May 15, 2019 / 7:51 AM / 2 months ago

Daily Briefing: Germany returns to growth, for now

LONDON (Reuters) - Germany's economy returned to growth in the first quarter of 2019 after six months of stagnation, according to a first estimate that highlighted the impact of higher household spending and strong construction activity.

FILE PHOTO: The finished facade at the construction site of the Berliner Schloss (Berlin City Palace) - Humboldtforum is pictured in Berlin, March 19, 2019

GDP was up 0.4% quarter-on-quarter, in line with analysts’ expectations. Economy Minister Peter Altmaier called the figures a “first ray of hope” but warned that the economy was still at risk from international trade tensions — among them the U.S.-China trade row and an imminent decision by U.S. President Donald Trump on whether to impose tariffs on European car imports to the U.S.

British PM Theresa May has told opposition leader Jeremy Corbyn she will be taking the EU withdrawal bill back to parliament in the week beginning June 3. The plan is that lawmakers in both the ruling Conservatives and Corbyn's Labour will by then be so cowed by their dismal showing in the European Parliament election that enough of them will sign up to the bill just to get Brexit over and done with.

Already, one Conservative lawmaker this morning has said eurosceptics in his party will vote against it, and it is far from clear that enough Labour parliamentarians can be persuaded to back something which still looks like a "Tory Brexit". Failure to pass the bill would make it hard to get it through parliament before the summer recess, effectively signalling curtains for May's premiership.

All the evidence so far is that next week’s European Parliament elections will turn out as expected: a battle between weakened, centrist mainstream parties and a disparate collection of anti-establishment, eurosceptic, anti-immigrant candidates.

Six party candidates hoping to become the next president of the European Commission will line up for a debate to be broadcast live across Europe tonight. Despite the seriousness of the issues they will be debating, the profile of the debate will suffer from the fact that none of the candidates are household names - be they Dutchman Frans Timmermans for the main grouping of left-wing parties or Germany’s Manfred Weber for the right.

MARKETS AT 0655 GMT

The "little squabble" that’s raised tariffs on more than a quarter of a trillion dollars of goods traded between the United States and China over the past week has left markets on edge and trading off nods and winks from the White House and Beijing.

Perhaps mindful of the stock market plunge on the re-escalation of the trade war since Friday, U.S. President Donald Trump has toned down his rhetoric and again talked up the prospect of a deal by the time he meets Chinese President Xi Jinping late next months and denied the talks had collapsed.

But the substance of the breakdown remains and another six weeks of brinkmanship lies ahead. Despite the mood music, Reuters reported that Trump is expected to sign an order paving the way for a U.S. telecoms ban on Huawei.

The warmer words, however, helped Wall St stocks regain about a third of Monday’s losses overnight. The S&P500 ended up 0.8%, futures are up another small notch first thing today, the Vix volatility gauge retreated back below 20% and the 10-year Treasury yield regained a foothold back above 2.4%.

Despite surprisingly weak Chinese industrial and retail numbers for the January-April period, with retail sales growth the lowest in 16 years, Shanghai stocks rallied more than 2% to their highest in over a week on the White House tone and hopes the lousy economic numbers would usher in another round of policy stimulus. The index remains down more than 4% for the month so far, however.

Elsewhere in Asia, the Hang Seng was up almost 1%. Seoul’s Kospi and Tokyo’s Nikkei were up 0.5%. The offshore yuan was up against a generally stronger dollar. Dollar/yen nudged up to 109.70, while euro/dollar clung to $1.12. Regional Asia currencies were weaker on the poor Chinese numbers, however. Australia’s dollar fell to its lowest since January, as did Malaysia’s ringgit. South Korea’s won slipped to another two-year low.

In Europe, sterling was just above $1.29 after falling to its lowest in a fortnight yesterday. Expectations are rising that UK PM Theresa May could put her Brexit withdrawal agreement back before parliament early next month as talks with the opposition Labour Party flounder, but she also meets with her backbenchers from the 1922 committee later today amid growing pressure on her to step down. UK wage growth data came in below forecast yesterday despite another drop in the jobless rate.

Italian sovereign debt yields climbed and the euro weakened on Tuesday after Italy’s deputy prime minister, Matteo Salvini, said the government was prepared to breach European Union deficit and debt rules to get job growth back on track – setting up another confrontation with Brussels as the euro group meets later amid sagging Italian growth.

German first-quarter gross domestic product grew 0.4%, in line with forecasts and "a ray of hope", according the government. Euro zone first-quarter GDP numbers and U.S. retail and industrial reports for April are out later . European stock markets opened flat.

Dutch bank ABN Amro missed expectations with a 20% decline in first-quarter net profit. France’s Credit Agricole also reported first-quarter net profit fell as two one-off events offset profitability increases in all its main business lines. ABN Amro was expected to fall 2% and Credit Agricole 1%.

Building materials firm LafargeHolcim said a strong performance in Europe helped its first-quarter profit jump nearly 16%. Germany's largest electricity producer, RWE, also beat forecasts, delivering higher-than-expected first-quarter profits. Its shares climbed 1.6% in pre-market.

Commerzbank shares are up 2.4% after Reuters reported Tuesday that UniCredit was preparing a bid for the German lender. UniCredit shares were down 0.7%.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —

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