LONDON (Reuters) - Chancellor Angela Merkel's conservatives finally start exploratory talks today with the pro-business Free Democrats and ecologist Greens on forming a government coalition.
This three-way combination is untested at national level and the basic policy differences between the parties are wide. Merkel's hand has, moreover, not been strengthened by the poor showing of her party in last weekend's regional election in Lower Saxony. Whereas she was initially hopeful of concluding a pact by Christmas, some are now talking of January as more realistic.
Spanish PM Mariano Rajoy speaks to parliament this morning, a day before the final deadline arrives for Catalonia's leaders to explicitly renounce any independence intentions. The chances of them doing so at present look remote, making it in turn increasingly likely that Rajoy will return the region to direct rule - at the risk of heightening tensions further. In the meantime, he is securing as much national consensus as he can for such a move, and will also make his case to fellow leaders at this week's EU summit.
Official data on UK pay due at 0830 GMT are likely to show wages lagging further behind inflation in the three months to August. The Bank of England's two newest policymakers already said on Tuesday that they were worried about the feeble increases in earnings, prompting investors to scale back their expectations for rate hikes ahead. But it would still take a number well below the Reuters poll forecast of 2.1 percent annual wage growth to dash market bets on a first hike in just over two weeks' time.
World equity markets have slipped into something of a holding pattern near this week’s latest new highs. The Dow Jones’ brief sojourn above 23,000 for the first time on Tuesday was the latest milestone on Wall St while Japan’s Nikkei 225 index eked out its 12th consecutive daily gain, its longest winning streak in more than two years. Tokyo traders are eyeing opinion polls showing Prime Minister Abe's coalition on track for a roughly two-thirds majority in Sunday's general election.
For all the political minefields around the world at present, the news flow over the past 24 hours has been market-positive. Mexico’s peso staged its biggest one-day gain since June late on Tuesday as NAFTA trade ministers extended the deadline on talks to reform the trade bloc, easing fears of a collapse. And the Chinese Communist Party's twice-a-decade congress kicked off in Beijing with upbeat assessments of the health of the world’s second-biggest economy.
The Q3 U.S. earnings season is coming in ahead of forecasts, with 10 percent of the S&P500 now reported and actual annual earnings growth from them coming in about 10 percent. Both Goldman Sachs and Morgan Stanley beat expectations on Tuesday and IBM stock jumped almost 5 percent after the bell after the company reported impressive Q3 revenue.
European stocks are expected to open flat today, with a heavy earnings slate there. Markets have been in an unforgiving mood of late with European companies that fail to meet forecasts, and Dutch paint maker Akzo Nobel issued a new profit warning on Wednesday, while German online fashion retailer Zalando reported weaker profits.
The more buoyant tech sector showed Dutch semiconductor maker ASML reporting Q3 net profit ahead of expectations. Miner BHP Billiton reported a drop in quarterly iron ore output but said it still expects to hit its annual production target.
Euro/dollar was slightly lower as markets await a series of speeches from top European Central Bank officials today ahead of next week’s key policy meeting. ECB chief Draghi and chief economist Praet both speak in Frankfurt.
Sterling slipped further in early trading after Tuesday's retreat as traders reckoned Bank of England comments yesterday still left open the chance that the central bank will not hike interest rates as soon as next month, despite UK inflation hitting a 5-1/2-year high of 3 percent last month. Key jobs and earnings numbers from the UK will be eyed closely later on Wednesday.