November 14, 2017 / 8:28 AM / a year ago

Daily Briefing: Euro zone moves ahead; central bank talkfest

LONDON (Reuters) - Flash estimates for third-quarter growth in the euro zone due out this morning are expected to show the region powering ahead with 0.6 percent growth in the three months and 2.5 percent for the year.

A "Manufactured in France" placard is seen at the "Made In France" fair in Paris, November 12, 2017. REUTERS/Benoit Tessier

If confirmed, that would compare favourably to the less impressive 1.5 percent year-on-the-year growth the UK posted a couple of weeks ago and will encourage the ECB along its path to gradually tightening its stimulus programme.

While doubts remain about southern Europe’s economies, German GDP came in better than expected this morning; and outside the euro zone, the economies of eastern Europe are doing even better, experiencing a growth spurt that is already putting pressure on prices and wages.

It’s pretty rare that you get the central bank chiefs of the United States, the euro zone, Japan and Britain around the same table but they will all be there in Frankfurt today for an ECB-hosted event on central bank communication.

Central bankers talking about the art of talking may not seem the most compelling event but the history of monetary policy is strewn with communication gaffes, misunderstandings and general misfires. Moreover, there is fairly widely held view that if communicating a push to inject stimulus is tricky, explaining how you plan to remove it is even more sensitive.

When asked to confirm in parliament yesterday whether a vote by the chamber to reject a final Brexit deal would result in Britain leaving the EU without any deal at all, Brexit minister David Davis' answer was a barely audible "yes" - in fact, it was so muffled that the parliament speaker and several of his lawmaker allies had to repeat the answer out aloud.

What this means is that those with the most reservations about Brexit will have the option of backing whatever deal Davis finally gets from Brussels or, ironically enough, consigning Britain to the hardest Brexit of all - a no-deal one. This has infuriated a number of Conservative deputies just as parliament embarks today on the debate over the EU Withdrawal deal, with one describing the "meaningful" vote PM Theresa May believes she is offering them as meaningless.


As G4 central bank chiefs meet in Frankfurt, they will nervously eyeball the recent flattening of U.S. Treasury yield curve - which resumed again overnight as 2-year yields hit a 9 year high, though the curve remained above the 10-year low set last week on a 2- to 10-year horizon.

Some investors see this flattening as a harbinger of a future slowdown in the economy. Central banks will have to assess what this says about the wider economy’s ability to endure moves by the Federal Reserve, Bank of England and European Central Bank to slowly withdraw super-easy monetary policies even as inflation remains subdued – at least outside the UK.

ECB chief Draghi hosts Fed chair Yellen, Bank of Japan governor Kuroda and BoE boss Carney in Frankfurt – with at least six others of their colleagues speaking a various venues throughout the day. Whatever their collective message, there’s no shortage of high-frequency economic numbers to chew on as they speak.

There appears to be little weakness in the euro zone engine of Germany – where a whopping 0.8 percent third-quarter growth reading beat forecasts and showed the economy there growing at annualised rates of more than 3 percent. The euro was up across the board as a result.

Similarly, BoE chief Carney will watch as UK October inflation is expected to have risen above 3 percent in numbers released later.

Underwhelming industrial and retail data from China, where unlike U.S. Treasuries 10-year Chinese government yields hit 4 percent for the first time in over three years, will give all cause for thought. Asia stock markets were mostly in the red on Tuesday as a result, with Shanghai stocks underperforming.

Wall St ended firmer despite a 7 percent slide in GE stock after the industrial conglomerate slashed its dividend by 50 percent. Offsetting rises in high-income defensive stocks such as utilities and consumer staples helped the overall index into the black. European stocks are called flat to lower, with an earnings beat from Vodafone offset by a miss from Infineon.

Sterling continued to weaken ahead of the UK inflation numbers and Carney’s appearance as UK PM May’s Brexit bill goes to parliament amid concerns over the stability of her government and support for the EU withdrawal proposals as they stand.

South Africa’s rand was also on the backfoot again close to the 1-year low it set on Monday as the resignation of a top Treasury official and financial woes at the sole power utility hurt investor sentiment.

editing by John Stonestreet

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