July 27, 2018 / 7:37 AM / in 3 months

Daily Briefing: May hopes to hit the right Brexit notes in Salzburg

LONDON (Reuters) - Theresa May travels to the Salzburg Festival in Austria for a performance of “The Magic Flute” and talks with her opposite numbers in Austria and the Czech Republic, having announced she is taking direct control of the Brexit negotiations.

Britain's Prime Minister Theresa May visits the Royal Welsh Show in Llanelwedd, Wales, July 26, 2018. Christopher Furlong/Pool via Reuters

May will seek to persuade Sebastian Kurz and Andrej Babiš that the compromise deal she (just about) got through her cabinet can fly, whatever the reservations of Michel Barnier.

The EU's chief Brexit negotiator rejected key elements of her trade proposals on Thursday and appeared unimpressed by May's tactic of sending her ministers around the bloc to champion her vision of life after Brexit.

With eight months to go to Departure Day, it’s still anyone’s guess whether Britain will crash out of the European Union on March 29 or manage a more orderly exit.

May doesn’t have much wiggle room. She is boxed in by Eurosceptic hardliners and increasingly assertive pro-EU lawmakers in her own party; the opposition Labour party is also split on the issue, though to a lesser degree; parliament, where no party holds an outright majority, is deeply divided on the issue and appears to have little appetite for a hard Brexit.

Public opinion also seems to be shifting, the latest polls suggesting voters now favour a second referendum on any deal struck with Brussels.

That will be music to the ears of the Remainer camp, which has been crying foul over the Leave campaign’s tactics in the 2016 referendum.

MARKETS

So maybe the FAANGs do have some bite in them after all. At least one of them does, as Amazon chalks up bumper profits and forecasts strong sales for the second half of the year.

Shares in the world’s largest online retailer jump 3 percent in after-hours trade, partly offsetting the tech gloom earlier in the week when Facebook shares plunged 20 percent on the back of its earnings and outlook.

The Nasdaq fell 1 percent on Thursday - its biggest fall in a month - and the S&P 500 fell too, but the Dow rose.

World stocks are slightly higher on Friday and on track for a sixth straight session without falling, a run not seen since February.

Attention now turns to Q2 U.S. GDP data later on Friday. The consensus forecast is for a solid 4.1 percent annualized growth rate but the range is wide – JP Morgan going for 3.9 percent, Barclays 5.2 percent.

Economists do agree, though, that the data will be inflated by one-off factors and growth will fall back to 2-2.5 percent range.

Elsewhere, the euro is on the defensive, under $1.1650, after ECB chief Mario Draghi reiterated on Thursday that rates will be kept at record low levels “through the summer” of next year, meaning he may even end his eight-year term as ECB president in October next year without ever having raised rates.

General view shows a BP petrol station in Kloten, Switzerland October 3, 2017. REUTERS/Arnd Wiegmann

The U.S. 10-year yield is nudging back up towards 3.0 percent, and oil is slightly in the red.

European shares are set to stabilise at the six-week highs reached in the previous session after a U.S.-EU trade truce diminished the prospect of US tariffs on European autos, with a number of solid earnings updates likely to provide fresh support today.

Futures on main country indexes were trading between flat and a rise of 0.3 percent.

Deutsche Bank strategists highlight that with 40 percent of market cap having reported so far, European second-quarter EPS growth has accelerated to 6 percent from 0 percent in the first.

They say this is a good result, given the deterioration in euro area growth momentum seen in the period.

Results and other stock movers: The auto sector could find some more relief after French car maker Renault achieved record profitability in the first half as emerging-market sales surged, more than offsetting exchange-rate challenges.

Investors may also take some comfort from Amazon’s strong results following the grim update from Facebook which hit hard the Nasdaq overnight.

In the UK, eyes will be on BP after the oil group  agreed to buy U.S. shale oil and gas assets from global miner BHP Billiton for $10.5 billion.

Axel Springer confirms guidance as Business Insider turns profit; Spain's BBVA Q2 profit jumps on upbeat Mexico show; Britain's BT 'making progress' as Q1 earnings edge up; Reckitt quarterly sales rise on acquisition boost; LafargeHolcim restructuring, Africa troubles dent H1 profit; Wintershall makes up for weaker speciality margins at BASF; Switzerland's Vontobel lifts 2020 goals after buying private bank Notenstein; Food group Danone's Q2 sales growth slows as Morocco boycott weighs; Eni confirms production targets as Q2 profits miss forecast; French group Vinci keeps upbeat outlook as H1 profit rises.

Emerging stocks looked set to end the week up 1.8 percent although this headline disguises a mixed performance in individual bourses.

Indian shares hit a fresh record high, while Chinese mainland shares retreated as investors eyed the simmering trade dispute with the U.S..

The yuan weakened 0.35 percent, with investors raising their bearish bets on the currency to an all-time high.

The Turkish lira firmed 0.4 percent, but is set to end the week down over 1 percent in the wake of a central bank meeting that saw rates stay on hold, defying expectations.

Friday’s weakness followed threats from U.S. president Trump to slap sanctions on Turkey unless it frees an American pastor, prompting an angry response from Ankara.

Pakistan’s rupee firmed 1 percent after Imran Khan declared victory in the general election, with a big enough share of the vote to avoid a messy coalition.

Pakistan shares also rallied another 0.7 percent to over one-month highs, set for a weekly gain of 2.9 percent.

A look at the day ahead from EMEA Head of Desk Jon Boyle and EMEA Markets columnist Jamie McGeever. The views expressed are their own. 

Editing by Hugh Lawson

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