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Daily Briefing: Merkel wards off Schulz as election nears
September 4, 2017 / 7:08 AM / in 3 months

Daily Briefing: Merkel wards off Schulz as election nears

LONDON (Reuters) - Entering the home straight in her bid for re-election on Sept. 24, Angela Merkel has cleared what could be the last big obstacle to a fourth term as chancellor by seeing off her main challenger in a TV debate.

Journalists watch a TV debate between German Chancellor Angela Merkel of the Christian Democratic Union (CDU) and her challenger Germany's Social Democratic Party SPD candidate for chancellor Martin Schulz in Berlin, Germany, September 3, 2017

Snap surveys carried out after the encounter suggest the left-leaning Martin Schulz failed to make any significant inroads: He managed to bounce Merkel into toughening her position against Turkey joining the EU, but did not appear to damage her with attacks on her handling of the migrant crisis of the past two years.

Still, Merkel is not home and dry yet: a poll released before the debate showed Schulz's party narrowing, albeit slightly, Merkel's lead; and there are still plenty of voters out there who have yet to make up their mind. And even assuming Merkel emerges victorious, the current configurations suggest that building a coalition will not be easy.

The EU's Brexit negotiator Michel Barnier will report back to the European Parliament today after last week's acrimonious round of negotiations with his UK counterpart David Davis. There is a lot of talk, as yet unconfirmed, that Britain wants to accelerate the rhythm of a process that has yielded little evidence of progress so far.

British foreign minister Boris Johnson hosts his Nordic and Baltic peers today to assure them that Britain's determination to help them ward off "Russian antagonism" will remain undiluted by Brexit. Odd that Britain feels the need to give such security assurances given that it is leaving the EU, not NATO - but perhaps it feels making such a gesture may win it much-needed friends.

On the big global story, the U.N. Security Council meets on North Korea and its latest nuclear test today around 1300 GMT. Paris and Berlin are out calling for tougher sanctions against Pyongyang; Moscow has said the existing ones don't appear to have changed much.

MARKETS

Markets reacted predictably to North Korea’s latest nuclear test at the weekend, playing all the traditional geopolitical hedges like buying gold, Swiss francs, Japanese yen and top rated government bonds and pulling back from relatively risky assets such as equities and emerging markets at large.

Although the test itself, the U.S. pledge of a ‘massive’ military response if threatened and South Korea’s expectations of further missile tests by the North all ratchet up the tension again in this long-running stand-off, the market moves so far do not yet suggest this is seen as a watershed and many expect the price shifts to dissipate quickly again unless there’s some indication of a U.S.-led military action.

On the other hand, there is some surprise at the relative speed of events and this will keep some tension in all related trading even as the rest of the week’s major events jockey for attention. The absence of U.S. markets for a holiday there may skew the reaction somewhat too as Wall Street’s reaction is awaited.

South Korea equities clearly underperformed in Asia, with the Kospi index losing 1.2 percent. Japan’s Nikkei lost about 0.9 percent, hampered by the yen’s gains and dollar/yen’s retreat back below 110. The dollar index was down more broadly, with Treasury bond futures higher. European and U.S. stock futures are down about 0.4 percent.  Euro/dollar was firmer, but is struggling to recapture $1.19 after the unexpectedly strong U.S. factory survey on Friday offset a disappointing employment report and dragged the currency pair lower.

The big event of the week beyond North Korea is the European Central Bank meeting on Thursday. While the euro has been bid in recent weeks in expectation of some future tapering in the ECB’s bond-buying programme, reports last week suggest the euro’s strength itself may be one reason the central bank postpones any tightening signal or move and few now expect a major announcement this week.

editing by John Stonestreet

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