* 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.
LONDON, Aug 15 (Reuters) - British opposition leader Jeremy Corbyn has urged lawmakers across the spectrum, including rebels in the ruling Conservative Party, to help block a no-deal Brexit by bringing down Boris Johnson and installing him as leader of a caretaker government. Given that a majority in parliament opposes no-deal, the plan should have potential: it has already been welcomed by parties in Scotland and Wales. The problem is that others in the assembly are deeply sceptical of Corbyn's motives, given that he is essentially anti-European Union and that his views are too far to the left for many lawmakers to stomach. Jo Swinson, head of the pro-EU Liberal Democrats, swiftly rejected his proposal for a caretaker government. She sets out her own plan today.
Gibraltar's Supreme Court is to decide later on the fate of detained Iranian oil tanker Grace 1 after it ruled on July 19 it would be held a further 30 days. The tanker was seized in early July by British Royal Marines off the coast of the British Mediterranean territory on suspicion of violating sanctions against Syria. One source has told Reuters it will be allowed to leave - an outcome that would de-escalate a row with Tehran that has also complicated European efforts to rescue the 2015 nuclear deal.
After news on Tuesday that Germany's economy shrank in the second quarter, the Dutch national forecasting agency CPB said this morning economic growth there will slow more than previously expected next year. It said exports from the euro zone's fifth-largest economy are being hit by weakness in Germany, Brexit and U.S. trade policies.
MARKETS AT 0655 GMT The U.S. yield curve inversion lit up investor alarms like a Christmas Tree. President Trump’s attempts to fine-tune the stock market via tweet and nuance has been scuppered by bond markets, who have tired of the escalating trade war and rushed to price in a 2020 recession as Washington and Beijing continue to slug it out.
The drop of 10-year U.S. Treasury yields below the two-year rate on Wednesday for the first time since before the Great Recession of 2007/2008, which is seen as many as the most reliable U.S. recession warning in financial markets - indicating as it does deteriorating economic activity over that maturity spectrum and also by hampering bank lending by hitting interest margins. The two- to 10-year inversion sets off warning lights for investors everywhere as it’s frequently built in to recession probability models. Other global bond markets are also chiming loudly with the signal. Thirty-year U.S. Treasury yields fell below 2% for the first time ever overnight, and also below the three-month bill rate - now tallying with the three-month old inversion of curve between three months and 10 years.
German bund yields continue to plumb record depths below zero - the latest trough set at -0.63%. The alarming expansion of the sub-zero bond yield universe also reached $16 trillion for the first time. Even yield curves in the countries such the UK, facing its own domestic economic crunch from a no-deal Brexit, inverted on Wednesday between two years and 10 years. The net result was one of the worst days of the year for U.S. and global stock markets -- Wall Street indices dropped almost 3%. The S&P 500 fell 2.929%, its second-biggest loss so far this year, and the Vix fear gauge of equity-market volatility surged back above 20%.
MSCI’s all-country index of world stocks dropped more than 2% to its lowest since early June - only the second time this year it’s done that and it fell a further 0.2% on Thursday. Selling in Asia was more muted earlier, however, with Shanghai, Hong Kong and Seoul benchmarks reversing early losses to push higher, even though Tokyo’s Nikkei lost more than 1%. Markets appeared to stabilise somewhat on hopes U.S. President Donald Trump will retreat further on trade after the plunge by stock markets and as futures markets priced in more than a 50% chance the Federal Reserve will cut interest rates by half a point next months. U.S. and European stock futures were higher.
While Wednesday’s market fright was partly triggered by the slide in Chinese in July industrial production growth to its lowest in 17 years and the second-quarter contraction of the German economy, some grasped at straws today, pointing to a rise in Chinese house prices during the month. But the real economic test comes later in a Super Thursday of U.S. data releases. Retail sales and industrial production numbers for last month are due, plus the Philadelphia Fed’s economic activity index and NAHB’s housing index for August.
Currency markets were quieter. The dollar’s DXY index held firm, the safe-haven yen retreated and dollar/yen recaptured 106. Euro/dollar was stuck around $1.1150. Sterling and China’s offshore yuan were also stable and emerging-market currencies held up despite the latest lurch lower in Argentina’s peso.
In European corporate news, Carlsberg was seen rising 3% after the Danish brewer's "blowout" operating profit, according to one dealer. Vestas shares could come under pressure as tariffs and higher raw-material costs bite.
The world's largest container shipping company, Maersk, also warned trade war and tariffs could hurt the container business but reported better-than-expected results. Shares were expected to rise 3% to 7%.
In Germany, a strong outlook from fertilizer maker K+S boosted its shares 3%. Drillisch and United Internet were down 3% after they slashed their outlook. German small-cap stock SGL Carbon was down 19% after it said the outlook beyond 2020 was not "sustainable" and that its chief executive had quit.
In the UK, GVC was seen rising 5% after the Ladbrokes owner raised its full-year outlook and said it expected to shut fewer shops. More than a dozen blue-chips are going ex-dividend today, and that's seen taking 30 points off Britain's FTSE 100 .
Emerging-market shares edged down for a fifth consecutive day as anxieties the global economy was on the brink of a recession sidelined focus on the likelihood of a breakthrough in the U.S.-China trade spat.
China blue-chip shares managed a 0.2% gain, buoyed in part by the modest rise in China's new home prices in July, helping ease the sting from Wednesday's dire July activity data. Hong Kong shares were up 0.2% after Trump on Wednesday seemed to tie a U.S. trade deal with China to a resolution of the protests wracking Hong Kong.
In a move that has so far not appeared to slow the rout on Argentine markets, President Mauricio Macri on Wednesday unveiled a package of welfare subsidies and tax cuts for lower-income workers. The announcement failed to stop a slide in the peso, which has lost a quarter of its value this week.
Indonesia posted a smaller-than-expected trade deficit in July after two months of surpluses, the country's statistics bureau reported on Thursday. Even so, the rupiah weakened as much as 0.5%.
Brazil's central bank said on Wednesday it would sell dollars outright in the spot currency market this month for the first time in over a decade.
Europe corp events:
NN, Swisscom, Aegon, Geberit, Carlsberg, ICA, PSP, Maersk, Vestas Wind, Fingerprint Cards, K+S, GVC • Norges Bank policy decision, July trade balance. • UK July retail sales • Norway July trade balance • Italy Deputy PM Salvini due to speak in southern Italy • Ukraine Q2 GDP • Israel July inflation • US earnings: NVIDIA, Walmart, Applied Materials, • US July retail sales, industrial production, Aug Philadelphia Fed index and Aug NAHB housing index, Q2 labour costs, June TIC data, weekly jobless claims • Mexico, Uganda and Fiji central bank policy decisions • Argentina July inflation (Editing by Larry King)