August 7, 2018 / 7:49 AM / 2 months ago

Daily Briefing: Iran sanctions, German data spell EU gloom

LONDON (Reuters) - Scottish leader Nicola Sturgeon has called talk of a no-deal Brexit "utterly unacceptable and deeply damaging" before a visit by British PM Theresa May to Edinburgh.

An employee of German car manufacturer Mercedes Benz works on a Mercedes S-Class (S-Klasse) car at a production line at the Mercedes Benz factory in Sindelfingen, Germany, January 24, 2018. REUTERS/Ralph Orlowski

The trip is intended to highlight joint investments in scientific research.

But divisions over May’s slowly evolving Brexit strategy are likely to overshadow all else.

More sobering news on the German economy came a day after industrial orders plunged on weak foreign demand.

This morning, industrial output dipped more than expected  and the trade surplus narrowed on flat exports.

To the south, market jitters over Italy’s new budget seem bound to continue after deputy PM and 5-Star leader Luigi Di Maio’s comment on Monday that respecting European Union fiscal rules was not a priority for the government.

With temperatures set to heat up across Europe again, a new study from scientists warns that the world risks entering "hothouse" conditions with global temperatures 4 to 5 degrees higher -- even if current emission-reduction targets are met.

On a positive note, the Turkish lira is firming after reports that a delegation of Turkish officials will travel to Washington later this week to try to resolve a row over the trial of an American pastor in Turkey that has devolved into sanctions and trade threats.

MARKETS AT 0655 GMT

Global stock markets rallied on Tuesday, including Chinese stocks this time, as global earnings and upgrades to the U.S. profit growth horizon outweighed trade tensions and emerging- market dislocations.

Wall Street’s S&P500 closed at its highest since Jan. 29 overnight, close to its record high earlier that month.

The Vix volatility gauge closed at its lowest since Jan 26.

A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018. REUTERS/Murad Sezer

The tax-cut driven surge in U.S. corporate earnings, which is coming in at annual aggregate growth rate of about 25 percent for the second quarter, has prompted the likes of Citi to upgrade its end-2018 and 2019 earnings forecasts as a result.

That whoosh on Wall Street has buoyed market sentiment around the world, with Tokyo and Seoul up 0.6 percent and even Shanghai bouncing back sharply from a string of recent losses to daily gains of more than 2 percent. Honk Kong was up more than 1 percent.

European shares, also helped by a forecast-beating European earnings season, were set to add to this week's gains later.

Currency markets were more volatile, with dollar gains building across the world over the past week.

Turkey’s lira went into virtual freefall on Monday, recording losses of more than 5 percent in its biggest one-day drop in more than 10 years, as a row between the United States and Turkey worsened and Washington moved to remove duty-free access to U.S. markets for some Turkish exports.

Already struggling with runaway inflation at 14-year highs near 16 percent and political pressure on the central bank not to raise interest rates, the lira’s year-to-date losses are nearing 30 percent and pressure on everything from energy to food imports is rising as jitters about foreign currency debt payments rise.

The lira rallied somewhat on Tuesday, recouping a about half of Monday’s plunge, as Turkish officials indicated a delegation was going to Washington for talks to resolve the dispute between the two countries.

Attempts by the central bank to inject dollars into the system by reducing banks’ foreign currency reserve requirements on Monday had little immediate impact.

Elsewhere, a broad-based dollar retreat was the dominant FX move early Tuesday and Treasury yields ebbed again.

Oil prices were higher after the United States re-imposed sanctions on Iran.

Sterling gained slightly against the dollar after sliding to 11-month lows on Monday amid warnings from the UK’s trade minister that a no-deal Brexit was likely.  

Australia’s dollar rallied as the Reserve Bank of Australia left interest rates unchanged.                 

A look at the day ahead from Europe Special Correspondent Noah Barkin and EMEA markets editor Mike Dolan. The views expressed are their own. 

Editing by Larry King

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