lira headed for its second- best week against the dollar since 2008 after its central bank jacked up interest rates.

Even the Indian rupee has bounced half a percent off record lows. However, Argentina’s peso came back under pressure, losing 3 percent overnight, and election nerves weakened the Brazilian real. Average yields in the local FX bond markets are down this week. The rouble is flat before a rate decision.

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

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