November 30, 2018 / 8:34 AM / 5 months ago

Daily Briefing: Consensus elusive as G20 meets

LONDON (Reuters) - This year's G20 summit starting today in Buenos Aires looks even more troubled than last year's, with delegations reporting a struggle to agree on anything meaningful for the final communique.

The 'Baby Trump' balloon is seen ahead of the G20 leaders summit, in front of the Congress building in Buenos Aires, November 29, 2018
"I think we’re very close to doing something with China but I don’t know that I want to do it"

“This is not a good year for multilateralism,” noted a German official of the outstanding disagreements on trade, climate, migrants, refugees, steel and even multilateralism itself.

Much of the pre-summit focus has been on the planned one-on-one meetings on the sidelines - Donald Trump's bilateral with Vladimir Putin which he now says will not happen until the naval row with Ukraine is cleared up; Theresa May's decision to meet Saudi Crown Prince Mohammed bin Salman even as major questions over the killing of Jamal Khashoggi remain.

Angela Merkel will be turning up late for the event - local media say investigators are checking whether there was any criminal cause behind the malfunction of her plane which forced an unscheduled but safe landing at Cologne-Bonn airport en route to the summit.

May used her 14-hour flight to Argentina to pursue her pitch that the draft Brexit deal she brokered with the EU is the only viable one, but back home there is increasing noise about alternatives.

A group of top lawmakers have put forward an amendment not only to block that deal but to rule out a no-deal Brexit when it comes before parliament for a crucial vote next month.

Hilary Benn, chairman of the assembly's Brexit committee, said he had the backing of parliamentarians from both May's Conservatives and his opposition Labour Party. This and other likely amendments are why the outcome on December 11 could be less clear-cut than May hopes.


After suffering the biggest fall last month since May 2012 world stocks and the S&P500 are up around one percent in November, but a jittery session lies ahead before the G20 meeting kicks off later in the day and those moves could well get wiped out.

Remember, the move into the black came just in the past week thanks to the Fed’s Jerome Powell who raised hope the Fed is set for a pause after a couple more hikes.

Minutes of the latest Fed policy meeting emerged on Thursday to show almost all officials agreed another interest rate increase was "likely to be warranted fairly soon," but opened debate on when to pause further hikes and how to relay those plans to the public.

So markets now price only one hike in 2019 whereas they were pricing three a few weeks ago. Powell has also triggered a rally in Treasuries where yields are set to fall after two straight months of fairly sizeable rises.

The 10-year yield is back near the 3 percent mark, the 2-year-10-year yield gap has narrowed to around 21 bps and finally, the dollar is trading just off one-week lows. It’s set for a monthly loss, giving some impetus to emerging currencies – an index run by MSCI is at three month highs.

But… markets are not out of the woods. Those growth and trade concerns are still out there – Chinese surveys showed factory growth in November stalling – the first time in more than two years. The slowdown in China really raises stakes for Beijing in what kind of deal (if any) they can wrangle out of President Trump at his meeting at the G20 with President Xi.

That’s raised expectations of more stimulus measures, allowing Chinese shares to rise one percent but the overall mood isn’t that great ahead of the G20 particularly after Trump’s mixed messages – he said a deal was close but wasn’t sure he wanted one.

World stocks are flat, Europe is set to open marginally firmer and Wall Street is set to open lower after slight losses yesterday. The fall in Treasury yields may be good for some but financials shares in the United States are smarting. On the oil front, Brent has inched up but is still languishing below $60 a barrel.

The other two stories people are focusing on in our time zone are Brexit and Italy. It seems calm on the latter front, with bonds and stocks getting caught up in the positive sentiment as well as hopes of some compromise between the government and EU authorities.

Italian 10-year yields are inching back towards 3 percent though crossing that hurdle will likely need more concrete positive news. But for now markets are pleased with an Il Messagero report that the government is working on cutting the draft deficit down towards 2 percent versus the 2.4 percent level that had enraged Brussels.

On the data front, expect November flash inflation numbers in the euro area. Remember that last month, core inflation had finally appeared to take off, rising to 1.1 percent, with headline inflation above the ECB’s target, coming in at 2.2 pct, a five-year high, though this was driven by energy prices.

Sterling is below $1.28 again, near two week lows, on expectations parliament will vote down Theresa May’s Brexit agreement, setting Britain onto the path of either no-deal Brexit or a second referendum

European stocks have opened flat as traders and investors wait with bated breath for the G20 Trump-Xi talks. But auto stocks and component and tyremakers are down almost one percent, the weakness likely stemming from the Chinese factory numbers.

Germany’s top car bosses are reportedly planning a meeting at the White House next week to discuss tariffs but the European autos sector is on track for its worst year since 2011, as investors dump the stocks seen as vulnerable to rising protectionism.

Overall European stocks were set for their second straight month of losses as November, and a disappointing earnings season, draw to a close. FTSE 100 futures were down 0.4 percent, lagging peers. The index's high weighting in commodities could hurt it after China reported its weakest factory growth in more than two years, reigniting fears about growth in the world’s biggest metals consumer. 

Deutsche Bank will remain in focus as the Frankfurt prosecutor’s office said a police raid of the lender was continuing for a second day. Shares are down one percent.

In emerging markets, China mainland stocks ground more than 1 percent higher, but stocks elsewhere racked up losses with South Korea falling 0.8 percent as chipmakers suffered while Moscow slipped 0.6 percent. The broader index is unchanged and on track for a near 3 percent gain since Monday.

Currencies paint a similar picture with South Africa’s rand and Turkey’s lira treading water on the day but both are on track a third week of gains looking to add 1 percent and 2.3 percent respectively.

Turkey's central bank said rebalancing continued with loan growth decelerating while the banking sector showed resilience. Russia's rouble weakens 0.4 percent on the day and is on track for a second week in the red as hefty losses earlier in the week following the standoff with Ukraine in the Azov Sea take their toll.

South Korea’s won softens 0.4 percent after the central bank hiked rates as expected for the first time in a year, though policymakers are expected to keep rates on hold now in 2019.

— 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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