November 15, 2017 / 8:35 AM / a year ago

Daily Briefing: Malta and Poland on EU radar

LONDON (Reuters) - Today’s session of the European Parliament takes on two of the European Union’s problem children: Malta and Poland.

FILE PHOTO: People attend a ceremony as the coffin of journalist Daphne Caruana Galizia, who was murdered in a car bomb attack, leaves the Rotunda Parish Church in Mosta, Malta, November 3, 2017

On the former, lawmakers hope to agree a toughly worded statement raising concern about money-laundering and tax practices on the Mediterranean island; it will also ask questions about the independence of its police and judiciary, whose investigation of the killing of a blogger known as a sharp critic of the country's political elite is under international scrutiny.

On Poland, the issue is the rule of law after its president and ruling party came up with a draft agreement on judicial reform that will put the country's judges under more political control.

UK earnings figures out at 0930 GMT are expect to underline one of the deep-rooted problems of the British economy, with wages set once again to lag inflation - eroding consumers’ purchasing power, holding back overall economic growth and contributing to a public sense of discontent.

Most of the Bank of England’s rate-setters think pay will start to grow more quickly soon, but they have been wrong with similar forecasts in recent years. The widening gap between pay and inflation will only add to the pressure on finance minister Philip Hammond to find ways to help voters in his Nov. 22 budget.

Law firm Gowling WLG has collated information from various official sources to show in a report that the world's top 60 economies have adopted more than 7,000 protectionist trade measures on a net basis since the financial crisis. The United States and the EU were responsible for around 2,000 between them, but the report noted a generalised spreading of such barriers.

Gowling said it was partly motivated to compile the report because of Brexit, with the UK seeking to become a more global trading power after it leaves the EU. "Leaving the EU is being presented as entering the land of milk and honey. But there is no such thing as free trade anywhere," it concluded.


The euro shows little sign of tiring after its biggest one-day surge against the dollar since June, a 1.12 percent jump that ranks as its fourth best day of a pretty strong year. Bolstered yesterday by news that the German economy accelerated to an annualised growth rate of more than 3 percent in the third quarter, euro/dollar is now up more than 12 percent to date in 2017 – it’s best year since 2003.

The flipside, of course, is an ebbing dollar as the recent flattening U.S. yield curve already looks to be parsing a peak for Federal Reserve tightening, Wall Street splutters and tax cut plans get bogged down in Congress.

More broadly, there’s little sign of a bounce yet in global equities after their decline from record highs since last week. MSCI World is down again and set for its fifth straight down day, the longest run in the red since March. After 10 daily gains in a row, is that two steps forward, one back?

With the year’s end fast approaching and many investors already on maximum risk settings, there are concerns about a more prolonged shakeout. Bank of America Merrill Lynch’s monthly investor survey said on Tuesday that global funds are showing signs of “irrational exuberance”, with cash holdings at four-year lows and risk-taking at all-time highs.

The suddenly more sober tone on Wall Street this week has been influenced by a range of things - yield curve movements, junk bond fund withdrawals, the muddy progress of the tax cut bill, a sharp oil price recoil this week and GE’s negative surprise on its restructuring and 50 percent dividend cut.

After losses of more than 7 percent on Monday, GE lost another 5.8 percent last night. The S&P500 overall was down more than 0.2 percent, its third loss in four sessions, even though it remains within 1 percent of its record high.

FILE PHOTO: Protesters carry Polish flags and flares during a rally, organised by far-right, nationalist groups, to mark the 99th anniversary of Polish independence in Warsaw, November 11, 2017.

The nervy atmosphere was felt in the Vix volatility gauge, which closed at its highest level since early September.  Brent crude oil stabilised just above $61.5 in early trading, after giving up about 4.6 percent from last week’s peak. 

The losses spread across Asia bourses overnight, with the Nikkei 225’s loss of more than 1 percent the clear underperformer. Shanghai, Hong Kong and Seoul stocks were all down, too. Partly weighed down by the stronger euro, euro zone stocks were expected to open lower as well.

Euro/sterling set its highest level in almost a month in early trading, with the pound nervously eyeing UK jobs and earnings numbers out later and the protracted passage of the Brexit bill through parliament. Sterling eased after a sub-forecast 3 percent UK inflation reading for October on Tuesday. U.S. consumer inflation  is out later today and will feed the emerging picture of what the Fed will do through 2018.

Editing by Larry King

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