September 15, 2017 / 7:21 AM / 10 days ago

Daily Briefing: Sterling and euro - the tightening

FILE PHOTO: A shop cash register is seen with both sterling and euro currency in the till at the border town of Pettigo, Ireland

LONDON (Reuters) - Yesterday's Bank of England meeting focused minds on the prospect of its first interest rate hike in a decade, with some betting it could now come as early as its next meeting on Nov. 2.

Data this week showing above-target inflation and unemployment at a four-decade low prompted Governor Mark Carney to say the chance of a rate hike had "definitely increased".

Today we hear Gertjan Vlieghe, the British-Belgian economist seen as one of the most dovish of the bank’s policymakers, at a conference in London. If even he acknowledges the imminence of a tightening, markets will get the message.

Euro zone finance ministers gather in the Estonian capital Tallinn to hold what in EU parlance are known as “informal talks” (ie. no formal decisions are expected) on the euro zone economy and Greece, whose latest bailout ends in the middle of next year, by which time the country is to return to full market financing.

In the same city, hawkish European Central Bank board members Yves Mersch and Sabine Lautenschlaeger will speak at a conference. They will be pressed for any insights into the ECB's deliberations on winding down QE, which a Reuters poll today shows is now firmly expected to be announced next month.

Entering the final lap of her re-election campaign, Germany's Angela Merkel has a surprisingly full agenda. A delicate meeting with the Emir of Qatar, whose country is in political crisis after four other Arab states cut ties with Doha, is followed by talks with new French Prime Minister Edouard Philippe and a joint news conference.

MARKETS

North Korea's latest missile test has seen some demand for low-risk assets such as gold and government bonds but overall the impact has been limited. Regional shares dipped early on but later reversed course. South Korea's KOSPI index is up 0.3 percent and Tokyo closed up 0.5 percent as the dollar held firm against the yen.

U.S. Treasury yields are down after rising on Thursday when above-forecast U.S. inflation data raised expectations of a third interest rate rise this year from the Federal Reserve. German 10-year yields are also lower, down 1.1 basis points at 0.41 percent.

European stock markets were set to dip only slightly, with stronger oil prices providing support. Euro zone stocks were headed for their strongest week since the start of May while the broader index, including the UK and Nordics, was set for its best weekly gains in two months, fresh from Thursday's five-week high as it recovered from a summer dip.

Goldman Sachs strategists said the region continues to attract investors concerned about rich valuations elsewhere, with strong inflows from international and European investors. The STOXXE has outperformed the STOXX year-to-date despite analysts and investors predicting the stronger euro might dent company earnings.

Nestle's purchase of high-end U.S. coffee company Blue Bottle echoed Amazon's Whole Foods Market acquisition in highlighting the shift in consumers' tastes away from processed foods, a trend fast-moving consumer goods firms such as Nestle are fighting to catch up with. The Swiss company behind Nescafe and Nespresso would have benefited from a weaker dollar making the $425 million price tag cheaper in Swiss franc terms -- the USD/CHF rate hit a two-year low last week.

In other company news and potential stock movers: Credit Suisse reaches $79.5 mln settlement with MassMutual in RMBS case; JD Wetherspoon anticipates trading outcome for current FY in line with expectations; Energy firms battle startups to wire Europe's highways for electric cars; Air Berlin says decision on bids to be taken Sept. 25; France's Engie gets two bids for coal-fired power plant in Australia –sources; H&M Q3 sales growth matches expectations at 5 percent.

The dollar is down 0.1 percent against a basket of currencies. The yen, often bought in times of geopolitical tension, even though in this case Japan is in the firing line, is down 0.3 percent at 110.59 per dollar. The euro is flat at $1.1918 and sterling, which hit a one-year high on Thursday after the Bank of England warned interest rates may rise in coming months, rose further. It was last up 0.3 percent at $1.3431.

Gold edged higher in a knee-jerk reaction to the missile test but gains were limited by the prospect of dollar-boosting Fed rate hikes. It was last up less than 0.1 percent at $1,330 an ounce. Copper saw some demand, rising 0.4 percent at $6,520 a tonne.

Oil dipped but was on track for a weekly rise on expectations of stronger global demand. Brent crude fell 22 cents to $55.25 a barrel.

Emerging market equities edged up 0.2 percent and were on course to end the week up almost 1 percent with Asian markets showing little sustained reaction to the missile launch over Japan. South Korea shares rose 0.3 percent, ending the week up 1.8 percent, whilst index heavyweight Taiwan gained 0.25 percent.

Chinese stocks remained constrained by Thursday’s disappointing data, but China’s yuan firmed 0.2 percent. It was still set for its biggest weekly loss since November on speculation that the central bank may be looking to slow its rapid gains.

The Russian rouble was steady ahead of a central bank meeting at which it is expected to cut rates by 0.5 percent to 8.5 percent on the back of lower inflation. S&P Global is also set to review Russia’s sovereign rating later, currently at BB+/Positive.

Venezuela said it would make all pending debt payments despite difficulties that have arisen as a result of financial sanctions applied by the United States. Brazil’s President Michel Temer is facing new charges of obstruction of justice and racketeering. Temer rejects all allegations of wrongdoing.

Editing by Catherine Evans

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