July 3, 2017 / 7:27 AM / 5 months ago

Daily Briefing: Franco-German motor revs up

LONDON (Reuters) - Saturday's tribute in Strasbourg to the late Helmut Kohl as a driving force in European unity was also marked by grim determination by Angela Merkel and Emmanuel Macron to pick up from where he left off.

German Chancellor Angela Merkel arrives at the funeral of late former German Chancellor Helmut Kohl in Speyer Cathedral, Germany, July 1, 2017. REUTERS/Arnd Wiegmann

Today the French leader may give more clues as to how he proposes to live up to his side of the bargain at a joint session of the lower and upper houses of parliament in Versailles. A big part of that will be getting French public finances into line with EU budget rules: his compatriot Pierre Moscovici, the European Commission's economics chief, got in quick this morning with a pre-emptive rejection of any future French request for a delay in hitting the bloc's targets.

Germany's Merkel meanwhile holds a news conference this morning to set out the conservative bloc's election manifesto. A major plank of that will be a promise, scarcely fathomable in most of the world's economies, to achieve full employment by the year 2025.

Economists tend to define full employment as a state in which virtually all those who are able and willing to work are employed and Merkel’s CDU says that equates in the German economy to a jobless rate of three percent or less. That compares to 5.5 percent now and has not been achieved since Germany’s post-war “economic miracle” started tailing off in the mid-1970s. Yet such is the buoyancy of the euro zone’s largest economy that - combined with the ageing of the population that is already creating labour shortages in many sectors - such a target appears within reach.

In the UK, Northern Ireland minister James Brokenshire will tell parliament this afternoon what the government’s plans are after Northern Irish parties fail to reach a deal to restore the province’s power-sharing agreement. He could call a new election or re-impose some form of direct rule from London, but he will more likely set another deadline for the talks.

PM Theresa May's office meanwhile are scratching their heads at a media report suggesting Donald Trump will in coming days pop over to the UK for a surprise visit including a round of golf at his Scottish resort. Given May's domestic woes and the latest antics of the U.S. president - tweeting a bizarre video mock-up of himself punching a man with a CNN logo for a head - such a visit would be the last thing she needs.

French President Emmanuel Macron delivers a speech next to former French President Nicolas Sarkozy during of a memorial ceremony in honour of late former German Chancellor Helmut Kohl at the European Parliament in Strasbourg, France, July 1, 2017. REUTERS/Francois Lenoir


The second half of 2017 has kicked off with a bit of a snooze on stock markets after the central bank fireworks of last week, but there appears to be little doubt in investors’ minds that monetary policymakers are tightening up. The U.S. Independence Day holiday on Tuesday may make for subdued trading volumes in the early part of the week but long-term bond yields continue to nudge higher.

German soldiers carry the coffin of late former German Chancellor Helmut Kohl during of a memorial ceremony at the European Parliament in Strasbourg, France, July 1, 2017. REUTERS/Francois Lenoir

German 10-year bund yields pushed to their highest since mid-March, just under 0.50 percent as Bundesbank chief Weidmann on Saturday underlined last week’s change of tone from the European Central Bank and said the ECB is working on moving away from its ultra-easy monetary policy. Another hawkish convert from last week, Bank of England chief Carney, is due to speak later on Monday – albeit in his role as head of the Financial Stability Board ahead of this week’s G20 summit.

Ten-year gilt yields are testing their highest levels since the middle of March as well, around 1.30 percent. And U.S. Treasury yields too are caught up in the mantra of tighter money, with 10-year yields there hitting mid-May highs at 2.33 percent. Adding to the pressure on bond markets was the ongoing rebound in oil prices, where Brent crude jump to $49 per barrel for the first time since June 12. Euro/dollar is down slightly, just above $1.14, and sterling is also off a touch and struggling to hold $1.30.

Despite the brief wobble on equity markets last week, stocks seem far more comfortable on Monday. Wall St stocks closed in the black on Friday, and Asia bourses were nearly all marginally higher overnight too. Euro stocks are expected to open up a hefty 0.7 percent, recouping a chunk of last week’s outsize losses.

June manufacturing surveys around the world are due for release throughout the day, with Asian reports mostly upbeat so far. China’s private-sector PMI reading was at its highest in three months, even though there were mixed signals on confidence going forward.

Qatar's stock market was expected to stabilise on Monday after heavy losses of the previous day as the deadline for the country to comply with a set of demands by four Arab states was extended by two days to Tuesday night.

Editing by Andrew Heavens

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