LONDON (Reuters) - The European Union likes to style itself as the world's biggest and most influential trading bloc but that claim is being severely tested by Donald Trump's move to reapply sanctions on Iran.
European capitals are insisting the Iran 2015 nuclear deal is still alive and are encouraging companies to continue trading with Iran - but ultimately those businesses may decide their best interest lies in not falling foul of the United States.
In one of the most forward-leaning statements yet, German Economy Minister Peter Altmaier said this morning Berlin is ready to offer legal and other means of support to companies wanting to continue trade with Iran in what he called a "damage limitation" exercise.
He also reaffirmed Germany had no plans to stop issuing export guarantees for trade with Iran and wanted to any job losses in Germany as a result of the reimposition of sanctions. Just how far Germany is prepared to go to defy Trump on the matter, is open to question: Altmaier also said Berlin wanted to avoid “a spiral of escalation” both on trade and the separate dispute over Trump’s new steel and aluminium tariffs.
The main headline on Brexit this morning is that Britain's Electoral Commission has fined Leave.EU, one of the main campaign groups for Brexit in the 2016 referendum, for breaking spending rules. While the regulator said it found no evidence that Leave.EU received donations from Cambridge Analytica, the consultancy at the centre of a storm over how Facebook data was used in political campaigns, it said it had reasonable grounds to suspect the person responsible for the Leave.EU campaign committed criminal offences. More details on this plus reactions are likely to emerge over the course of the day.
MARKETS AT 0655 GMT
The Green & Black combo of dollar and oil has left world markets reeling this week, with the former set for its fourth straight week of gains while oil prices are fast closing in on the $80 mark for a weekly gain of over 3 percent so far. Softer-than-expected U.S. inflation (coming on top of data last week showing sluggish wage growth) provided some relief, bringing U.S. 10-year yields off the 3 percent mark while the dollar saw its biggest one-day loss yesterday since mid-April.
New York shares closed some 1 percent higher, led by Apple at a new record high and the gains have carried through to Asian tech names. World shares are up too and set to snap a two-week run of losses while emerging equities are up 0.8 percent. Some of that relief may evaporate today however as the dollar tries to resume its uptrend against the basket of currencies. On bond markets, the softer inflation has flattened the Treasury curve further, pushing the gap between 5-30 year bonds to the narrowest since 2007.
In Europe, all eyes are on Italy where the populist parties, 5-Star and League are hoping to form a government. With fears of pension reform reversals and more spending, Italian 10-year bond yields rose to seven-week highs – closing in on the 2 percent mark -- and the gap over German Bunds hit the widest in six weeks, though there is some relief today after the League's leader said leaving the euro was “not a priority”. No outcome is due from the coalition talks until Sunday but today’s auction of Italian government bonds will offer a test of investors’ continued appetite. The ECB’s Mario Draghi speaks later today as does the Fed’s Bullard.
European shares might see a calmer end to a busy week but the STOXX 600 is set for its seventh week of gains in a row – its longest winning streak in over three years. Also of note is that European stocks have very nearly recovered all of their losses from February’s volatility shock as we head back to levels last seen at the end of January.
As the Q1 earnings season winds down, it’s not been bad in Europe – not as good as the U.S., but good enough to keep shares bobbing along. Blended Q1 year-on-year earnings growth is coming in at 16 percent for MSCI EMU (in dollar terms), compared with 26 percent for the S&P 500, according to Thomson Reuters I/B/E/S.
— A look at the day ahead from European Economics and Politics Editor Mark John and Deputy EMEA markets editor Sujata Rao. The views expressed are their own. —