October 9, 2018 / 7:36 AM / 2 months ago

Daily Briefing: Border deal - DUP's Foster heads to Brussels

LONDON (Reuters) - Arlene Foster, head of the Northern Irish Democratic Unionist Party which props up Theresa May’s government, heads to Brussels today for three days of potentially decisive talks in the Brexit saga.

FILE PHOTO: Arlene Foster, the leader of the Democratic Unionist Party, walks through the venue of the Conservative Party Conference in Birmingham, October 2, 2018

Foster is due to meet EU negotiator Michel Barnier and diplomats from other EU states, with discussions to focus on the Irish border issue that have created an impasse in the wider negotiations.

Foster, whose small party has the power to bring down the government, repeated her demand for there to be no regulatory divergence between Northern Ireland and the rest of the UK, but added that a deal looked "eminently possible".

Emmanuel Macron is seen reshuffling his cabinet as early as today after the resignation of his interior minister in protest at the president's imperious leadership style. Allies are pushing for a substantial revamp to try and draw a line under a tumultuous few months that have seen his poll ratings slump.

Yet a reshuffle presents Macron with a delicate balancing act. While a big rejig covering key posts such as the finance and foreign ministries might deliver a message of renewal, it could also be seized on by opponents as an admission of failure. It comes as trade unions organise demonstrations today against his reforms.

The euro zone was not spared as the IMF cut its growth forecasts for this year and next across the board due to growing protectionism and troubles in emerging markets. The region saw its 2018 growth forecast cut to 2.0 percent from 2.2 percent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.

The new forecasts, released on the Indonesian resort island of Bali where the IMF and World Bank annual meetings are getting underway, show that a burst of strong growth, fuelled partly by U.S. tax cuts and rising demand for imports, was starting to wane: it now predicts 3.7 percent global growth this year and next, down from its July forecast of 3.9 percent growth for both years.

MARKETS AT 0655 GMT

World markets remain on edge after a nervy start to the week in holiday-sapped trading on Monday.

The International Monetary Fund chimed with the tension by downgrading its global economic growth forecasts for this year and next to 3.7 percent from 3.9 percent, talking of ‘plateauing’ of the world economy and raising red flags about rising trade barriers, tightening dollar funding and stress in emerging markets.

Wall St stock indices closed little changed on Monday night, with government and Treasury markets shut for the Columbus Day holiday.

But with markets increasingly convinced the incoming U.S. economic news warrants four more Federal Reserve interest rate rises between now and the end of next year, 10-year Treasury yields resumed their steep climb to new 7-year highs on Tuesday, hitting 3.2520 percent earlier and pushing the 2-10 year yield curve to its steepest since June - at almost 37 basis points.

The dollar strengthened across the board overnight as a result, with only Japan’s yen outperforming among the major currencies as stock market tensions rose in Asia.

Returning from Monday’s holiday, Japan’s Nikkei lost more than 1 percent but Chinese benchmarks stabilised after their worst one-day fall on Monday in more than two years amid worries about trade and tech sector friction with the United States.

China’s yuan recovered some ground from Monday’s 7-week lows, hit after the latest weekend easing of bank reserve requirements by the People’s Bank of China. The offshore yuan was a touch weaker early in London trade, but off its worst levels from Monday at 6.9371 per dollar.

The dollar was generally higher against other Asia currencies such as India’s rupee, Indonesia’s rupiah and Malaysia’s ringgit. MSCI’s benchmark emerging market equity index was in the red for the fourth straight session.

Pakistan’s rupee tumbled some 8 percent in an effective devaluation by the central bank and as the finance minister said the government would seek to open talks with the IMF this week on emergency financial assistance – despite recent efforts by the government of PM Khan to avoid a second bailout programme in five years.

U.S. stock futures were slightly lower and European equivalents higher after the latter suffered heavy losses on Monday amid fresh worries about the standoff between Rome and Brussels over Italy’s planned budget loosening.

French President Emmanuel Macron and his wife Brigitte Macron wait for guests to arrive at the Elysee Palace in Paris, October 8, 2018

Ten-year Italian government yields briefly touched a new 4-1/2 year high of 3.628 percent first thing before retreating amid reports the government was set to launch an investor roadshow to support the bond market. Italy’s deputy PM Salvini, meantime, said the government would not change its budget plans.

South Africa's rand lifted off lows as a Treasury spokesman said embattled finance minister Nene will travel to Indonesia for this week’s IMF meeting despite reports on Monday he was set to resign.

— 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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