December 21, 2018 / 8:30 AM / 6 months ago

Daily Briefing: Spaniards get long-awaited wage boost

LONDON (Reuters) - (Morning Bid Europe will not be published through the year-end holiday season from December 24, 2018 to January 1, 2019. Normal service will resume from January 2, 2019. Season’s Greetings and Happy New Year.)

Spanish Prime Minister Pedro Sanchez speaks during a session at the Senate in Madrid, Spain, December 18, 2018. REUTERS/Susana Vera

It is a big day today for Spain's Socialist PM Pedro Sanchez and his drive to consolidate power in a series of elections due next year.

Spain chose the low-cost economy route out of the financial crisis of 2008/09, slashing wages to create a competitive advantage that attracted business but left many Spaniards struggling to make ends meet.

Sanchez today will decree a 22 percent rise in the minimum wage that will take it from being among Europe’s lowest to one of the highest.

Such decrees are among the few policy levers that Sanchez and his minority government have at their disposal, given their lack of a majority in parliament.

The IMF and business groups say the move will lead to job losses while the OECD think tank is more positive about it; time will tell whether Spain can successfully move its economy up the value chain.

More immediately, Sanchez is pursuing his more conciliatory approach to Catalonia's independence drive as he takes his cabinet to Barcelona for a meeting. With separatist protests planned, there will be a heavy police presence.

On the eve of the meeting, Sanchez and Catalan leader Quim Torra expressed a commitment to dialogue in a symbolic joint declaration to ease tensions.

Although firmly against independence, Sanchez knows even small concessions on Catalonia are politically dicey for him, with conservative critics waiting to accuse him of weakness.

Next door, Portugal is due today to release budget data that will show it is well on track to getting its public finances in shape - the government is targeting a full-year deficit of 0.7 percent of GDP that would be the lowest in its democratic history.

Not all are happy, however, and today will also see protests inspired by France’s “yellow vests” movement hit the streets of the main cities.

Nurses, teachers, prison guards, firefighters and judges have already staged walkouts and street protests in recent weeks and days, demanding better salaries and contract terms.

The left-leaning government insists such demands are normal in an economy that is seeing solid growth and points out that it has already raised the minimum wage and cut some of the austerity measures of the previous, centre-right administration.

London's Gatwick Airport has finally reopened this morning after a drone saboteur brought travel chaos for hundreds of thousands of Christmas travellers and highlighted authorities' lack of preparedness for such threats. The operator of the drones has not been found but the airport says extra unspecified "mitigating measures" from the government and military have allowed it to reopen.

Politico, meanwhile, reports on an option previously tested by Dutch police to use eagles to pluck the machines out of the sky - a tactic which, while spectacular, has not yet been deployed in Dutch airports.


It’s a sea of red out there today and the boats floating on it are those of potential US govt shutdowns, Fed tightening, growth scares and finally, a volley of intellectual property accusations against China by the US. Japan has gone deeper into bear territory, where the rest of Asia has already been languishing, and the US SPX fell 1.5 percent yesterday -- its lowest close in 15 months, while the VIX volatility index saw its highest closing level since early February’s Vol-ma-geddon episode.

And, who would have thought it, the mighty Nasdaq is just shy of falling into a bear market and the S&P 500 looks set for its worst quarter since late 2008. 

That could well happen today with US equity futures tipping a weaker open for Wall Street. 

World stocks are flat but set for the sixth lossmaking week and their worst month since May 2012.

European shares show some signs of steadying with a flat rather than “down” opening.

There’s a host of data out there including the US core PCE - the Fed’s preferred inflation measure - but overshadowing that is Friday’s midnight deadline for the Senate to approve funding for President Trump’s Wall. Failing that, the world’s biggest economy faces partial shutdown as early as Saturday.

Then there is the resignation – yet another – of Trump’s defence secretary Jim Mattis.

All these scares have been a boon for US treasury yields, now at their lowest since early April.

October’s seven-year high of 3.261 percent seems like a distant memory.

And with the 2-10 year yield curve flattening to as low as 9 bps, the recession signal is flashing.

It’s back at 12 bps, now and 10-year US yields are also a basis point higher, possibly reflecting the calm that seems to be creeping in.

German yields, too, are 2 bps higher today, but this might be just the calm before the US session.

Adding to the whole disinflationary impulse is oil, which slid another 4 percent overnight.

On currency markets, it’s been a rush back to the safe-haven yen; the dollar, following the dovish change to the Fed’s dot-plot of future policy signal, is set for a loss of one percent on the week against a basket of currencies, while against the yen it is set for the biggest weekly fall since Feb.

It’s just fallen one percent to the yen overnight. The talk now is of Japanese investors taking back their cash from US shares, which would be another downward impulse lower for the dollar – a classic risk-aversion development.

European stock markets are actually not looking that bad at the moment, with flattish/lower futures suggesting that bourses on the old continent are reluctant to rush into the footsteps of Wall Street traders.

Speculation about a U.S. government shutdown and Mattis’s resignation aren’t doing much for morale though, and nor are reports of hackers working for China breaching the networks of Hewlett Packard and IBM.

There are still some interesting headlines, particularly in M&A, with Delivery Hero selling its German food delivery operations to

More Renault/Nissan drama unfolding, with Japanese prosecutors re-arresting Carlos Ghosn.

For the miserable European banking sector, Danske Bank, at the centre of an alleged money laundering scandal, cut its 2018 outlook, citing challenging market conditions on financial markets.

Interserve also said it had agreed to key terms for its rescue plans with its lenders. 

And perhaps another sign that the gloomy 2018 isn’t gloomy by accident: European equity raising slowed sharply in 2018, making it the biggest drag on falling global activity.

Emerging stocks down almost 1 percent and 17 percent for the year but the weak dollar helps currencies higher — Brazilian real leads the rally in FX; the rand and lira are also up.

Uzbekistan gets BB- rating from Fitch that will pave the way for Eurobond issuance.

Crypto – bitcoin is down under $4,000 again but up 25 percent this week, after more or less weeks of steady losses.

A look at the day ahead from European Economics and Politics Editor Mark John and Sujata Rao-Coverley Deputy Markets Editor for Europe, Middle East and Africa. The views expressed are their own. 

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