July 25, 2017 / 7:39 AM / 2 years ago

Daily Briefing: Polish stand-off - the plot thickens

LONDON (Reuters) - It's still not clear what Polish President Andrzej Duda, seen until now as a dependable ally of the ruling Law and Justice (PiS) party, is up to by vetoing key parts of a judicial reform seen by critics as anti-democratic.

Poland's President Andrzej Duda speaks during his media announcement about Supreme Court legislation at Presidential Palace in Warsaw, Poland, July 24, 2017. REUTERS/Kacper Pempel

Duda may simply be currying favour with voters he will need to win a new term in office, or this could be a genuine act of defiance to PiS leader, the social conservative and nationalist Jaroslaw Kaczynski. This has all sparked speculation of a rift in PiS ranks, and even of an early election.

For now, Kaczynski has not reacted to Duda’s intervention and Duda has not said when he will make proposals of his own. The European Union is also reserving judgment until it sees the dynamics more clearly; some are saying this could be one of the most decisive moments in Polish politics since the overthrow of communism in 1989.

Another landmark is expected today with the pricing of new Greek bonds. This is Athens' first attempt to return to the bond market in three years as its debt crisis eases: it is inviting holders of its outstanding bonds to tender them for cash, along with a plan to offer new five-year paper.

Greece last ventured into international bond markets with two issues in 2014, a year before Prime Minister Alexis Tsipras signed up to a new bailout, the country’s third since 2010.

Last month Greece concluded a crucial bailout review and its lenders offered some detail on the measures that will be carried out when its current bailout ends in 2018 to reduce its debt mountain. The government says this market foray should be viewed as a test run and considered part of an overall strategy to ensure the country can fully return to markets next year.

French President Emmanuel Macron ventures into one of the conflict zones on Europe's doorstep today, hosting talks between Fayez al-Sarraj, head of Libya's U.N.-backed government and military commander Khalifa Haftar, a powerful military commander in the divided country's east. The talks are due to be held in Celle Saint Cloud just outside Paris.

Aside from any initiative that might ease tensions in Libya, the rest of Europe - and Italy in particular - will be looking for any clues as to how the flow of migrants to its southern shores can be halted.


There’s no shortage of potential market stimuli despite the narrowness of price moves and slumbering volatility gauges. The Federal Reserve meets later to discuss its monetary stance and the timing of its long-awaited balance sheet reduction, a plan most likely to be detailed in September.

There’s growing anxiety about the United States hitting another self-imposed ceiling for debt sales in October with few moves afoot yet to avert that - causing problems at Treasury bill auctions that saw the 3-month T-bill yield rising above the 6-month late Monday as markets accounted for the outside risk of a technical default.

The political troubles of President Donald Trump’s White House only mount, with investigations into his pre-election links with Russia deepening. In the background we are in the heaviest week of the Q2 corporate earnings season so far on both sides of the Atlantic.

And yet the Vix gauge of implied volatility of the S&P500 over the coming month sunk deeper below 10 percent late on Monday to set another 24-year low of 9.26 percent. And it’s not just equity market volatility. Bank of America Merrill Lynch’s MERMOVE gauge of one-month Treasury market volatility has fallen to its lowest on record over the past two weeks.

Only currencies appear to be generating heat, with Deutsche Bank’s CVIX of FX volatility nudging up near its highest since May as the dollar’s retreat has accelerated. And the DXY dollar index resumed its decline on Tuesday, falling to its lowest level since June last year, even after the U.S. July PMI business surveys released on Monday came in ahead of forecasts.

Euro/dollar remains below Monday’s peak however, hovering around $1.1660, with the equivalent July euro business surveys below expectations and as some nerves about the impact of a higher euro on the euro recovery and European corporate earnings grew.

MSCIs index of world stocks was just in the black on Tuesday after two days of declines. The tech-laden Nasdaq hit another record high on Monday, even though the S&P ended marginally in the red. Asia bourses were mixed overnight, with euro stocks expected to open higher. Brent crude prices added to Monday’s gains to trade just under $49.

editing by John Stonestreet

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