April 17, 2018 / 7:31 AM / 3 days ago

Daily Briefing: Euro reform - push-back from Berlin

LONDON (Reuters) - The next few days could be decisive in determining whether longstanding efforts to make the euro zone more resilient to future shocks come to fruition.

FILE PHOTO: German Chancellor Angela Merkel and France's President Emmanuel Macron hold a joint news conference at a European Union leaders summit in Brussels, March 23, 2018

Chancellor Angela Merkel's conservatives today debate a proposal that would put stringent preconditions on any major reforms: notably, they would demand that an EU-wide bail-out fund as proposed by France's Emmanuel Macron could only come about via change of the EU's core treaties. Because that in turn would need the assent of national parliaments across the bloc, that could kill the plan.

French frustration is palpable - there was after all a tacit agreement that Berlin would look favourably on such reforms if Paris made efforts to get its public finances in order which, broadly speaking, Macron is. Thursday's meeting between Macron and Merkel will be an interesting one.

This all comes amid growing evidence that the euro zone is coming to the end of its current benign growth cycle. A Reuters poll out this morning shows economists think growth will peak this year at 2.3 percent before ebbing to two percent next. One particular hit that is already being felt comes from the growing trade tensions triggered by Donald Trump's "America First" policy. None of this - so far - is expected to deter the ECB from its course of returning monetary policy to something approaching normal later this year.

In the UK all eyes are on the last set of UK jobs and wages data before the Bank of England's much-awaited meeting in May - at which it is widely expected to raise rates for only the second time in a decade. Economists predict the headline pay growth gauge will hit 3 percent, its fastest pace in nearly two-and-a-half years.

MARKETS

World markets’ attention has quickly shifted away from the weekend’s military events in Syria to the big readouts on first quarter corporate earnings and GDP.

Wall St’s overnight advance - which briefly brought MSCI’s all-country wild equity index back into the black for the year to date - was helped as the initial throes of the U.S. reporting seasons looked to at least meet the very elevated expectations of aggregate annual profit growth of almost 20 percent. If anything, the first 8 percent of S&P500 firms to report so far have beaten that. Goldman Sachs and IBM are among the big names out later on Tuesday.

Traders work on the floor of the New York Stock Exchange, April 16, 2018

Chinese GDP numbers for the first three months have also beaten consensus, coming in at 6.8 percent in the year through Q1. The outcome was slightly dampened by below-forecast March industrial and investment numbers but retail sales for the month surprised to the upside.

Asia bourses have been hesitant to follow U.S. indices higher however – not least following the U.S. President’s tweeted broadside against China for devaluing its currency for trade gains - despite data showing the yuan has appreciated almost 10 percent against the dollar over the past year.

That kept anxiety about trade wars on the boil, pushed the dollar lower across the board and Shanghai stocks fell more than 1 percent for the second day running. HK was down too, although Tokyo and Seoul equity benchmarks were little changed.

European stocks have opened slightly higher despite gains in euro/dollar to its highest levels in almost three weeks. Sterling continues to surge as traders brace for a possible interest rate rise from the Bank of England next month and the pound is back to levels not seen since the month of the Brexit referendum in 2016. UK March jobs and earnings numbers are the main focus for sterling later today.

Brent crude oil prices were firmer just below $72. The major U.S. economic report out later is the March industrial production report. Germany sees the release of its ZEW sentiment index. The International Monetary Fund releases its updated World Economic Outlook ahead of the Spring IMF meetings in Washington this weekend.

— 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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