July 8, 2019 / 7:28 AM / 9 days ago

Daily Briefing: New PM for Greece as Tsipras punished for austerity

LONDON (Reuters) - Early results out of Athens suggest conservative Kyriakos Mitsotakis will be Greece's next prime minister, ousting Alexis Tsipras after four years which saw him accept and ultimately face punishment for a painful EU-enforced austerity programme.

Mitsotakis will be sworn in on Monday on a promise to cut taxes and chase growth via higher investments, but he will find his room for manoeuvre no less limited than it was for his predecessor.

A worker tries to remove a poster of outgoing Greek Prime Minister Alexis Tsipras at the Syriza party election kiosk in Athens, July 8, 2019. REUTERS/Alkis Konstantinidis

Although it is in the end of the Tsipras era, the reality check for Mitsotakis comes in September when, against a backdrop of still-crippling debt and unemployment, he is expected to outline the contours of next year’s budget.

"Brexit uncertainty is crippling business investment. We’re at risk of falling further behind our G7 competitors"

There is plenty of talk among Westminster lawmakers about ways to halt a no-deal Brexit, but it is failing to impress employers. A survey of chief financial officers released today shows that British companies are more worried about Brexit than at any time since the 2016 referendum and plan to reduce investment and hiring as a result.

The survey conducted by Deloitte found 83% of the CFOs believed leaving the EU would hurt the UK’s long-term business environment. Almost two thirds expected to cut hiring in the next three years as a result of Brexit and 47% expected to reduce capital spending.

Ukraine may have chosen a comedian as its president but now that president risks being upstaged by a rockstar. Sviatoslav Vakarchuk, the country's biggest name in rock music, is running for parliament in a July 21 snap election. His aim is to tap into the very same anti-establishment mood that brought TV comedian Volodymyr Zelenskiy into the presidency in April.

Vakarchuk’s songs were sung by protesters during both the 2004 Orange Revolution and the 2014 Maidan protests, and his image is broadly pro-Western and investor-friendly. Depending on how he fares, he could emerge as either a rival of, or potential coalition partner for, Zelenskiy.

MARKETS AT 0655 GMT

Heavy world markets are juggling a series of new plots first thing - another Fed rethink post payrolls, Turkey’s central bank chief’s ouster, Deutsche Bank’s downsizing, Morgan Stanley’s global equity downgrade and a win for Greece’s centre right New Democracy party in Sunday’s elections.

With little fresh optimism on the rekindled U.S.-China trade talks, the scaled-back Fed rate cut view after June’s above-forecast U.S. payrolls gain dominated.

As they await Fed chair Powell’s semi-annual congressional testimony on Wednesday and Thursday, futures markets now see little or no chance of a rate cut of more than 25 basis points later this month and there’s anxiety Powell could throw cold water on pricing for as much as 75bp of easing by year-end.

Although the headline payrolls gain flattered other parts of the report, including a rise in the unemployment rate and sub-par wage rises, it was enough to jar markets already edgy about overpricing of central bank easing ahead.

Wall St stocks dialled back from record highs on Friday to end in the red, with heavy losses in Asia bourses overnight seeing Shanghai drop 2.7%, Hong Kong fall 1.7%, Seoul off 2.2% and Japan’s Nikkei down 1%.

Ten-year U.S. Treasury yields slipped back toward 2% after popping back briefly above that level after the jobs numbers on Friday and the dollar’s DXY index held the bulk of Friday’s 0.5% gains.

Morgan Stanley’s decision to downgrade world equities to underweight ahead of the earnings season, meanwhile, reflected its belief that the global economic downturn is well entrenched regardless of the trade war and that central bank easing would not be sufficient to offset its impact on share prices.

The trading gloom was compounded by Deutsche Bank’s announcement that it was eliminating whole swathes of its equity trading business as well as some fixed income operations as part of swingeing downsizing of the investment bank involving some 18,000 job cuts overall.

The well-flagged restructuring of Germany’s biggest lender did not involve new capital raising and Deutsche’s shares climbed more than 5% in pre-market trade.

"Independent central bankers are under attack around the world. Turkey’s Murat Cetinkaya has become the latest casualty"

In emerging markets, Turkey’s lira lost more than 2% following President Erdogan’s surprise sacking of central bank chief Cetinkaya on Saturday for not cutting interest rates fast enough. In a set piece not lost on anyone watching the relentless White House pressure on Fed chair Powell to do likewise, Erdogan appointed central bank deputy Uysal as the new central bank governor.

The explicit threat to the central bank’s independence, amid Erdogan’s insistence that lower interest rates reduce rather than spur inflation, throws Turkey’s finances on the backfoot just as hopes of some easing of the year-long lira crisis was at hand and access to international lending markets was opening up again. MSCI’s emerging market currency index was lower.

In Europe, euro/dollar held firm above $1.12 first thing even as German May imports and industrial output came in below forecast. Exports were ahead of consensus, however. European stock futures pointed to a lower open.  Greek government bond yields held close to all time lows on Monday after a snap election which saw Greece's opposition conservatives return to power.

Elsewhere on the corporate front, earnings are starting to trickle in, and mostly don’t look too positive. Lubricant maker Fuchs Petrolub is down 7.3% in early Frankfurt trade after the company posted a profit warning on Friday.  That could also weigh on sector peer Elementis and Johnson Matthey, Solvay and Umicore, traders say.

French food services group Sodexo could be hit after it warned that some contract losses in North America would weigh on fourth-quarter growth, even though sales growth accelerated in the third quarter. Sodexo shares are seen opening down 1-2%.

A 2019 guidance cut at Bam Groep is seen sending shares down 5% at the open, one trader says. Imperial Brands, instead, could get a lift after announcing a dividend policy change and a 200 million pounds share buyback. Shares are seen rising as much as 4% at the open.

British Airways owner IAG is seen opening down 2% as the ICO proposes a £183.4 million penalty related to data theft.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —

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