June 14, 2019 / 8:08 AM / 3 months ago

Daily Briefing: Heavy going for Macron on Europe

LONDON (Reuters) - It's been a tough week for Emmanuel Macron on Europe. Yesterday Nathalie Loiseau, his gaffe-prone pick to run the liberal grouping in the new European Parliament, had to throw in the towel after making derogatory remarks about future potential colleagues.

French President Emmanuel Macron pays tribute to the three SNSM ocean rescue volunteers, Yann Chagnolleau, Dimitri Moulic et Alain Guibert, who died in a storm last week after their boat capsized, during a ceremony at Fort-Saint Nicolas in Les Sables d'Olonne, France, June 13, 2019. REUTERS/Stephane Mahe/Pool

Now, news emerging from finance chiefs' talks in Luxembourg suggest his goal of securing a separate budget for euro zone countries is at best heading towards a messy compromise.

One official said ministers failed to agree whether the joint kitty should be financed through dedicated taxes or just draw on cash from the budget for the whole 28-nation European Union — meaning the actual size of the budget itself was not discussed.

Neither was there agreement on whether the budget could be used to come to the rescue of the region’s economy in a downturn. A French statement points out, however, that it is in itself a breakthrough that a joint budget has been agreed that can be used to bring the economies of the 19-country zone closer together.

That may be true, but at this stage it seems a long way off the grander hopes nurtured for the project when Macron first came to power - which had commentators speculating that it could be the start of moves to create a hard core of EU nations intent on even closer integration.

Boris Johnson's stronger-than-expected showing in the first round of the Conservative Party leadership race means the focus now is on how to come up against him in the run-off.

PM hopeful Boris Johnson leaves his home in London, June 14, 2019. REUTERS/Hannah Mckay

The Guardian reports that rivals are in discussions about the possibility of joining forces to challenge him: Members of Health Secretary Matt Hancock's team have spoken privately to advisers to fellow ministers Michael Gove and Sajid Javid to discuss a possible alliance, it said.

That could suggest that Hancock, one of the lowest scorers in the first round, will say he is dropping out of the race and announce whom he will back.

Women in Switzerland are going on strike today to fight for rights and equal pay, nearly 30 years after a historic strike in 1991.

Women are being urged to stop working at 1324 GMT, the point in the working day at which, given salaries 20 percent lower than those of male counterparts, they are effectively providing their services for free.

MARKETS AT 0655 GMT

We have a trade war, but could we also be heading for a real war? Stocks are off and bonds are rallying again after the United States accused Iran of engineering the Gulf tanker attacks and sent a guided missile destroyer to the Gulf of Oman to join another U.S. destroyer.

Attacks on two oil tankers on Thursday in the Gulf of Oman left one ablaze and both adrift, driving oil prices up over worries about Middle East supplies. ISNA/via REUTERS

Brent soared 4.5% on Thursday and is up half a percent this morning. World stocks are choppy, with Shanghai slumping 0.7% and a pan-Asian share index down 0.3%. Bond markets are firmer again, with U.S. 10-year yields at a one-week low and German Bund heading back for a test of its 2016 lows.

Gold is at 14-month highs. In the other (trade) war, Chinese data showed industrial output at its weakest in 17 years in May, though retail sales beat expectations and grew 8.6%. That will please investors who had been hoping retail sales would show improving domestic demand.

However, stocks markets still are set to finish the week in good shape – world stocks are due for a second week of gains, up around 4% this month. But that’s thanks to growing expectations of easier monetary policy around the world.

In the United States, almost 30% of traders have started betting on a cut at next week’s Fed meeting. The Swiss National Bank has joined the movement, reacting to the safe-haven franc’s recent rise to two-year highs against the euro.

However, European shares are opening lower after a warning by U.S. chipmaker Broadcom, which is taking a toll on the IT sector, with chipmakers down 2% to 3%. The dollar is flat ahead of next week’s Fed meeting but up half a percent for the week and the yen is on track for a small weekly gain.

The Aussie, highly correlated to Chinese growth, is down at three-week lows to the dollar. In other words, stay safe before next week’s big central bank events – Fed aside, we have the Bank of Japan, Bank of England and the European Central Bank’s annual conference in Sintra.

But data due later today could swing the pendulum. With Chinese numbers out of the way, we will look out for U.S. May retail sales, industrial output and the University of Michigan survey.

In the UK, BoE Governor Mark Carney is due to speak, and the BoE is probably the only central bank in the world that still insists it might raise interest rates; the problem is nobody believes it. Carney is unlikely to clear the confusion.

In Europe, Italian industrial orders may cast light on the health of the euro zone’s laggard economy. In emerging markets, Russia’s central bank is widely expected to cut rates for the first time in over a year. Its 10-year bond yields are at their lowest since last July.

European shares are reversing earlier signs of strength after Broadcom’s warning overnight that the U.S. ban on Huawei and the broader U.S.-China trade conflict will hurt its revenues.

The news from the first chipmaker to disclose the impact of the Huawei sanctions will reignite worries, brushed aside in recent days as investors have pinned hopes on loosening monetary policy this week, about Washington’s protracted conflict with Beijing before a G20 summit and much-anticipated meeting between Trump and Xi.

It also dashes hopes, flagged by chipmakers in first-quarter earnings, of a recovery in second-half demand. Infineon, Dialog Semiconductor and AMS shares are all down in pre-market trading.

It's relatively quiet elsewhere. Swiss Re may bring some cheer to the lean IPO market - the Zurich-based insurer has confirmed it wants to float its $4.5 billion UK life assurance business ReAssure with a listing on the London Stock Exchange in July.

Kier shares are seen rising 2% to 5% after The Times reported it was considering selling its housebuilding unit. Recruiter SThree shares are expected to rally after it reported a rise in first-half profits, bolstered by double-digit growth in its international markets.

In emerging markets, fears of the trade war fallout hit risk assets. Stocks extended losses for a third day and many currencies were under pressure. China mainland stocks were down around 1% before data from Beijing that may provide more clues on damage done by the trade war.

Currencies paint a mixed picture with China’s yuan weakening for a third straight day. South Africa’s rand gained 0.3%. Russia’s rouble was on track for weekly gains before its central bank meeting, which is to deliver its first rate cut since March 2018.

Turkey’s lira eked out small gains before current account data, but the currency is on track for weekly losses.

— 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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