LONDON (Reuters) - Donald Trump's European allies will try to move on from a deeply uncomfortable start to the NATO summit yesterday and focus on operational issues such as the alliance's war in Afghanistan.
That may be easier said than done, however, with Trump overnight pursuing on Twitter his attacks on Germany and others for falling short of defence spending targets. NATO chief Jens Stoltenberg wants leaders to agree to fund Afghan security forces until 2024, despite public fatigue in Western countries about their involvement in the 17-year-old conflict.
U.S. officials have told Reuters that Washington is preparing another review of strategy, a year after Trump begrudgingly agreed to extend involvement in the war.
After Brussels, Trump heads to the UK for a three-day visit that will include talks with PM Theresa May, tea with the Queen and a major security operation to contain large public protests against his presence.
Today Trump will be hosted for dinner at Blenheim Palace, the 18th-century mansion where Britain’s World War Two leader Winston Churchill was born and spent most of his childhood.
Aside from May and her top ministers, about 100 business leaders will be in attendance, representing the likes of Blackstone group, Blackrock, Diageo, McLaren and Arup. May will no doubt be hoping for encouraging words from Trump on post-Brexit trade with America.
Before that, she will be unveiling a so-called white paper policy finally setting out her vision of post-Brexit ties with the EU, Britain's currently biggest trading partner.
It is expected to be based heavily on the agreement reached last Friday which already prompted the resignation of two cabinet members with its acceptance that Britain will have to align itself to rules and norms largely dictated by Brussels.
Yet even this proposal is not likely to be enough for the EU as it will not respect the freedom of movement required to get any of the benefits of its single market: more concessions, and more resignations, may be needed further down the line.
MARKETS AT 0655 GMT
The ebb and flow on world markets show yet again a reluctance among investors to assume the worst-case scenarios of a global trade war, and attention has shifted back to earnings, monetary policy and energy prices for now.
After heavy stock market falls across the globe on Wednesday after Washington detailed where it planned to put 10 percent tariffs on some $200 billion of Chinese goods, there’s been a sharp rebound on most bourses today.
Shanghai stocks bounced back more than 2 percent and HK and Japanese benchmarks rallied about 1 percent each. Seoul’s Kospi was up only 0.2 percent, but it had fallen less on Wednesday too.
Australia’s dollar, meantime, clawed back some of yesterday’s drop of more than 1 percent. Nerves about the yuan persisted, however, as the People’s Bank of China set its weakest daily fixing in almost a year - its biggest one-day percentage drop since January last year.
Both U.S. and European stock futures were up about 0.4 percent. Apart from the looming start of the Q2 earnings season on Friday, the focus over the past 24 hours moved back to Federal Reserve and European Central Bank policy.
Above-forecast U.S. producer price inflation for June helped nudge up U.S. Treasury yields and the dollar, with the consumer price report out later today.
European bond yields edged higher too as ECB sources contacted by Reuters said there was no consensus yet at the central bank on when next year’s planned interest rate rise would be executed and it could just as easily be around midyear as in the final quarter currently priced into markets.
The net effect for euro/dollar was only a brief jump, which was then more than reversed later in New York as the greenback surged above 112 per yen. That’s left euro/dollar below $1.17 first thing this morning awaiting minutes of the ECB’s latest policy meeting.
Offsetting the fresh inflation anxiety was the biggest one-day drop in world oil prices in two years as Libya said it would resume oil exports. Brent crude steadied first thing Thursday but remained below $75 per barrel.
Sterling was steady after drifting lower on Wednesday against the dollar, with traders awaiting the release of the UK government’s latest Brexit negotiating stance via a White Paper.
Turkey’s lira hit a record low in overnight trade before reversing losses to firm as much as 1.5 percent. Investors are concerned about the direction of monetary policy in the country under President Tayyip Erdogan, who was cited in a newspaper saying he saw interest rates falling in the period ahead. The central bank meets on July 24 and needs to address double digit inflation.
— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —