July 27, 2017 / 7:24 AM / 2 years ago

Daily Briefing: Sweden - government on the brink

LONDON (Reuters) - Sweden's already shaky minority government faces collapse over its handling of a botched IT out-sourcing deal which exposed millions of Swedes to potential leaks of sensitive information.

Sweden's Prime Minister Stefan Lofven attends a news conference following a huge leak of confidential information after an IT outsourcing agreement made by the the Swedish Transport Agency in Stockholm, Sweden July 24, 2017. TT News Agency/Stina Stjernkvist/via REUTERS

Opposition parties have called for a no-confidence vote they will almost certainly win, leaving Prime Minister Stefan Lofven with only a few options: sack the ministers involved and try and move on; resign and see what new government can be formed; or call early elections. As so often in European politics these days, the elephant in the room is a populist party, in this case the far-right Sweden Democrats: it has been their rise which has made it so hard to form stable majority governments of any colour.

While mainstream opposition parties look ready to kill off the government, they appear less keen to form a new government in which the far-rightists would have a role. Amid all the uncertainty, the Swedish crown is remarkably unfazed, no doubt thanks to the expectation that this Nordic country with a reputation for stability will muddle through. Lofven is set to give a press conference at 0830 GMT.

German Social Democrat chancellor contender Martin Schulz visits Italy today for talks with Prime Minister Paolo Gentiloni and to visit a refugee shelter in Sicily - a trip designed to make him look statesmanlike ahead of September's election. Yet the real news is happening back home, with the latest GfK survey showing consumer morale hitting a 16-year high on the back of a solid economy and falling unemployment. This comes on the back of a similarly exuberant read-out on prospects for the country's world-beating exporters. The odds against Angela Merkel getting a new term seem to be widening all the time.

Russian President Vladimir Putin visits his Finnish counterpart Sauli Niinisto on a trip centred around the centenary of Finnish independence from the Russian empire. It could be a tense encounter, with the Finns more concerned than most about Russia throwing its weight around in their neighbourhood. Finland was among the loudest critics of Moscow's annexation of Crimea and has been stepping up its own level of military readiness recently.

MARKETS

1. The euro hit its highest since January 2015 as the dollar fell after the U.S. Federal Reserve highlighted a slowing in inflation, which some saw as making an interest rate later this year less likely. The central bank, though, did say it expected to start winding down its balance sheet “relatively soon” and this was interpreted as a sign of confidence in the economy and lifted Wall Street. Asian shares hit their highest in almost a decade.

2. Expectations of a rate rise by December eased to 50 percent from 52 percent, according to the CME Group’s FedWatch tool.

3. The euro powered as high as $1.1777 but has since pulled back to $1.1735, up just marginally on the day. Sterling hit its highest since last September and is up 0.1 percent at $1.3137 while the yen is slightly stronger at the pleasing level of 111.11 to the dollar.

4. U.S. Treasury yields fell after the Fed and that has carried over into the euro zone. German 10-year government bond yields are down 3 basis points at 0.53 percent and rate-sensitive two-year yields hit a six-week low in early trade.

5. European stocks are looking less perky. They are expected to open flat to slightly lower with the focus squarely on a very busy day for earnings updates, especially in the pharma and consumer sectors, while a dovish shift in Fed expectations could hurt banks. Futures were trading between flat and a fall of 0.2 percent.

6. The world's largest food group, Nestle, could come under pressure as organic sales growth slowed to 2.3 percent, falling short of analyst expectations, even though earnings in the first half of the year slightly topped expectations. In the same sector, however, Diageo could be supported after the British group reported higher full-year sales and profits and raised its margin growth target, saying productivity initiatives were delivering ahead of expectations. Among big pharma, Roche, the biggest maker of cancer drugs, raised its 2007 outlook after first-half profit beat market expectations.

7. Deutsche Bank is called down 1.9 percent, even though the German lender posted a sharp rise in second-quarter net profit to 466 million euros, benefiting from lower legal costs for past misdeeds that outweighed a dip in debt trading.

8. One quarter of companies in the MSCI Europe index have already reported earnings so far with nearly half of them beating expectations and 8 percent matching them. Results point to an aggregate second-quarter earnings growth of 11 percent.

9. Other stock movers:  Engine delays hit Airbus profits, delivery targets fragile; Shell beats Q2 expectations as downstream business shines; Cost cuts help pay-TV group Sky to absorb hike in soccer rights; Cost cuts help pay-TV group Sky to absorb hike in soccer rights; Bayer crimps profit goal to below 10 pct growth on crop chemicals; Retailer Casino nudges up guidance as H1 profits rise; Orange's French market returns to growth for first time since 2009; ArcelorMittal sees higher steel demand, but fears imports; BASF Q2 earnings get boost from basic chemicals; Danone keeps 2017 goals despite Q2 sales slowdown; Nokia beats quarterly market forecasts but lowers networks outlook; JCDecaux expects Q3 organic growth to accelerate as China returns to growth; AstraZeneca lung cancer study fails in big setback for company.

10. MSCI’s main index of Asia-Pacific shares, excluding Japan, is up 1.1 percent while Tokyo stocks added a modest 0.2 percent.

11. Oil is close to six-week highs, with traders expecting U.S. stockpiles of crude will fall further. Brent last down 7 cents at $50.90 a barrel. Strong Chinese industrial profits data, with its implications for metals demand, and the weaker dollar helped keep copper close to two-year highs. It was last up 0.2 percent at $6,339 a tonne.

12. Gold hit a six-week high around $1,260 an ounce.

Germany's Social Democratic Party SPD candidate for chancellor Martin Schulz holds a speech during an event at the SPD headquarters in Berlin, Germany, July 16, 2017. REUTERS/Hannibal Hanschke

13. Emerging markets roar higher after the dovish Fed, with stocks approaching 3 year highs and EMEA emerging currencies look set to build on gains from the previous day.  Asian currencies are at multi-month highs with the yuan at its strongest since October 2016

14. The bullish momentum is backed up also by data showing robust economic picture within emerging markets with Chinese industrial profits up 20 percent, South Korea showing signs of a domestic demand pickup within otherwise weak Q2 GDP, and Brazil cutting rates to four-year lows the day before.

15. Russian rouble is the outlier, flat despite the weak dollar and firmer oil, due to the potential impact from fresh U.S. sanctions. 10-year bond yields spiked to three-week highs on signs the central bank will be more cautious on cutting rates than earlier expected.

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