LONDON (Reuters) - Trade tensions and the stand-off over Iran will dominate world headlines over the next 48 hours, with much of the action taking place at the G20 summit in Osaka, Japan.
U.S. President Donald Trump has an array of one-on-one meetings planned for the event, with the spotlight on his Saturday encounter with China's Xi Jinping.
European Union leaders in Osaka warned earlier on Friday against the damage that escalating U.S.-China trade friction was inflicting on the global economy, but for now they are largely bystanders to the main Trump-Xi event.
Concerns that Iran is close to breaching enrichment thresholds in its 2015 nuclear deal will also set much of the tone of the meeting, with some diplomats estimating that breach could come at some point this weekend.
In Vienna, officials from the countries that signed the 2015 pact will meet today in what Tehran has termed a last chance to save the agreement, which eased sanctions on Iran in return for curbs on its nuclear activities.
Figures out this morning are expected to show that Britain’s current account deficit widened sharply in the first three months of 2019 as companies rushed to build up stocks ahead of the original Brexit deadline in March.
That comes as the Times reports that Boris Johnson, if confirmed as prime minister, is considering an emergency tax-slashing budget in September combined with an assault on regulation to give the economy a massive steroid hit in the event of a no-deal Brexit weeks later.
MARKETS 07:55 GMT
Will they, won’t they? On the last trading day of the first half of 2019, world markets are in thrall to the G20 meeting in Osaka, with all eyes on the planned meeting between Presidents Donald Trump and Xi Jinping tomorrow.
Trump is apparently maintaining his threat to impose more tariffs on Chinese goods should the talks not do the trick, but hopes are that if not an actual agreement, the two men can find some common ground that allows them to keep talks open.
Trepidation about what might ensue has pushed MSCI’s index of world shares into negative territory for the week after three weeks of gains, though the index is still up 14% as we enter half time for the year.
Asian ex-Japan stocks are down a quarter percent as are Tokyo markets; mainland Chinese shares are off 0.6%. Wall Street ended up last night and futures indicate a stronger open. The SPX is up 17% this year (did anyone mention slowing growth and trade wars?).
In China, the central bank has again pledged to support a slowing economy as global risks rise – it does look as if data expected on Sunday will show China's factory activity slowed for a second consecutive month in June. Korea again highlighted the risks to the world economy, with data showing industrial output contracting 1.7%, or three times more than expected.
With growth and trade worries running high and the risk of military action between the United States and Iran, gold is flying high and is set for its best month in three years, having risen 8.5%.
The dollar is flat versus a basket of currencies but will end this quarter with losses after rising for four quarters straight, following the Federal Reserve's dovish pivot. However, it has recovered from five-month lows against the yen for a 0.3% weekly gain after Fed Chairman Jerome Powell, among others, cast some doubt on the likelihood of swingeing rate cuts this year.
Similarly, euro-dollar is flat today, but the single currency is on track for its best month since early 2018, thanks again to the Fed pivot.
Speaking of the euro zone, the bloc’s June flash inflation report is due – remember that in May, core and headline inflation disappointed markets. But after the disappointment of German inflation yesterday – a 1.3% rise year-on-year, or flat on last month, no one expects great things today.
Ten-year German yields are already near record lows, so a shocker could well push yields even lower, reinforcing expectations for more policy easing by the European Central Bank this year.
Across the Atlantic, the personal-consumption-expenditures report (the Fed’s preferred inflation gauge) for May is forecast to come in at 1.6%; the fear is that April’s already lacklustre number will be revised lower. All in all, it’s expected to show the Fed’s 2% inflation target is still distant.
Markets will also watch British gross domestic product data, which may confirm 0.5% growth in the first quarter or yearly growth of 1.8% in the first quarter, the strongest since the last quarter of 2017. But it will take a lot to move sterling, which is focused on the Tory leadership race.
Finally, let's not forget this Sunday’s European Union summit. The European Council will wrangle over who might head the Commission, and the ECB presidency is also in play.
Bond yields are flat, but it’s been a great year for bond funds so far, with 10-year U.S. Treasury yields down 60 bps. German yields started the year at 0.15% and are now minus 0.3%. European stock futures are indicating a flat or lower start to trading this morning as investors look for the chances of a truce between Beijing and Washington.
Eurostoxx 50 futures are flat, Paris up slightly and the trade-sensitive DAX gaining, lifted in part by Deutsche Bank. Osaka nerves are likely to keep trading subdued while some investors lock in profits before the end of the month and quarter. The pan European STOXX 600 has so far risen about 3.5% this month, 0.8% for the second quarter and 13% year-to-date.
The standoff between Switzerland and the European Commission over a stalled partnership treaty has hardened overnight, with the Swiss government triggering measures to counter Brussels' refusal to extend recognition to Swiss stock markets just days before a ban is due to implemented.
The main headline this morning is news that a consortium including the investment vehicle of Lego's founding family and private-equity firm Blackstone have swooped on Madame Tussauds owner Merlin Entertainments in a deal valuing the company and its debt at nearly 6 billion pounds. That's about a 15% premium to yesterday's closing price.
The move will be one of the biggest private-equity deals in Europe in recent years, and comes as buyout firms are flush with record amounts of cash to invest.
Deutsche Bank shares are up almost 4% in pre-market trade amid relief Germany's top lender passed the latest U.S. banking stress test. Credit Suisse shares are down slightly after the U.S. central bank placed conditions on its U.S. operations after finding weaknesses in its capital planning.
In earnings, weaker-than-expected results from Nike, the world's sportswear maker, may pressure European rivals Adidas and Puma and UK sports retailer JD Sports. Orange shares may rise after France's leading telecoms operator said it plans to sell its entire 2.5% stake, worth about 500 million pounds, in UK telecoms group BT.
In emerging markets, MSCI's main equity index was flat, with Chinese blue chips down 0.4%. Emerging-market currencies on Friday had their best day in more than a week; China's yuan rose against the dollar in thin trade. In Turkey, the lira remained stable before a meeting between President Tayyip Erdogan and Trump over the latter's purchase of the S-400 defence system.
Growth in private-sector credit demand in South Africa slowed to 7.66% in May, central bank data showed. Kenya will release first-quarter GDP data and Mexico’s central bank left its benchmark interest rate unchanged on Thursday, as expected.
— 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 —