LONDON (Reuters) - For days now, German Foreign Minister Heiko Maas has been niggling away at the idea that there can be new talks with Britain on Brexit.
If this was genuinely Berlin’s position, it would be a major shift with big repercussions. But it is still not clear exactly what he is talking about and whether or not his view reflects that of Angela Merkel, who as chancellor has the final say.
Late last night, Maas said "we need to talk" about whether the accord can be opened, and recalled that any change would require the assent of all 27 other EU states. He has not made clear whether he is talking about the divorce agreement part of the accord or the political declaration on future ties, and under what circumstances the European Union could reconsider its position.
Bear in mind that the default EU stance is that it can only review its stance on future ties if Britain changes its stance, for example if Britain says it wants a softer Brexit. If not, nothing more than reassurances are possible. But that is self-evident.
If Maas is hinting at anything beyond that, a speedy clarification from him would be useful. In the meantime, it is worth recalling what Merkel told lawmakers, according to those present at the meeting: “It is clear that there cannot be any renegotiations”.
Economists polled by Reuters expect the European Central Bank will wait until the fourth quarter to raise its deposit rate, later than thought just a month ago. They also consider the chances of a euro zone recession have grown.
Reuters polls since June 2018 have predicted that after ending its asset-purchase programme, the ECB would follow with a rate rise in the third quarter of 2019, in line with the ECB’s own guidance. But that has been put off track by a barrage of weak data.
Sweden is finally looking closer to getting a new government after four months of political deadlock following elections. Parliament is due to vote today to give outgoing PM Stefan Lofven a new term after his Social Democrats struck a policy deal with the Centre and Liberal parties. The Left Party said it would abstain, giving the former welder and union leader just enough backing to be elected.
MARKETS AT 0755 GMT
World shares have inched higher and are just off five-week highs following a Wall Street Journal story that the United States is considering reducing tariffs on Chinese imports. The U.S. Treasury later denied the story, but it’s been enough to sustain momentum after Wall Street closed almost 1 percent higher last night, led by trade-sensitive industrial stocks.
Clearly, markets have chosen to interpret this as another sign a U.S.-China trade deal is nearing. MSCI’s index of global shares is up for the fourth week in a row, its longest weekly winning streak in six months. Mainland Chinese shares have roared ahead, up almost 1.5 percent on the day, and Japan's Nikkei has hit a one-month high.
Any trade thaw will be crucial for China which has already displayed signs of slowing economic momentum and data on Monday is expected to show fourth-quarter growth at the slowest since the 2008 financial crisis. The trade optimism has not budged the yuan, though, and it’s down this week, snapping a three-week run of gains against the dollar.
The dollar itself has edged higher on the news, touching the highest versus the Japanese yen since Jan. 2 as demand for safe-haven assets waned. Bond yields in the United States and Germany also rose, with 10-year Treasury yields just off three-week highs.
But in a reminder of the downside risks still facing the world economy, Japanese core inflation slowed again, showing that the BOJ’s 2 percent target remains elusive. China has downgraded its 2017 growth figures, too.
On the Brexit front, sterling is ensconced above $1.29 and while weaker this morning it has so far made its best weekly gain since early November. Markets appear increasingly confident a no-deal Brexit will be averted, a second referendum held and an opinion by EU lawyers that the UK can extend Article 50 without participating in the European Parliament elections could be making investors even more confident that a delay and a soft Brexit are the most likely outcomes.
Prime Minister Theresa May’s Plan B and amendments to the motion will be voted on by parliament on Jan. 29 after being presented on Monday. Are markets over-complacent? Implied sterling volatility has declined below 11 for the first time since November, part of a steady decline in recent weeks. Later in the day, retail sales data for December could temper some of the optimism after below-forecast inflation earlier this week.
Also on the data front, U.S. industrial production may show another increase in December, but a consumer confidence survey from the University of Michigan for January might be more interesting if it shows any negative repercussions from the U.S. government shutdown.
Trade war optimism is expected to lift European stock markets this morning after boosting shares on Wall Street and Asia. Futures on both sides of the Atlantic are up, even if the rises are not in the irrational exuberance league: up 0.6 pct at the most for the Ibex. The UK retail data will be key for retailer shares, with British high street and its flagships under so much stress.
In corporate news, M&A is spicing things up in the telecom sector with France’s Orange reportedly considering a bid for Spain’s Euskatel. Telecom Italia has said it expects 2018 core earnings to drop by less than 5 pct.
As the earnings season starts to build up in Europe, expectations are low. According to I/B/E/S Refinitiv, fourth-quarter earnings per share for STOXX 600 companies are expected to have grown by 6 percent, more than half the levels seen in the third and fourth quarters of 2017.
Irish low-cost carrier Ryanair on Friday cut its forecast range for full-year profit, foreseeing winter fares to drop more than previously expected. Another development on the Ghosn/Renault with news the CEO improperly received 7.8 million euros in compensation from a joint venture between Nissan and Mitsubishi. Italy's Banca Carige has filed a request to tap a state guarantee for an upcoming bond issue.
Emerging-market stocks are up 0.6 percent to a 1 1/2-month high with the index on track for weekly gains for a fourth straight week. Chinese stocks lead gains across Asian bourses with the mainland CSI300 jumping 1.8 percent and Hong Kong up 1.1 percent.
With the dollar clinging to recent gains, the picture for emerging-market currencies is much more mixed with Turkey’s lira and South Africa’s rand softening 0.3 percent. Russia’s rouble strengthened, supported by Brent oil prices rising above $60 per barrel. China’s yuan strengthened in onshore trading but weakened offshore.
— 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 —