March 28, 2018 / 7:51 AM / in 7 months

Daily Briefing: Happy German shoppers keep economy on song

LONDON (Reuters) - Against expectations, sentiment among German consumers heading into April rose yet again, reflecting record-high employment, increased job security, above-inflation pay hikes and low borrowing costs.

FILE PHOTO: A woman carries her shopping bags in downtown Hamburg, January 25, 2018

This is the latest evidence of how the euro zone’s largest economy is becoming increasingly consumer-led rather than exports-driven, with household spending now the main source of growth. The figures compare strikingly with yesterday’s more downbeat business morale index, which showed how German firms are getting spooked by the possibility of a transatlantic trade war.

In Italy, things are pointing increasingly to an attempt by the anti-establishment 5-Star and far-right League to form a government - just about the worst scenario as far as financial markets and the European Union mainstream are concerned.

Speaking to Reuters on condition of anonymity, two senior 5-Star lawmakers said that is the course they are urging ahead of a meeting between 5-Star leader Luigi Di Maio and The League’s Matteo Salvini next week. While many obstacles lie in the way of such an alliance, what both parties have in common is hostility to EU rules on areas including budgets, trade and immigration.

France has two major acts of commemoration today, starting with a ceremony in Paris led by President Emmanuel Macron in memory of gendarme Arnaud Beltrame, who was killed by an Islamist militant after taking the place of a hostage during last week’s supermarket siege.

Later in the day, a march is held in Paris for Mireille Knoll, the 85-year-old Holocaust survivor murdered in her Paris apartment in a suspected anti-Semitic attack. According to local media, France’s national Jewish organisation has said neither the National Front nor the far-left is welcome on the march.

Five Stars Movement leader Luigi Di Maio celebrates at the Chamber of Deputies during the second session day since the March 4 national election in Rome, March 24, 2018

MARKETS

Tech and trade. Those two issues have driven world shares down more than 5 percent since mid-March, with MSCI’s main global index having declined in 10 of the past 12 sessions.

Last night’s tech-driven carnage on Wall Street took the SPX and Nasdaq down 2-3 percent, with Facebook and Google down 4.9 percent while Twitter fell a whopping 12 percent. FB is now down almost 20 percent since mid-month and investors are fleeing for “defensive” stocks. Asia has taken up the baton this morning, with tech-heavy bourses such as Korea, Taiwan and Hong Kong down more than 1 percent and giants such as Samsung and Taiwan Semiconductor having fallen more than 2.5 percent.

Japanese tech heavyweights such as Tokyo Electron fell around 4 percent, taking the Nikkei 1.3 percent lower. Emerging stocks too have fallen around 1 percent. Meanwhile trade war fears also linger; President Trump apparently discussed China’s trade practices with his German and French counterparts, leading to speculation that the three sides could join forces against China.

All that’s driving people into buying “safe” stuff – aside from defensive shares, Treasury and German Bund yields are down at multi-week lows; and the yen is not far off the 1-1/2-year highs hit against the dollar last week. However, the dollar is trying to claw back some losses, having now risen slightly against a basket of currencies. The revised version of US Q4 GDP, due later today, will hopefully not provide too many surprises.

European shares are set to give up most of the gains seen in the previous session as main regional benchmarks have opened lower, with the pan-European tech index leading losses with a fall of 1 percent. That alongside the decline in US and German bond yields could help defensive sectors outperform.  The STOXX 600 is down more than 3 percent so far in March, set for its second monthly fall in a row.

In M&A news, food giants Nestle and Unilever could be in focus after sources told Reuters they were expected to bid for GlaxoSmithKline’s Horlicks health nutrition business, which could fetch more than $4 billion.

In emerging markets, equities slumped over 1 percent with Chinese mainland stocks tumbling 1.8 percent and Hong Kong 1.7 percent with tech and consumer shares among the hardest hit. MSCI’s EM tech index was down almost 2 percent to a seven-week low and South Korea shares fell 1.3 percent. The South Korean won firmed 0.4 percent on news that Seoul had reached an agreement with the U.S. on a revised trade pact. The Russian rouble fell 0.3 percent, as oil prices slipped below $70 a barrel after Western countries said they would expel Russian diplomats and average yield spread of Russian dollar bonds over U.S. Treasuries widened out to 185 bps, the highest since mid-December. Checking CDS.

South Africa’s rand steady ahead of a central bank meeting at which the SARB is expected to cut rates by 25 bps. The rand fell 0.5 percent on Tuesday after ratings agency S&P Global said South Africa needed stronger growth to escape its junk status, while doubling its forecast for GDP in 2018.

— 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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