MORNING BID EUROPE-Euro zone growth and a Pirate raid

by Reuters
Friday, 28 October 2016 08:22 GMT

* A look at the day ahead from EMEA Economics and Politics Desk Editor Jeremy Gaunt and EMEA Markets Editor Mike Dolan. The views expressed are their own.

LONDON, Oct 28 (Reuters) - A big day for euro zone data with France and Spain releasing their latest GDP numbers. France managed some growth in the third quarter but not quite as much as a Reuters poll had predicted. Spain, meanwhile, continued its roar back from tough times (it still has an unemployment rate just shy of 19 percent, however, which is socially unsustainable).

Germany's states will also give some idea of the inflation picture in the euro zone's largest economy (the driver for everyone else). For the euro zone as a whole October's business and consumer sentiment will be on show.

Among those watching this closely with be the European Central Bank. Some data have shown the economy growing, possibly responding to the ECB's huge stimulus. It has to decide at its next meeting in December whether to extend its bond buying and tinker with the rules so that it can actually find something to buy.

It probably will do both - but a growing economy is likely to mean that it will then start thinking about how to row back. Some of its members are out and about in Europe today, making speeches.

There will also be multiple temptations for headline writers to exercise their inner buccaneer with Iceland's election, taking place on Saturday. The Pirate Party has a shot - at least across the bows. The significance is it would be another boarding party on the Establishment, a good rocking of the boat.

MARKETS, DATA & RESULTS

The bond markets are growling again. Led by a startling Q3 GDP surprise from the UK that was quickly used as a read across to U.S. GDP numbers out later on Friday, benchmark U.S., UK and German government borrowing costs spiked higher and have unnerved all markets across the world. Ten-year gilt yields pushed as high as 1.29 percent after the GDP report - which now means they have risen a whopping 80bps since mid-August. German bund yields also jumped, even if to modest 0.20 pct. But bund yields too are up some 40bps now since early July. But with a December Fed rate hike now seen as baked in, the surge in U.S. Treasury yields to a four-month high of 1.87 pct - a 50bps rise since mid-summer - saw the dollar outperform across the currency markets too, even against the pound. Next week sees policy meetings at the Fed, Bank of Japan and Bank of England - with the simultaneous release of the BoE's inflation report. The UK GDP numbers will have junked any expectations of a further easing there. G3 bond yields have only backed off slightly from Thursday's peaks. The U.S. GDP release will now be pivotal today, with consensus forecasts of an acceleration in annualised growth there to 2.5 pct in Q3 from 1.4 pct the previous quarter now likely seen as conservative if the UK surprise is any reflection of world demand more generally. Brent crude oil prices, where year-on-year base effects are feeding inflation forecasts and the bond yield rise, have held up well above $50 a barrel despite a test of that this week. On that front, Citi economists now forecast 2017 inflation across the developed world to be 2.0 percent - broadly meeting central bank targets and the highest aggregate level since 2012. Asia stock markets were broadly in the red in line with Wall St earlier, with Tokyo's Nikkei bucking that trend due to the weaker yen. European stocks are expected to open lower too. Flying in the face of the UK number, French Q3 GDP came in below forecast. Russia's central bank is expected to keep interest rates unchanged later.

The third quarter earnings season is gathering pace in Europe. According to Thomson Reuters data, nearly 100 companies in the STOXX Europe 600 index had reported earnings by Thursday, of which 55 percent beat estimates, against a long-term average of 49 percent. However, analysts expect Q3 earnings to fall by 9.9 percent from the corresponding quarter of last year. Next week is another busy period as 76 European companies are scheduled to announce their results.

Swiss bank UBS maintained its gloomy outlook on market conditions after third-quarter net profit plummeted and it increased provisions for litigation costs related to mis-selling of mortgage-backed securities.

Royal Bank of Scotland swung to a third-quarter loss, hit by costs related to past misconduct and restructuring that cast more doubt on when the government might begin to recoup more of its 2008 emergency investment.

BNP Paribas increased its capital buffer in the third quarter as it reported a better-than-expected net profit, boosted by stronger revenue at its investment banking division.

Other possible stock movers: Linde launches new savings programme after failed merger; AB InBev cuts guidance due to weak Brazil beer market; Sanofi earnings beat view, lifts outlook; Eni posts Q3 net loss, misses expectations; Novo Nordisk trims 2016 profit forecast, hit by tough U.S. market; IAG cuts 2016 forecast on sterling weakness; Geberit says Q3 profit rose 27 pct on cost control; Abengoa U.S. unit's creditors demand financial details; Anglo American has pleaded guilty in an Australian court to charges relating to the death of a worker; and Hermes Investment Management has joined a consortium bidding to buy a controlling stake in the gas distribution division of National Grid.

Emerging equities slipped 0.2 pct to 10-day lows and were on course to end the week down, although the index is still 1 percent up for the month.

The Russian central bank meets today but is expected to keep its benchmark rate on hold at 10 pct. The rouble was 0.13 percent weaker against the dollar ahead of the meeting, and has been pressured this week by oil prices moving back towards $50 a barrel.

The Turkish lira weakened to a new record low against the dollar in early trading having lost 1 percent this week in the face of dollar strength.

The Korean won slid to a 3-1/2 month low, hindered by a political scandal in which the president faces allegations that an old friend enjoyed inappropriate influence over her, driving her support to an all-time low.

Philippines stocks fell 1.6 pct to 2-week lows, as President Rodrigo Duterte's persistent rants against the U.S. dampened sentiment.

The Egyptian pound hit a new low against the dollar on the black market as speculators held onto dollars in anticipation of an impending pound devaluation.

Fitch has a rating review later on Kazakhstan, which it currently has at BBB/Stable. Moody's has rating reviews on Bahrain and Zambia. (Editing by Louise Ireland)

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