European shares edge higher after breakthrough in Merkel migration row

European Stock Markets

European shares edged higher on Tuesday after German Chancellor Angela Merkel’s conservatives settled a row over migration and gave some respite to investors facing a rage of political worries including trade tensions with the United States. 

The pan-European STOXX 600 was up 0.6 percent by 0833 GMT with Germany's DAX .GDAXI posting the best performance with a 0.9 percent rise.

The dispute over immigration had threatened to topple Merkel’s fragile governing coalition but in a breakthrough late on Monday evening, her rebellious interior minister dropped his threat to resign after five hours of talks.

Asian shares, which had sustained heavy falls overnight, particularly in China, recouped some of their losses before European bourses opened, helping restore sentiment.

Chinese financial markets have been jittery ahead of a July 6 deadline, when the U.S. is set to slap tariffs on $34 billion worth of Chinese goods that Beijing has vowed to match with tariffs on U.S. products.

Miner Glencore fell more than 10 percent after it said a subsidiary had received a U.S. Department of Justice subpoena requesting documents and records on compliance with the Foreign Corrupt Practices Act and U.S. money-laundering statutes.

The documents requested from subsidiary Glencore Ltd relate to the group’s business in Nigeria, the Democratic Republic of Congo (DRC) and Venezuela from 2007 to present, Glencore said, adding it was reviewing the subpoena.

Another big faller was BE Semiconductor, the Dutch equipment maker (BESI.AS) lost over 8 percent after cutting revenue forecast.

Societe Generale (SOGN.PA) rose 1.3 percent and Commerzbank (CBKG.DE) up 2.1 percent after the latter agreed to sell its equity markets and commodities business (EMC) to the French bank.

EU Hardens Against Trump With United Stand on Trade and Iran

Global Stock Markets

European Union leaders presented a determined front to stand up to U.S. President Donald Trump’s threats to penalize EU businesses and scupper the Iran nuclear deal.

 As the bloc paved the way for retaliation, its 28 leaders meeting in the Bulgarian capital Sofia made a rare demonstration of unity in the face of what EU President Donald Tusk called the “capricious assertiveness” of the Trump administration.

Tusk told leaders over a late dinner on Wednesday that the EU will continue fighting for the rules-based international system, despite recent U.S. decisions on climate change, tariffs and on Iran, according to an EU official present. On trade, all agreed to back the European Commission’s insistence that it won’t negotiate unless the U.S. grants a permanent exemption from tariffs on steel and aluminum, the official said.

Macron spoke as the Commission, which negotiates trade matters on behalf of the bloc, published a law preparing retaliation. It foresees the possibility of hitting 2.8 billion euros ($3.3 billion) of U.S. goods imported into the EU with a reciprocal 25 percent levy as of June 20.

Europe’s mood is shifting from shock at Trump’s “America First” agenda to a resolve to close ranks and assert its own position. Trans-Atlantic tensions came to a head with the U.S. president’s decision announced last week to pull out of the landmark Iran nuclear accord which the remaining signatories -- Russia, China, France, Germany and the U.K., along with the EU -- all say is working.
Energy Ties

Leaders including Macron and German Chancellor Angela Merkel agreed that the commission, the EU’s executive, is prepared to discuss trade concerns with the U.S. including deepening energy ties and reform of the World Trade Organization once a permanent waiver is in place, the official said. The bloc would also discuss WTO-compatible ways to improve reciprocal market access for industrial products including cars to avoid a trade war.

Merkel, Macron and British Prime Minister Theresa May briefed fellow leaders on Iran, after failing to persuade Trump to stick with the accord. The EU agreed to begin work to protect European companies negatively affected by the U.S. decision to withdraw and reimpose sanctions, while also addressing concerns about Iran’s ballistic missile program and its wider role in the Middle East.

The EU’s proposals are its most assertive yet in dealing with the U.S., whose withdrawal from the 2015 agreement threatens to scupper the treaty and has worried leaders it could put Iran back on a path to developing nuclear weapons.

EU discussions on how to keep the deal -- and economic relations with Iran -- alive, have focused on: keeping Iran’s oil and gas industry viable; the creation of special purpose vehicles to allow for transactions between the regions; developing more contracts between European companies and their Iranian counterparts; and how to protect European firms that continue to work with Iran.
Blocking Statute

The EU has discussed instituting a so-called blocking statute, which would shield European companies doing business with Iran. The last time the bloc threatened to use this measure was in 1996, when Bill Clinton’s administration stood down and agreed to waive sanctions aimed at curbing foreign investment in Cuba, Iran and Libya.

The proposed EU actions are no guarantee that the accord can be salvaged, however, with the U.S. Treasury Department saying companies with existing contracts will have 90 to 180 days to extract themselves from their Iran dealings before becoming subject to penalties.

Euro gains: Key political developments in Germany and Italy.

European Stock Markets

The euro gained on Monday as a fall in U.S. Treasury yields dragged down the dollar, but trading was relatively quiet ahead of several speeches by central bankers and key political developments in Germany and Italy. 

With the dollar’s bounce since it hit a three year-low on Feb. 16 fizzling out, the euro was able to rise 0.3 percent and climb to $1.2328. 

But the euro remains 2 cents off its recent highs of more than $1.25 - the currency has rallied this year on the back of dollar weakness - and analysts said investors were cautious about taking big positions this week due to political risks. 

Italians vote in a national election on Sunday, while the leading political parties in Germany, Europe’s biggest economy, will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor. 

Analysts pointed to weekly futures data that showed net long positions in the euro had fallen for a third consecutive week. European Central Bank President Mario Draghi’s appearance in the European Parliament on Monday and euro zone inflation data due later this week also add to a nervous outlook for euro trading. 

The dollar index, which measures the greenback against a basket of six major rivals, eased 0.2 percent to 89.685. It gained nearly 0.9 percent last week and pulled away from a three-year low near 88.25 set on Feb. 16. 

A view that the dollar’s sell-off had been overdone, plus minutes from the Fed’s January rate-setting meeting that offered a relatively upbeat tone, helped give the dollar a lift last week.

The dollar fell 0.1 percent versus the yen to 106.65 and erasing some of its earlier losses in Asian trading. 

While stock markets started the week on a solid footing and pointed to strong risk appetite, futures data suggested foreign exchange investors were cutting their risk exposures, albeit from high levels.

Positions in risk-related foreign exchanges, particularly sterling and the Canadian dollar, fell, according to the data.

Euro jumps to 3-year high on German coalition breakthrough

European Stock Markets

The euro climbed to a three-year high on Friday after German Chancellor Angela Merkel's conservatives and rival Social Democrats reached a breakthrough in coalition talks.

The news gave fresh legs to the current rally being driven by expectations that the European Central Bank (ECB) may quicken the pace of trimming its massive monetary stimulus.

In early London trading on Friday, the euro rallied 0.7 per cent against the US dollar to hit its highest levels since January 2015 at US$1.2120.

On a two-day cumulative basis, the single currency has jumped 1.4 per cent, its best performance since August last year.

On Thursday, minutes of the ECB's December meeting showed policymakers could revisit their communication stance in early 2018, boosting expectations that they are preparing to reduce their vast monetary stimulus programme.

Euro rebounds from earlier lows as traders brush off Germany worries

European Stock Markets

The euro recovered from a two-month low against the yen touched in Asian trade on Monday, with investors brushing off the broader political risks of a failure of German Chancellor Angela Merkel to form a three-way coalition government. 

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

The development thrust Germany into a political crisis that raised worries among investors of a new election if Merkel cannot form a minority government.

The main fear in that scenario would be that the far-right, anti-immigrant Alternative for Germany (AfD) party could add to the 13 percent of votes it secured in September. But the parliamentary process required to get through another election is considered to be quite difficult, involving more than one vote in the German parliament.

After selling off sharply in early deals in Asia, trading down as much as 0.8 percent to hit 131.16 yen, its weakest since Sept. 15, the euro rebounded as much as 1 percent to trade slightly higher on the day, at 132.33 yen.

The dollar had also sold off against the yen - generally sought at times of uncertainty - in Asian trading, dipping to a one-month low. But it turned slightly higher against the Japanese currency in European trading, at 112.05 yen.

The euro fell as much as 0.5 percent against the dollar in Asian trading to $1.1722, pulling away from a one-month high of $1.1862 set on Wednesday last week. But it recovered to trade up 0.1 percent on the day at $1.1802 in London trade.

Maybe what markets are saying overall is that minority government or further coalition talks are fine, as long as the economy is growing, wrote Societe Generale macro strategist Kit Juckes, in London.

Many analysts expect this to be a relatively calm week of trading.

May says will 'honour commitments' to EU

Prime Minister Theresa May said on Friday she had told fellow EU leaders that Britain would honour its commitments to the Union on Brexit and that other countries would not lose out in the current budget plan.

Asked whether she had told leaders over dinner on Thursday that she was ready to increase Britain’s financial offer, May told reporters that she had repeated points made in a speech at Florence last month. EU leaders said May had made no new pledges and repeated her view that many of the EU’s demands had “no legal framework”.

German Chancellor Angela Merkel, in a markedly positive response on Friday to an EU summit appeal by Prime Minister Theresa May for help with Brexit, said talks with Britain were moving forward and were unlikely to break down.

Merkel made her comments at the end of the first day of a European Union summit and after May had appealed to her fellow leaders to help her silence critics at home and break a deadlock in the talks. After May left the meeting on Friday, the other 27 confirmed a goodwill gesture to speed up future talks by launching internal preparations for after Brexit.

“In contrast to how it is portrayed in the British press, my impression is that these talks are moving forward step by step,” Merkel told a late-night news conference, dismissing as “absurd” suggestions in Britain that the talks should be broken off.

“I have absolutely no doubts that if we are all focussed ... that we can get a good result. From my side there are no indications at all that we won’t succeed,” she said.

Arriving for the second day, others emphasised the positive too: Maltese Prime Minister Joseph Muscat called May’s speech her “best performance yet” and “a warm, candid and sincere appeal”. Ireland’s Leo Varadkar said it was “very strong”.

But others complained they had heard little new of substance and rejected May’s repetition of London’s view that demands for money from Brussels have “no legal framework”. Austrian Chancellor Christian Kern said “rhetorical progress” needed to be followed by “tangible conclusions”.

Euro Zone

Germany really has not been aggressive on the leadership front, as many would like it to be, mostly because of the history of Germany in Europe. In many cases, like the situation in Greece over the past couple of years, Europeans still bring up Germany’s Nazi past whenever they don’t like whatever it is that Germany is advocating.

Angela Merkel over the three terms that she has served as Chancellor has tried to walk a narrow line, taking a strong position here and there, but doing so in a way that will produce as little in the way of controversy as possible. Given Germany’s position within the EU, not just politically, but also because it is the largest economy in the EU, playing such a moderate role leaves the community without the guidance that it really needs.

Should she be re-elected and because of the changing relationship between the United States and Europe, Ms. Merkel appears to be taking a stronger stance in several areas that are important for the future of the Eurozone. This stronger leadership role also seems to be contributing to the strength of the Euro.

Next-door France is also contributing to the strength of the Euro. The election of Emmanuel Macron as the President of France has been a positive, and Mr. Macron, who “got to work” right from the start of his term, went to Ms. Merkel, seeking a partnership in the affairs of Europe and the European community. This was a very good start.

However, Mr. Macron has been suffering in the polls ever since he was elected President. In fact, his decline in the polls has been the most rapid of any new French president in their first 100 days on the job. His approval rating dropped to 36% from about 63% in a recent to Ifop poll.

The main reason for this is that Mr. Macron’s party did not exist 18 months ago. Furthermore, in the first round of voting, only 24 percent of the voters supported Mr. Macron. In the final runoff election against Marine Le Pen, the far-right populist candidate, he received a resounding 66 percent of the vote, although many voters, voted against Ms. Le Pen rather than voting for him.

He still has very strong support amongst his base and the Economist magazine had an article this week that discussed the reasons for Mr. Macron’s decline in the polls. The strongest argument for his decline in the polls is, he is a very brash, young, newcomer to politics, and is doing some very unpopular things.

A short time ago, Mr. Macron was an investment banker and focused on economics and markets, much to the dislike of many of the French. But, the point is that someone had to provide this kind of leadership for the French people if the French were ever to move in the right direction for the economic reforms needed.

Many of the reforms that he is suggesting besides spending cuts, is an effort to bring France into conformity with the deficit guidelines of the European Union. He is trying to build an economic program that will spur on growth and stimulate job creation. Furthermore, he has added a much-needed anti-corruption law that the public has given him very little credit for.

Furthermore, all these changes take time to work themselves through the economy. Coming up is a tough month for Mr. Macron who will present to the nation, labor reforms in September and these will be accompanied by strikes scheduled for September 12th.

The important thing here is that investors are in Mr. Macron’s camp even if the French polls are not.
The changes that Mr. Macron is bringing to France are the changes that are needed to make the country more productive and more competitive.

Analysts and investors know this and are encouraged by the efforts that Mr. Macron is making.  Not to mention that he is working with a stronger and  more assertive Angela Merkel, which should provide for a stronger, more complete European Union.

The last piece of this puzzle is Italy and the possibility that Mr. Matteo Renzi, the young former Prime Minister, will get re-elected in the spring of 2018 and provide a third partner to the team to build a new EU. The investment community too, we believe, would see this as positive and this would be good for the Euro.

Wavering risk appetite after Manchester blast weighs on sterling

Sterling slipped on Tuesday after a suspected suicide attack killed at least 22 people and wounded 59 at a pop concert in the English city of Manchester, while the euro held gains made after German Chancellor Angela Merkel said it was "too weak". 

Despite the explosion, at a concert by U.S. singer Ariana Grande, European markets were poised for a positive, albeit subdued, start.

Financial spreadbetter CMC Markets expected Britain's FTSE 100 to open up 0.1 percent, and Germany's DAX and France's CAC 40 to start the day little changed.

The attack came just two-and-a-half weeks before an election that British Prime Minister Theresa May is expected to win easily, although polls showing that the contest was tightening added to sterling's woes.

Sterling eased almost 0.2 percent to $1.2978. It fell 0.3 percent on Monday. The pound dropped 0.4 percent to 144.06 yen, after losing 0.2 percent on Monday.

If the blast is confirmed as a terrorist incident, it would be the deadliest attack in Britain by militants since four British Muslims killed 52 people in suicide bombings on London's transport system in July 2005.

The impact on other areas of the market was limited, with Britain's FTSE futures inching slightly lower, while S&P E-mini futures slipped 0.2 percent.

The euro hit a six-month high overnight after Merkel said the currency, made "too weak" by the European Central Bank's monetary policy, helped explain Germany's relatively high trade surplus.
The common currency was little changed at $1.1231 after jumping as much as 0.5 percent and closing 0.3 percent higher on Monday.

Merkel challenger backs Macron's idea for euro zone budget

German Social Democrat (SPD) leader Martin Schulz, who will run against Chancellor Angela Merkel in a September election, has backed French president-elect Emmanuel Macron's idea of a common budget for euro zone states to fund investment.

"If the euro group states are to tackle things together, joint budget financing would be sensible," Schulz told Die Zeit newspaper.

Merkel champions free trade for EU

The European Union needs policies that are based on free trade and the bloc must pursue deals with other countries to ensure it does not become isolated, German Chancellor Angela Merkel told the German parliament on Thursday before an EU leaders summit.

"Even if we see a nationalist, protectionist approach on the rise in parts of the world, Europe must never lock itself in, seal itself off and withdraw," said Merkel.

"Europe must preserve its openness toward the world especially in trade policy," she said.