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Daily Briefing: Macron's test - reforming France
August 31, 2017 / 7:39 AM / 22 days ago

Daily Briefing: Macron's test - reforming France

French president Emmanuel Macron gestures towards his dog Nemo during a meeting with German Vice Chancellor and German Foreign Minister at the Elysee Palace in Paris, France, August 30, 2017. REUTERS/Alain Jocard/Pool

LONDON (Reuters) - Mainstream governments of both left and right have failed, now Emmanuel Macron and his recently-formed grouping of political newbies get their chance to revamp France's labour code.

Pretty much everyone agrees the 3,000-odd pages of rules and regulations have made the French employment market dysfunctional, leading on the one hand to a lack of permanent new job contracts and, on the other, to often surreal constraints on companies that deter investment.

Yet the trick has always been to come up with an alternative that genuinely serves both workers and employers - something that eluded Macron’s two predecessors, Francois Hollande and Nicolas Sarkozy.

The new government is ambitiously calling the measures to be launched today the “mother of reforms”: they include a cap on dismissal awards; an extension of worker representation rights; and more scope for in-house agreements. Protests against parts of the plan are inevitable: in the weeks to come, it will be seen how much survives of the original substance.

British PM Theresa May has put the cat among the pigeons with her comments made in Japan that she is "no quitter" and therefore intends to lead her Conservative Party into the next general election. That differs markedly in tone to the assurance she gave her lawmakers after her misjudged June election, notably that she would stay only as long as they would have her.

Local media are already full of unnamed senior MPs in her party voicing their “dismay” at this apparent about-turn. Yet the fact that May can say what she did also reflects a political reality about the current Conservative camp of which she is clearly aware: there is no convincing alternative to her and any head-on leadership challenge would risk forcing a new general election which the party might well lose.

On the Brexit front, the two chief negotiators will give a summing-up news conference around midday on what by all accounts has been a pretty fruitless round of talks this week. Already British officials accuse their Brussels counterparts of being too inflexible over the running order of subject matter, while the EU camp accuses the UK of not coming up with proposals to help work out what the divorce bill should be.

MARKETS

European shares look set to open higher and the dollar is once again stronger against a basket of currencies, with traders ascribing the upbeat mood to Wednesday’s upward revision of U.S. second-quarter economic growth and an above-forecast official Chinese PMI which showed manufacturing activity growing more than expected.

Tropical Storm Harvey continues to impact markets. Brent crude oil is down 16 cents a barrel at $50.70 and gasoline futures are up 6.5 percent at $2.0079.

The dollar index is up 0.1 percent, with the yen down 0.3 percent at 110.52 per dollar. The euro is down 0.1 percent at $1.1877, having topped $1.20 in recent days. Some analysts are citing worries that European Central Bank chief Mario Draghi will try to talks down the single currency at next Thursday’s policy meeting.

In fixed income markets, German 10-year government bonds are yielding 0.37 percent, up 1 basis point on the day.

As an unusually turbulent August draws to a close, European stocks are set to extend their relief bounce but are unlikely to avoid a third straight month of losses. Banking stocks, a bellwether for sentiment around European equities and the most sensitive to risk-off moves, are headed for their worst monthly performance since June last year when Britain’s vote to exit the EU roiled markets.

While a global consensus has formed this year around stronger prospects for European equities, the region’s main benchmarks have slipped in the summer months as company earnings are measured up against lofty expectations, and a surging euro reins back the internationally exposed European stock markets. Sluggish summer trading volumes and the resurgence of geopolitical risks exacerbated the dip, but cheap valuations relative to the U.S. continued to attract investors.

A profit warning from French supermarket chain Carrefour after Wednesday’s close could propel the retailer onto centre stage as another example of the structural pressures facing the struggling sector. Carrefour shares were already at a 4-1/2 year low but would likely sink further after cut-throat competition in the retail sector dented its first-half earnings and it warned profits and sales growth would be weaker for the year, prompting several brokers to downgrade the stock.

In other company news and potential stock movers: Novartis gene therapy approval signals new cancer treatment era; Pernod Ricard confident on acceleration in profit growth for 2017-2018; Metro, Ceconomy see sales boosted by online, delivery; Conglomerate Bouygues keeps outlook for higher earnings as H1 profits rise; AstraZeneca sought to buy Japan's Daiichi Sankyo last year – report; Vontobel ups net new money, profitability goals for 2020 targets.

MSCI’s main index of Asia-Pacific shares, excluding Japan, is down 0.1 percent but Tokyo shares closed up 0.7 percent.

Emerging market stocks slipped 0.3 percent with Asian markets a sea of red, despite Chinese manufacturing sector data beating expectations. Chinese mainland stocks fell 0.3 percent, Hong Kong 0.6 percent and South Korea 0.4 percent as a tense stand off between the United States and North Korea continued. Trump said “talking is not the answer” whilst his defence chief said diplomatic options remained.

The Bank of Korea left interest rates unchanged at a record low of 1.25 percent, as expected, citing “a considerable amount of uncertainty”, whilst the South Korean won weakened 0.3 percent against the dollar. The Chinese yuan slipped after spiking to a 14-month high in the previous session.

Dollar strength also kept other currencies on the back foot, with the South African rand, Turkish lira and Mexican peso down 0.2 percent.

Monitoring debt of Russian private bank Otkritie for any further moves following the Russian central bank’s bail out decision. Also checking Venezuelan debt after Fitch cut the rating to CC saying default is probable.

Colombia’s central bank meets later and may cut rates again by 25 basis points to 5.25 percent after six consecutive cuts.

editing by John Stonestreet

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