December 6, 2018 / 8:38 AM / 5 months ago

Daily Briefing: Street rules OK in France

LONDON (Reuters) - The policies of French President Emmanuel Macron’s government look increasingly directed by the street.

Christophe Chalencon (L), one spokesman for the 'yellow vest' movement, and Jamel Tobal watch French Prime Minister Edouard Philippe's speech at the French National Assembly, on a television screen at a bar in Paris, December 5, 2018

Last night it confirmed it was dropping further fuel-tax hikes in next year's budget in the face of "yellow vest" protests across France over living costs, a day after announcing their suspension for six months.

Before that - and to the fury of farmers who have long complained that retailers are squeezing their margins - it said it would delay a planned rise in minimum food prices.

This morning, its finance minister promised to unilaterally slap extra taxes on digital giants like Google and Facebook by early next year if no EU-level levy can be agreed - a move not directly linked to the protest wave but one that might appeal to the yellow vests' anti-business sentiments.

What it has not been able to do so far is establish a meaningful dialogue with the movement, which has no clear leadership structure. The next big test will be on Saturday when new protests are planned.

The small DUP party propping up British Prime Minister Theresa May's government has reaffirmed its plan to reject her Brexit deal in next Tuesday's vote but it also suggested it would not vote against her in a confidence vote, a small piece of good news for the premier. She has appeared on BBC radio, ahead of today's debate focusing largely on the economic fall-out of the various Brexit scenarios.

Italy's government will today make a final tally of the costs of the main measures contained in its 2019 budget, League leader and Deputy Prime Minister Matteo Salvini said this morning. He suggested it might well emerge that the measures would not prove quite as costly as first thought - not to please European Commission President Jean-Claude Juncker of course, but because "we just need to give Italians answers, with serious numbers".


Global stock markets tumble as the arrest of Huawei's chief financial officer in Canada, for extradition to the United States, threatens to sour Sino-U.S. relations just as the 90-day trade war truce and talks between the two biggest economies kick off. 

The bizarre twist - which Chinese officials claim has not yet been clarified by United States or Canada but has been reported to be related to sanctions violations - comes amid an intense U.S. campaign against China over intellectual property rights and accusations of spying by Chinese tech and telecoms firms.

World stock markets, already fragile over just how damaging the Washington-Beijing trade war is proving to a slowing world economy and anxious about future recession signals from the U.S. Treasury yield curve - have balked at the development.

Closed Wednesday for state ceremonies after the death of former president George H.W. Bush, U.S. markets are set to resume their heavy losses from Tuesday and S&P500 stock futures are down more than 1 percent.

HK stocks were hit harder, losing 2.5 percent, and Shanghai was down 1.7 percent. Tokyo and Seoul were down almost 2 percent too, while China’s offshore yuan and Australia’s dollar recoiled almost half a percent. European stocks fell more than one percent at the open, with the tech sector down almost 2 percent.

Ten-year U.S. Treasury yields dipped briefly below 2.90 percent again overnight, though recaptured that level by London trading. The critical 2-10 year yield curve held above the 11-year low of 9 basis points hit on Tuesday and was last about 12bp. 

The dollar was firmer against the euro, sterling and emerging market currencies more generally, while the ‘safe haven’ yen outperformed all. Although weaker on the day as Brexit tension builds ahead of next Tuesday’s parliamentary vote on UK PM May’s withdrawal deal, the pound held just above $1.27 and this week’s new 2018 low of $1.2659.  

Brent crude oil prices were slightly firmer above $61 as OPEC countries and their main oil exporting allies such as Russia met in Vienna. Reuters sources said the expected supply cut is unlikely to be larger than 1.4 million barrels per day and OPEC was waiting to see what Russia would cut before making a final decision.

The muted response of the oil price to the expected cuts shows how weakening global demand is taking over as the bigger issue affecting the market and how proposed supply gluts may not drain the current glut as a result.

Helped by the general retreat in global government bond yields, Italian sovereign debt yields continued to slip back after Rome said it planned to send a revised budget to Brussels for approval next week and would look at reductions in the deficit and spending plans to avoid disciplinary action. EU economics commissioner Pierre Moscovici said on Thursday that issue was moving in the right direction.

 — 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 —

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