February 16, 2018 / 8:41 AM / a month ago

Daily Briefing: May to Berlin for Brexit talks

LONDON (Reuters) - British Prime Minister Theresa May travels to Berlin on Friday to meet Angela Merkel, with frustration in Berlin and elsewhere growing over Britain's failure so far to spell out what it wants from a future relationship with the EU.

FILE PHOTO: British Prime Minister Theresa May is welcomed by German Chancellor Angela Merkel at the Chancellery in Berlin, June 29, 2017

That notwithstanding, Brexit is by no means the most pressing thing on Merkel’s agenda: not only is she still in the throes of forming a new government herself, but she is more focused on what reforms to the EU bloc will be needed once Britain has left; her talks with May come only after she has had meetings earlier in the day with the Italian and Polish prime ministers.

After Berlin, the British leader heads to a security conference in Munich where she will give a speech on Saturday on future security cooperation between Britain and the EU. She hopes that offering to keep some of its security arrangements with the bloc will help it win concessions on future trading relations.

While some market players are starting to price in the chance of four U.S. Federal Reserve interest rate rises this year, the wait for any hikes in the euro zone will much be longer, according to economists polled by Reuters. The consensus was that while European Central Bank will end its asset purchase programme by the end of the year, it will then wait six months before raising interest rates.

The argument is that although the euro zone economy is booming now, it is expected to start losing some of that momentum soon. And inflation is not due to reach the central bank’s target of just under 2 percent until at least 2020, the around 80 economists predicted.


People perform dragon dances on the first day of the Chinese Lunar New Year of the Dog, in Mianyang, Sichuan province, China, February 16, 2018

Traders will probably be relieved this week is coming to an end, especially given much of Asia is in New Year mode and the United States has a long weekend ahead.

A couple of interesting features of recent days: a) Wall Street apparently is reconciling itself with the uptrend in bond yields and b) the dollar looks like it is in for a rocky time, having well and truly de-coupled from the rising Treasury yields. So today, world stocks are at 10-day highs, on track for their biggest weekly gain since early October and now 5 percent off the Jan 26 record highs. (note: 2-yr Treasury yields have hit new 9-1/2 year highs and yields seem generally to be creeping up).

Nikkei is up 1.2 percent, snapping a three-week losing streak, following on from another strong New York session, where Apple, thanks to Warren Buffett, rose around 3 percent while Cisco posted strong results helping the SPX climb. Maybe earnings are helping: With three quarters of the S&P500 now reported, aggregate annual profit growth is running at a whopping 15 percent. It helped that 10-year yields kept off 4-year highs of 2.944 percent despite strong PPI and Philly Fed readings. European shares are opening higher and U.S. stock futures are up about 0.2 percent.

The dollar continues to limp along, having hit new 3-yr lows to a basket of currencies and set for the worst week since Feb 2016 while euro, yen and sterling are headed for decent weekly gains. On the data front, there are U.S. import prices, housing starts and University of Michigan consumer confidence. In the UK, all eyes will be on retail sales. After close of business, Greece could get an ratings upgrade from Fitch.

VIX which kicked off the recent blowout fell yesterday to the lowest since Feb 2 and possibly more interestingly, VIX futures too are easing off. Maybe calmer times are ahead? 

In other asset classes, Bitcoin is just under $10,000 having topped that level yesterday for the first time since Feb 2. Oil prices are at one week highs, with Brent up 3 percent this week after last week’s 8 percent slump. And copper too looks set for the best week in over a year, with a 6-8 percent gain

Editing by Toby Chopra

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