August 30, 2017 / 7:26 AM / a year ago

Daily Briefing: May in Japan - a hard sell

LONDON (Reuters) - British Prime Minister Theresa May heads to Japan today for talks with Prime Minister Shinzo Abe on issues ranging from a post-Brexit trade deal to the looming North Korean missiles stand-off.

Britain's Prime Minister Theresa May greets members of the England Women's Rugby team at a reception at Downing Street in London, Britain August 29, 2017. REUTERS/John Stillwell/Pool

On the former, May told travelling journalists that Britain is keen to replicate the trade deals the European Union already has with countries outside the bloc when it exits the EU. The same will apply notably to any future UK-Japan pact, but she faces a hard sell: Japanese officials have made clear their misgivings about Brexit and have in any case prioritised the completion of a preliminary EU-Japan trade deal inked last month.

Spanish Prime Minister Mariano Rajoy must answer questions in parliament today linked to allegations of illegal financing scheme within his conservative People’s Party (PP). Rajoy has already appeared as a witness in the "Gurtel" corruption trial in July and opposition MPs say many questions remain unanswered. Although Rajoy himself is not accused of wrongdoing, long-running graft scandals have tainted Rajoy's party at a delicate time as he no longer enjoys a majority in parliament.

On the economic front, euro zone economic sentiment data for August due at 0900 GMT is expected to see a modest strengthening. Other big numbers include the latest inflation data from Germany’s states trickling in from 0700 GMT and British consumer credit and mortgage approvals at 0830 GMT.


Investors are apparently not as worried about North Korea’s missile tests as they were on Tuesday and have bought back stocks and the dollar. The damage to oil refineries wrought by tropical storm Harvey has pushed down the price of oil but driven the price of gasoline to its highest since mid-2015.

European shares are expected to open higher, having fallen to their lowest in almost seven months on Tuesday due to a combination of risk aversion inspired by tensions over the Korean peninsula and the impact of a strong euro.

European index futures pointed to strong gains across the board which would help the main STOXX 600 benchmark recover all the ground it lost in the previous session. Fears of a more drawn-out correction have been banished for now, with Credit Suisse strategists saying “market jitters such as these are unlikely to turn into a longer-term period of outright risk-off sentiment.”

Sliding oil prices could put a cap on benchmark level gains, however, while the euro, which slid back to just under the $1.20 level, will continue to put pressure on stocks. Though European stocks have shown themselves more susceptible to sharp moves in recent weeks, punctuating an unusually calm year, sell-offs have tended to rapidly fizzle out, as shares are supported by global investors’ continued confidence in the region’s economic growth, and relatively cheap valuations compared to the U.S. market.

With the majority of company reports through, Thomson Reuters estimates earnings growth for the STOXX 600 to be 16 percent year-on-year for the second quarter. The proportion of results exceeding analyst estimates has been only just above long-term averages, as the bar for earnings outperformance was higher.

After ProSiebenSat led a sharp sell-off among broadcasters on Tuesday when it cut its outlook for advertising revenues, its peer RTL’s forecast-beating results should help sentiment around the struggling media sector which sank to a nine-month low.

In other company news/ potential stock movers: Murdoch pulls Fox News from Sky platform as UK mulls takeover deal; Lufthansa wants Air Berlin long-haul planes – source; Shire defends record as UBS cuts price target on staff satisfaction reviews; RTL beats Q2 expectations despite challenging ad market; Oil major Total sees growth in North Sea output with Edradour & Glenlivet start-up; British homewares retailer Dunelm's chief steps down; WH Smith sees FY outcome in line with expectations; Petrofac reports 10.7 percent fall in first-half core earnings.

MSCL’s main index of Asia-Pacific shares, excluding Japan, rose 0.6 percent and Tokyo stocks rebounded to close 0.7 percent higher.

The dollar index is up 0.2 percent, having touched a 2 1/2-year low on Tuesday with the greenback gaining 0.3 percent to 110 yen. The euro is down 0.2 percent at $1.1948 and sterling flat at $1.2913.

German benchmark 10-year bond yields are up 2 basis points at 0.36 percent. Investors will be watching German preliminary inflation data due later in the day. Economists surveyed by Reuters see CPI rising 1.8 percent year-on-year from 1.7 percent in July.

Brent crude is down 6 cents at $51.94 and gasoline is up 3.1 percent at $1.838 a gallon. Gold is down 0.2 percent at $1,307 an ounce and copper up 0.2 percent at $6,805 per tonne.

Emerging market stocks climbed back toward a three-year high and were on course for their eighth straight month of gains and their longest winning streak since 2003 on Wednesday, as investors’ initial concerns over North Korea’s latest missile launch began to recede.

Editing by Toby Chopra

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