February 15, 2018 / 8:29 AM / a year ago

Daily Briefing: French jobs take-off?

LONDON (Reuters) - Is France, as Emmanuel Macron would say, finally back? Today's jobless data show the unemployment rate falling below nine percent for the first time since 2009 and registering the sharpest quarterly drop since the 2008 financial crisis.

FILE PHOTO: People walk on the esplanade of La Defense, in the financial and business district, west of Paris

Crucially, the economy is now creating new jobs at its fastest rate since 2007 and Macron’s election last year has led to fresh highs in business morale. Whether this can be sustained is another matter - and some of this is surely down to the overall buoyant trend in the eurozone and wider - but it looks increasingly as though the Macron effect is more than just talk.

The Irish nationalist party Sinn Fein will set out its position today after talks to kickstart Northern Ireland's power-sharing government collapsed again yesterday. This has raised anew the prospect of returning direct rule to London, a move neither Sinn Fein nor London wants.

The main immediate reason for the breakdown in talks was a dispute over the rights of Irish language-speakers but the whole negotiation has been complicated by British PM Theresa May’s reliance on the unionist DUP for her majority in parliament - something which has undermined confidence in whether her government can now be an honest broker in any new arrangement.

The Istanbul Treaty designed to combat violence against women has been ratified with little controversy by around 40 countries now. Not so in Bulgaria, where the ruling centre-right GERB party has withdrawn it from ratification in parliament because of opposition expressed by religious and political groups. Critics of the treaty - including Bulgaria's Orthodox Church - say its wording could encourage young people to identify as transgender or third sex and encourage same-sex marriage.

The stand-off with more liberal groups in the country is all the more striking because Bulgaria currently holds the rotating chair of the European Union. The opposition Socialist party is demanding a referendum on the issue.


Ok, so this is new. After fretting about resurgent inflation and rising bond yields for the past three weeks, U.S. and global stock markets shrugged off evidence of both on Wednesday and staged one of their biggest rallies in almost a year while volatility gauges tumbled.

The rationale for the sudden positive correlation of stocks and bond yields is not entirely clear, except for the argument that historically it’s not unusual for the two to rise in tandem with a rapidly expanding economy. But the price action around a higher than expected U.S. consumer price inflation print and a surprise drop in January retail sales was a little puzzling.

Some pointed to weather distortions in both reports, but the bond market clearly took the inflation number seriously and 10-year Treasury yields have hit another 4-year high of 2.9350 percent overnight. Money markets are also starting to price in the chance of four Federal Reserve interest rate rises this year, starting next month.

Nevertheless, the familiar big tech stocks led Wall St more than 1 percent higher, the VIX volatility gauge plunged below 20 percent to its lowest level in 10 days, the dollar weakened broadly and MSCI’s all-country world index is up again today for the fifth day in a row. To put that in context, the MSCI world index is back in the black for 2018 and is now up almost 1 percent year-to-date.  

Although many centres, including Shanghai, were closed in Asia for the Lunar new year holidays, Japan’s Nikkei and HK’s Hang Seng both gained more than 1 percent earlier and both European and U.S. stock futures are up about 0.5 percent also. So much for the big Bridgewater shorts.

Aided by the weaker dollar, which pushed dollar/yen exchange rate to a new one-year low of 106.18 and saw euro/dollar testing $1.25 first thing today. Brent crude oil prices have rallied back above $65.

So what next? It’s going to be hard to read the market reaction to the next set of economic numbers given the peculiar twists yesterday. U.S. industrial production and producer price numbers for January are due out later today, but if the CPI and retail numbers have largely been dismissed, then it’s not clear these will gain much more traction.

The stand-back for many forecasters has been to trim first-quarter U.S. GDP estimates after the retail numbers, so perhaps a cooler pace of growth is now reassuring?

Sinn Fein President Mary Lou McDonald and Sinn Fein Deputy Michelle O'Neill speak during a press conference in Parliament Buildings at Stormont in Belfast, February 12, 2018

The other side of the argument is to look past the market’s almost self-inflicted volatility shock and take a look at the strength of the Q4 earnings season now coming to an end. With three quarters of the S&P500 now reported, aggregate annual profit growth is running at a whopping 15 percent.

Back in Europe, the euro’s latest burst higher against a weaker dollar will come back on to European Central Bank thinking and many of the ECB’s top officials are speaking later today. The gap between German and U.S. 10-year borrowing costs reached its widest level since April 2017 early on Thursday.

South Africa’s rand surged to its strongest level in almost three years overnight as Jacob Zuma finally agreed to step down as president after weeks of pressure from the ruling ANC over concerns about a series of corruption allegations. South Africa's parliament will elect Cyril Ramaphosa as new president at 2pm local time today. South Africa stocks are already up 2.7 percent, set for their biggest one day gain February 2016.

Editing by Gareth Jones

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