MORNING BID EUROPE-May bats back leadership doubts
* A look at the day ahead from European Economics and Politics Editor Mark John and EMEA emerging markets chief correspondent Sujata Rao. The views expressed are their own. (Adds markets)
LONDON, Jan 31 (Reuters) - Once more British PM Theresa May embarks on a trip abroad just as questions over her leadership mount at home. At a briefing for journalists heading to China with her, May fielded a dozen or so queries regarding her future with her usual "I'm no quitter" response before trying to focus minds on the three-day trip ahead and its aim of preparing the ground for an eventual free trade deal with China. More immediately, inflation and its implications for interest rates are back in focus. Yesterday's weaker than expected German inflation suggested that price pressures remain moderate even in the eurozone's largest (and booming) economy; contrast that to Bank of England Governor Mark Carney's assertion later in the day that the central bank was refocusing on bringing down inflation, up at around a six-year high of 3.1 percent after sterling's drop in value last year. Economists mostly expect the next BoE (Shenzhen: 000725.SZ - news) rate hike in the second half of 2018 but Carney's comments could embolden those betting on it moving as soon as May. Some significant industrial action across Europe today: Greek public hospital doctors are planning a 24-hour strike and protest over labour issues as the Greek government continues with reforms; in Germany, union IG Metall has called for full-day walkouts from today through to Friday to push its wage claims in the large metal and engineering sector.
Treasury yields near four-year highs have focused minds and forced world stocks off record highs in recent days, but today European stocks have opened higher and U.S. stock futures too indicate a firmer day ahead. World stocks are on track for a record 15th month of gains, even if the last day of the month shows the MSCI (Frankfurt: 3HM.F - news) all-country index virtually unchanged. Asian and emerging stocks are poised for the best month in nearly two years; euro zone blue chips are on track for the best month since September. So far, last night’s Wall Street moves, with Dow Jones suffering its worst two day streak since Sept 2016, have not filtered through.
On the bond front, Treasury yields are on track for their biggest monthly upward move since Nov 2016 in percentage terms. German and Japanese yields have risen sharply this month, with Bunds yields set to end some 25 bps higher. Is this the beginning of the end for the bond bulls? It's too early to tell – after all, lackluster German inflation yesterday pulled 10-year Bund yields off the 0.7 percent mark.
Some policymakers seem alarmed – the Bank of Japan hoovered up more bonds today in a move seen as a warning shot against further yield rises and that pushed down 10-year JGB yields around 0.5 percent.
There are bright spots. Donald Trump’s State of the union speech contained no aggressive trade salvos and the U.S. Fed meeting should end tonight with no surprises, even if it results in what some market players call “a hawkish hold”. The greenback is set for the biggest monthly fall – 3.5 percent – since March 2016 and has retreated again today. The euro is now 0.4 percent higher, though still some way off the $1.25 mark. Sterling too is up. German unemployment today should show another fall, potentially implying rising wage pressures. French inflation is also due. Bitcoin is just holding above $10,000 and oil is down for the third day in a row. Europe’s stock markets have opened higher, with financial results taking centre stage today across industrials, banking and retail sectors. Banks had mixed results as ING’s profit disappoints while SEB (LSE: 0MGS.L - news) beats expectations. The STOXX banks index is set for its best month since March last year. Auto stocks are under pressure after data showed British car production fell last year for the first time since 2009 and investment slumped by a third. Pharmaceuticals could also be a focus after President Trump again took aim at the sector, lambasting high drug prices in his speech. And in an early sign of the weak dollar hurting some exporting European companies, chipmaker Infineon (Xetra: 623100 - news) slashed its revenue guidance, blaming the greenback.
In emerging markets, stocks rise 0.3 percent, with the main index up 8 percent since the start of the year– the best monthly rise since March 2016 and the best January since 2006. However, China mainland stocks fare mixed on the day as PMI data showed manufacturing growth slowing more than expected to an 8 month low. Emerging currencies are also up on the day and on track for monthly gains across the board. Mexico’s peso puts on one of the best performances, ending January more than 5 percent stronger with the outcome of NAFTA talks looking somewhat more optimistic following the last round in Montreal. South Africa’s rand enjoys a third straight month of gains, up nearly 4 percent while China’s yuan and Russia’s rouble are not far behind that. Even (Taiwan OTC: 6436.TWO - news) Turkey’s lira strengthened 0.5 percent over the month, despite January being marred by the latest tensions with Washington following Ankara’s engagement in Syria’s Afrin region. Latest Turkey December trade data shows a widening trade deficit, however tourism revenue numbers for the whole of 2017 show a 18.9 percent jump. Data and events for WEDNESDAY Australia CPI inflation China Jan NBS PMI France, Spain Jan inflation Germany Jan jobless, Dec (Shanghai: 600875.SS - news) retail sales Germany auctions 5-year government bonds Riksbank chief Ingves speaks in Oslo Turkey Dec trade US Jan ADP private sector jobs report; Q4 wage data FOMC policy decision after final meeting for chair Yellen
Europe corp events: SEB Q4, Telenor Q4, Volvo Q4, H&M Q4, Electrolux Q4, UPM Q4, Santander Q4, ArcelorMittal Q4, Ericsson (Hanover: ERCB.HA - news) Q4, Siemens Q1 and AGM, Securitas Q4, KPN Q4, Infineon Q4 US Q4 earnings: Microsoft (Euronext: MSF.NX - news) , Facebook (NasdaqGS: FB - news) , PayPal (TLO: PYPL-U.TI - news) , eBay, Qualcomm (Swiss: QCOM-USD.SW - news) , MetLife (NYSE: MET - news) , AT&T (Sao Paolo: ATTB34.SA - news) , Symantec, Citrix, DR Horton, Ingersoll Rand, Xerox (Swiss: XRX.SW - news) , Boeing (NYSE: BA - news) , Eli Lilly, ADP, (Editing by Raissa Kasolowsky)