April 13, 2018 / 7:38 AM / 8 months ago

Daily Briefing: Europe's Trump test

LONDON (Reuters) - Two days ago, after a tweet from Donald Trump, it looked like the United States and key European allies were on the verge of launching strikes on Syria for a suspected chemical weapons attack by the government of Bashar al-Assad on the town of Douma. Now the timing is less clear and political cracks are emerging in Europe.

U.S. President Donald Trump makes remarks on tax cuts for American workers during an event in the White House Rose Garden, April 12, 2018

Earlier this week, the leader of Italy’s far-right League denounced the reports of the attack as “fake news”, forcing the country’s president to seek assurances from deadlocked political parties there that they fully supported NATO. This morning, British Labour leader Jeremy Corbyn called for an independent U.N.-led investigation into the attack before the government considers joining Trump.

Much of this is domestic political noise. But it also underscores the hurdles European leaders face in working with Trump after a volatile first year in office in which he launched frequent verbal attacks on his European allies and undermined multilateral deals on climate, trade and Iran.

On Thursday we learned that Trump may want to join the TPP trade pact after all – but only if the 11 countries that cobbled together a deal without Washington offered him “substantially better” terms. Don’t count on it.

Meanwhile, European diplomats have been working overtime to address Trump’s concerns about the Iran nuclear deal after the president issued an ultimatum that expires on May 12. But some are now saying that it is unclear whether Trump will embrace their efforts to please him.

On China, Europe would prefer to work with Trump in pressing for more reciprocity in trade and investment. But he is going it alone. We may be seeing the first real tests of Trump’s transactional approach to diplomacy.

Nearly 50 years have passed since French students joined striking workers in the streets of Paris, shaking the country to its core. If a new revolt is brewing, French President Emmanuel Macron is not showing any signs of concern. He vowed on Thursday to stick to his plans for sweeping reforms despite a new wave of demonstrations against his plans to overhaul generous worker benefits at debt-laden French rail operator SNCF.

“That some people are not happy doesn’t stop me,” he told French TV. Macron faces crucial tests in Europe as well over the coming months. He must convince a reluctant Angela Merkel on euro zone reform and come up with a strategy for European elections after blowing up France’s traditional left-right divide with his daring new centrist La Republique en Marche (LREM) movement. Watch this space ...

MARKETS

Two interesting things on the trade front - first surprise Chinese data showing March exports down 2.7 percent, making for the first monthly trade deficit in over a year (the trade surplus with the United States soared however by almost 20 percent). Another surprise was Trump' offer to rejoin the TPP provided the United States is given better terms.

Coming on top of Trump tweets suggesting a Syria attack may not be as imminent as earlier assumed, these have somewhat helped soothe markets -- world stocks are just flat but still on track for their best weekly gain in a month. European and U.S. stocks appear set for a flat day but again headed for weekly gains.

Asian bourses are generally firmer, led by half percent rises in mainland China and Tokyo. Japan’s yen, considered a “safe” asset alongside gold and some government bonds, is down 0.2 percent to six-week lows against the dollar, while Treasury 10-year yields are holding just off two-week highs and German yields too are a touch higher and headed for the biggest weekly rise in over two months.

The dollar index has resumed its fall and ECB minutes indicating some angst over recent euro strength sent it plunging against sterling, with the latter holding near nine-month highs.

— A look at the day ahead from Special Correspondent for Europe Noah Barkin and Deputy EMEA Markets Editor Sujata Rao. The views expressed are their own. —

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