LONDON (Reuters) - European leaders wind down their talks in Brussels today by meeting their Asian counterparts in an EU-Asia summit intended to show multilateral cooperation still lives on in the Trump era. Everything from trade to climate change will be on the agenda, as will the signing of a much-delayed EU-Singapore trade pact.
On the Brexit stand-off, the EU is for now choosing to wax optimistic about the chances of a deal while making clear that it is now entirely up to Theresa May to bring her government round to the compromise close to being clinched last weekend.
May’s finance minister Philip Hammond will meanwhile be hoping that public finance figures for September due for release today contain no nasty surprises ahead of his Oct. 30 budget, where he is under pressure to deliver spending hikes in areas such as health.
August's deficit came in well above expectations on a combination of subdued tax receipts, a rise in the state pension and higher EU budget payments. Voter support for higher spending on Britain's battered public services is rising: Hammond's boss May believes the government must respond to ensure opposition Labour do not capitalise.
Poland holds local elections on Sunday that will be an interesting midterm test of the popularity of the Law and Justice (PiS) party and its mix of social conservatism, nationalism and voter-pleasing welfare benefit policies.
Much of the focus will be on the capital Warsaw and whether the PiS candidate can beat the centrist favourite in what has long been a stronghold for the rival Civic Platform (PO). That would be a major upset suggesting that PiS’ brand of populism works with urban voters too.
MARKETS AT 0655 GMT
Another day, another dollop of bad news. After sharp drops last night on Wall Street and a fresh blowout in Italian bond yields, this morning has been dominated by data showing China's Q3 economic growth was the weakest since 2009, dragged down by weak industrial output including a 10 percent fall in car output in September.
But pledges of support from regulators and PBOC governor Yi Gang have stabilised local equity markets, and in fact Shanghai and Shenzen have jumped almost 3 percent though they are down around 30 percent this year.
But the prospect of stimulus is likely to pressure the yuan further; offshore yuan touched two-month lows yesterday. And the data dampened the mood right across Asia with Japan, Australia and Korean stocks all taking a hit before tracking the Chinese markets.
In Europe, shares are set to open marginally lower, with the China-exposed DAX likely to see the most pain. All that is just convincing more people that the stock market bull is being kept alive merely with the glucose injections provided by U.S. tax cuts. That is expected to allow for 20 percent plus earnings growth in the U.S. this quarter.
However, there was already some disappointment last night from industrials, while tech stocks fell 2 percent. Later today we have earnings from Honeywell as well as State Street and Proctor and Gamble, the latter showing how consumer goods demand is holding up in the developing world too.
World stocks are set for their fourth straight week of losses, their longest losing streak since 2015, though the S&P500 will likely snap a three-week losing streak.
While all the nerves have dampened yields of safe Bunds and Treasuries, there could be fresh concerns about Europe where the European Commission called Italy’s 2019 budget "particularly serious non-compliance" with EU rules, setting the stage for an unprecedented rejection of the country's fiscal plan.
Italian yields this morning are up 5 bps after they spiked yesterday to 5-1/2 year highs, and this morning, money markets have cut back expectations of an ECB rate rise in September 2019, and are now fully pricing a rate rise only in October. Clearly, markets are expecting the Italy woes to impact the ECB decision.
On currency markets, eyes are likely to be on the yuan which is fast heading towards the 7 per dollar mark. The euro too is likely to come under pressure from the Italy issues, having hit a 10-day low versus the dollar on Thursday.
But emerging currencies are set for their second straight week of gains according to an MSCI index. Sterling is a touch higher after the EU’s Barnier said a deal was 90 percent done - even though he added that the Irish border issue could still derail it.
Some recurring themes were emerging from European earnings, in particular the slowdown in China, issues in construction, and new WLTP emissions testing regulations weighing on autos. Tyre maker Michelin blamed slowing Chinese car demand and emissions testing regulations for its sales outlook cut, also downgrading its market growth forecasts for tyre demand. The stock was indicated down 5 to 7 percent.
French conglomerate Bouygues warned on profits due to “difficulties” in its construction businesses, and traders saw the shares falling 5 to 6 percent. Sweden’s Volvo was the outlier, seen rising 3 to 4 percent after it beat quarterly profit expectations thanks to strong demand for trucks and construction equipment and forecasting high demand in its main markets of Europe and North America in 2019.
M&A could also be a driver for UK retail property developer Intu which confirmed on Friday it was considering a takeover offer from a consortium formed by British billionaire John Whittaker and Saudi Arabian and Canadian investors. One trading desk saw the shares rising 8 percent.
Emerging market stocks are down for a fourth straight week. The Brazilian real fell on Thursday after reports that the country’s central bank governor was going to step down.
The Turkish lira is heading for 4.6 percent weekly gain - the second big week running and now more than 25 percent off its August record low. S&P warned default risks are rising sharply for Argentina’s firms. S&P reviews Ukraine later.
— 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 —