LONDON (Reuters) - A brief note today. Breaking news of a massive fire in a West London apartment block has for now pushed Britain's political crisis off the front pages, but today could be a decisive moment in it.
PM Theresa May could clinch a deal with the Northern Irish Democratic Unionist Party to keep her in power. The question is: What price will May have to pay, and what does this mean for Brexit and economic policy?
This takes place amid a clear tonal shift in some EU capitals at the prospect of a softer Brexit than once imagined. France's Emmanuel Macron even spoke last night about the door being opened to a reversal of Brexit, echoing similar words in Berlin. That should not be taken at face-value until the Brits have signalled what their new position is, but it is significant nonetheless.
Other news today: watch out for IMF chief Christine Lagarde and Bundesbank president Jens Weidmann speaking at a conference in Frankfurt - will Lagarde confirm the growing optimism of a deal between Greece and its lenders?
Meanwhile the CPB, the Dutch government’s official forecaster, releases the quarterly economic outlook for the Netherlands, one of the region’s most vibrant economies.
MARKETS AT 0655 GMT
While there’s no shortage of newsflow from China to Britain and Berlin, world markets have again been trapped in the headlights of this evening’s U.S. Federal Reserve decision. The widely expected quarter-point interest rate rise will take the Fed funds target rate above 1 percent for the first time since the immediate aftermath of the Lehman collapse in 2008.
But all the attention will be on Fed signalling surrounding prospects of another move by yearend and how it gradually unwinds its huge Treasury bond stockpile over the years ahead.
The latter is unlikely to be controversial as Fed officials have been at pains to stress its balance sheet rundown will be as routine and predictable as possible.
But there could be some considerable heat around interest rate guidance given that market pricing on chances of another 2017 rate rise have dropped below 40 percent even though many Fed chiefs have indicated for months that another hike is likely.
The release of May U.S. inflation before the Fed decision will give some glimpse into why markets have become so sanguine, with annual headline CPI expected to slip back to 2.0 percent from 2.2 percent and the core inflation rate remaining at just 1.9 percent. But given the sizeable retreat in Treasury yields and the dollar since the last FOMC meeting, markets will be on edge over any Fed attempt to correct that extremely dovish market view of the next six months.
U.S. retail sales numbers will also add to the mix before the Fed release. Inflation aside, the soundings from the rest of the world economy remain upbeat - with Chinese industrial and retail numbers for May coming in ahead of forecast even though a miss on urban investment spending dampened the picture somewhat. The IMF, meantime, raised its Chinese growth forecast for this year to 6.7 percent from 6.6 percent in April.
Wall St stocks staged a smart recovery overnight from the early week tech wobble, with the Dow Jones index setting a new record and the Nasdaq jumping back 0.7 percent. Asia bourses were far more mixed, with Shanghai underperforming with losses of about 0.5 percent. European stocks are marked up a touch. U.S. Treasury yields and the dollar are flat. Sterling is firmer as a deal on a new UK government is awaited and the above-forecast May inflation rate absorbed.
UK jobs numbers out later will be closely watched for the reading on earnings growth, currently running well below inflation and raising fears of a consumer slowdown.
Editing by Andrew Heavens