January 23, 2018 / 8:41 AM / in a year

Daily Briefing: Strong economics, shaky politics

LONDON (Reuters) - World leaders, policymakers, CEOs, bankers and celebrities descend on Davos today for the start of the annual World Economic Forum, this year with the banner "Creating a Shared Future in a Fractured World".

Attendees take part at a reception event after the Crystal Award ceremony during the World Economic Forum annual meeting in Davos, Switzerland January 22, 2018

Elites will grapple with why a booming global economy is leaving entrenched pockets of inequality throughout the world, just as new risks ranging from cyber-terrorism to non-democratic leaders take centre stage. Today’s event kicks off with an address by India’s Narendra Modi, with Canada’s Justin Trudeau due to speak later.

British Foreign Secretary Boris Johnson, not known thus far as a champion of public health provision, will lead calls within Theresa May's cabinet for her to commit an extra 100 million pounds a week to Britain's creaking National Health Service. Pro-Brexit Johnson was criticised during the 2016 campaign for bandying around inaccurate figures for how much extra cash would go into the NHS as a result of Brexit.

Whatever his exact motives for pushing this cause just as local media focus on the growing bed shortages at hospitals around the country, it is a headache May could do without. She is also facing growing calls from the military establishment to boost its funding after years of penny-pinching.

Catalonia's separatist ex-leader Carles Puigdemont is set to meet members of Denmark's parliament today after Spain's Supreme Court rejected a request to have him arrested there on charges of rebellion and sedition. Puigdemont has been strengthened by the decision of Catalonia's parliament to back him to rule the region again, but his event in Copenhagen may fall flat. Members of the government parties and most other mainstream parties have said they will not attend the meeting.


With the U.S. government funding hiatus resolved for another couple of weeks at least, world markets have resumed January’s surge with gusto – lending some credence to the "melt up" commentary that suggests global stock markets will accelerate higher rather than roll over this year as U.S. tax cuts add fuel to the flames.

Underlining that additional tax effect, the International Monetary Fund on Monday upgraded its world growth forecasts by 0.2 percentage points for this year and next to 3.9 percent in both. And the U.S. earnings season underway shows just how that brisk growth is translating into profits. With 55 of the S&P 500 already reported, some 80 percent have beaten forecasts, which had already put aggregate annual earnings up more than 12 percent during the final quarter of last year. Halliburton, for example, climbed more than 6 percent after posting a much bigger-than-expected quarterly profit, benefiting from a shale-driven surge in U.S. oil production.

All three major U.S. equity indices powered to records late Monday, with the major Asian bourses surging more than 1 percent in its slipstream. After popping higher before the U.S. government shutdown, the Vix volatility gauge is also easing back again and dipped under 11 percent on Monday. MSCI’s all-country world index pushed new records too on Tuesday, with its gains for the year so far now almost 6 percent and with January on course to be its best month since March 2016. European stocks are set to join the party, with German DAX futures up almost 1 percent.

Any nervousness that the world's big central banks would start to bring forward monetary tightening to offset all this were also eased early on Tuesday. The Bank of Japan left its policy stance and guidance largely unchanged despite some speculation in recent weeks that it was shifting the emphasis of its bond buying campaign at least. The European Central Bank meets on Thursday, but sources at the bank have told Reuters it's too early for a change of guidance there, too. Ten-year U.S. Treasury yields have slipped back from Monday’s highs above 2.67 percent, meantime.

Brent crude oil prices are firm above $69. Buoyed by positive mood music around the upcoming Brexit talks and murmurs about when the Bank of England might move again on interest rates, sterling was firm against both the dollar and euro – touching levels above $1.40 overnight for the first time since the Brexit referendum in 2016.


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