November 16, 2017 / 8:36 AM / a month ago

Daily Briefing: Late night in Berlin

LONDON (Reuters) - It could be a sleepless night for those negotiating the German government coalition pact in Berlin: today is the deadline set by Angela Merkel to finalise the so-called exploratory phase of the talks to form a three-party Conservative-Liberal-Green coalition.

Angela Merkel, leader of the Christian Democratic Union (CDU), arrives at the German Parliamentary Society for exploratory talks about forming a new coalition government in Berlin, Germany, November 15, 2017. REUTERS/Hannibal Hanschke

If they manage to do that, the running assumption will be that those three parties will take a few more weeks to iron out the last details before they form the next German government. However it is still not a done deal as differences remain on everything from migration policy to the budget and how to tackle climate change.

It was interesting to see that German MEP Manfred Weber, an ally in the EU assembly of Merkel, emerged from his talks with British PM Theresa May in London this week much more optimistic about progress on Brexit. Only two days ago Weber was saying how he doubted that any advance could be made at next month's EU summit, an outcome that would have raised the risks of a "no-deal" British exit in 2019.

Precious little of substance has emerged from what Weber described as "private" discussions with May but this comes amid wider speculation that May has got the nod from the eurosceptics in the party to increase the amount Britain is prepared to pay for the EU divorce bill.

France's unemployment rate is going in the wrong direction: this morning's data showed it rose to 9.7 percent from 9.5 percent in the previous quarter. Although unemployment is still down 0.3 points compared to the same period a year ago, it is still a long way from the 7 percent mark to which Emmanuel Macron has promised to lower it by the end of his mandate in 2022. Today sees protests by trade unions and left-leaning parties at his labour reforms.

MARKETS

And breathe… After five consecutive daily losses on the MSCI index of world stocks, there’s a bounce of sorts. Despite Wall St indices ending in the red again and the Vix volatility gauge closing at its highest in over two months, Asian markets have called a halt to the increasingly unnerving shakeout over the past week.

Benchmark indices in Tokyo, Shanghai and HK and Seoul all rallied on Thursday and European stocks are expected to rise later. Major investors attending the Reuters 2018 outlook summit this week have nearly all insisted this pullback is not “the big one” and reckon the year ahead will continue to be benign for equities and risky assets overall. U.S. economic numbers this week have done little to upset that picture, with retail sales beating forecasts for October and inflation remaining subdued.

The drop in the U.S. yield curve to another 10-year low of 63 basis points on Wednesday, on the other hand, continues to unnerve those worried that three more Fed interest rate rises in 2018 after another next month may see the economy roll over. U.S. industrial production numbers later are the big data release of the day. The dollar is slightly higher meantime, as euro/dollar slipped back after a two-day surge of more than 1 percent.

Editing by Toby Chopra

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