December 7, 2017 / 8:19 AM / in 10 months

Daily Briefing: Erdogan in Athens; new Brexit offer expected

LONDON (Reuters) - Turkish President Tayip Erdogan arrives in Athens today for what will be the first visit by a Turkish head of state for 65 years, prompting hopes that relations between the two countries could start to improve.

Turkey's President Tayyip Erdogan addresses members of parliament from his ruling AK Party (AKP) during a meeting at the Turkish parliament in Ankara, Turkey, December 5, 2017. REUTERS/Umit Bektas

That said, few expect quick fixes: there are disagreements over everything from Cyprus to airspace and the extraditions Ankara wants of exiled Turkish military officials who it says were coup plotters. The visit takes place just months after Cyprus peace talks broke down in July, an episode that only added to the ill feeling.

Ireland's premier has said Britain's PM Theresa May will put forward new suggestions by the end of today on how to break the impasse over the so-called EU divorce arrangements. Time is running out, as a failure to get agreement this week will push the whole thing into the start of next year without an agreement.

Back at home, all is not well within May’s Conservatives: some hard Brexiteers have voiced concerns she is on the verge of a sell-out, while local media talk of plots against her. The Sun quotes an unidentified ally of Brexit Minister David Davis as saying, chillingly: “Theresa has the smell of death around her. She’ll be gone by Christmas.” We have, of course, heard such anonymous predications before but her room for manoeuvre is looking tighter by the day.

Germany's Social Democrats' (SPD) leader, Martin Schulz, will try on Thursday to convince his reluctant party that it has a duty to discuss forming a new government under conservative Chancellor Angela Merkel, for the sake of German and European stability. If he fails by the end of the party congress in Berlin, it raises the prospect of Merkel either having to go it alone in some kind of minority government or else calling new elections - in both cases plunging the country into more uncertainty.

The rub is that the SPD were badly burned by their recent “grand coalition”, in which they were dominated by Merkel, so they will demand a higher price for their support of her this time: that may not be compatible with the tougher line on immigration which some of her other allies are seeking.


World equity markets have steadied a bit on Thursday after a ropey week, with year-end sector rotations catching the eye rather than any major retreat from stocks overall.

The early part of the week saw a clear switch out of this year’s stellar performers of the technology and internet world into financials and retailers, but a tech sector rebound late Wednesday and early Thursday has been offset by a swoon in energy stocks after crude oil prices, metals and broad commodity indices fell sharply over the past 48 hours.

The upshot on Wall St was that the S&P500 ended little changed, albeit a fraction in the red. In Asia, Tokyo’s Nikkei and Hong Kong’s Hang Seng were up smartly, while Shanghai and Seoul were down on the day. European stocks look set to open about 0.3 percent higher.

Dominant themes continue to provide the backdrop as details of the final U.S. tax cut bill, parts of which jarred the tech sector this week, are thrashed out in Congress just as the latest debt ceiling deadline this weekend comes into view.

The continued flattening of the 2-10-year U.S. Treasury yield curve, which hit another 10-year low around 52 basis points late Wednesday, is also unnerving world markets ahead of next week’s expected interest rate rise from the Federal Reserve. Some investors now assume that big tax cuts in a U.S. economy growing in excess of 3 percent could push the Fed into as many as four interest rate rises next year.  

The dollar is slightly firmer across the board today, with the euro hampered by a big miss in German October industrial output readings. European Central Bank chief Draghi speaks later in the day on the Basel III banking reforms. Geopolitical concerns also lurk – from the still-stalled Brexit talks in Europe to anxiety about the reaction to the widely-condemned U.S. decision on Wednesday to recognise Jerusalem as the capital of Israel.

Bitcoin continues to rocket ahead of this weekend’s launch of the first cash-settled futures contract on the cryptocurrency by the CBOE. It topped $14,000 overnight – a 240 percent gain in the fourth quarter alone. One remarkable observation is that even if bitcoin fell 90 percent by year-end, it would still be up more than 30 percent for all of 2017.

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