November 21, 2017 / 8:30 AM / a year ago

Daily Briefing: Markets look past German uncertainty to focus on boom

LONDON (Reuters) - For the umpteenth time this year, global markets have batted away a sizeable political uncertainty – this time Germany’s extraordinary government hiatus and risk of new elections – to focus squarely instead on the underlying economic boom and persistently easy money environment.

People with umbrellas pass by bull and bear outside Frankfurt's stock exchange during heavy rain in Frankfurt, Germany, November 20, 2017. REUTERS/Kai Pfaffenbach

Euro/dollar is about the only net move since Friday, down about half a cent over that period, but well within recent ranges, firmer this morning and on balance a boon to corporate Germany in itself. Germany’s blue-chip DAX index recovered all its early losses on Monday to end about 0.5 percent higher. German bund yields popped back higher after a early dip too and any thought of a euro-risk premium reversed, with French-German 10-year spreads falling to their lowest level in eight years early on Tuesday.

Is the market deliberately ignoring the political risks? Yet again, the argument is that Germany will find some solution without disturbing the momentum of the underlying economy and it’s impossible to ignore the synchronized global economic expansion in the meantime.

Underlining that, U.S. economic surprise indexes pushed to their highest level in almost four years on Monday. Wall St pushed higher again overnight, with volatility gauges ebbing after last week’s shakeup.  Asia bourses advanced too, with MSCI World now up for the fourth session in a row.

The notable exception to the buoyant mood globally is Turkey’s lira, whose slide against the dollar is accelerating and dollar/lira is now up more than 17 percent since mid-September. The lira slide comes despite and in tandem with soaring local borrowing rates, where 1 year Turkish yields are up almost 200 basis points over the past two months to 13.55 percent.  The latest losses are ostensibly driven by concerns about Ankara’s strained relations with the United States, inflation risks and monetary policy uncertainty. 

Worries about U.S. ties centre around the trial of Turkish gold trader Reza Zarrab, accused of violating U.S. sanctions on Iran, a case which the Turkish government spokesman on Monday described as a "clear plot against Turkey" that lacks any legal basis. Traders are also concerned about the outlook for monetary policy after President Erdogan last week said a lack of government intervention in monetary policy had left Turkey saddled with high inflation.

Going in the opposite direction, meantime, is the seemingly unstoppable bitcoin – which soared over $8,000 on Monday for the first time -- marking a climb of almost 50 percent in just 8 days. CME Group, the world's biggest futures exchange, said on Monday it still plans to launch a futures contract for bitcoin this year, but that a notice on its website stating the contract would begin trading on Dec. 11 was posted in error. 


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German Chancellor Angela Merkel looks on at a CDU/CSU parliamentary group meeting at the Bundestag in Berlin, Germany, November 20, 2017. REUTERS/Axel Schmidt

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Editing by Alison Williams

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