A discussion paper from the European Commission says the slowing euro zone economy needs pre-emptive fiscal stimulus from cash-rich countries like Germany and the Netherlands or it will face a long period of low growth. The paper will be presented in full to eurozone finance ministers next week telling them that the eurozone will not rebound this year and suggesting that countries with budget surpluses like Germany and the Netherlands should invest more while Italy or Greece, referred to as “high-debt member states” should convince the markets that their debt will fall. German Chancellor Angela Merkel acknowledged last month that governments should act not to overburden the ECB but has so far resisted calls to draft a fiscal stimulus package even though Europe’s biggest economy is on the brink of a recession. The Commission refers to the base scenario of slower economic growth which does not even mitigate for possible trade conflict between the United States and Europe that would include tariffs on EU cars, or Britain exiting the EU without a deal. The ministers’ talks will be followed by discussions on how to fund a 7-year 17.5 billion euro budget which France wanted to increase 10 times but backed down after fierce opposition mainly by the Netherlands.
The U.S. dollar steadied yesterday as investors await Sino-U.S. trade talks developments and neither side has shown signs of giving ground at the negotiations. The dollar rose 0.14% to 107.18 yen and traded at 98.959 against a basket of currencies. The Chinese yuan was also firm on both onshore and offshore trade as Chinese financial markets reopened after the week-long holiday. CNH traded at 7.1263 per dollar onshore and gained around 0.1% to 7.1257 per dollar offshore. The Australian and New Zealand dollars, both very sensitive to global trade, regained lost ground with AUD rising 0.24% to $0.6748 and the New Zealand dollar advancing to $0.6318. The euro hovered around $1.0975 slowly recovering from a 2.5 year low hit last week. Sterling was little moved at $1.2296 as investors await for EU’s answer to the UK’s Brexit deal proposals. The Turkish lira declined more than 2% to 5.837 per dollar after Ankara’s planned invasion in northern Syria. Trump threatened to “destroy” Turkey’s economy if the military strike goes “too far” while committing to withdraw U.S. troops.
Asian shares edged up as Chinese shares opened up with gains after a week-long holiday. Japan's Nikkei climbed advanced 1.0% while MSCI's Asia-Pacific shares gained 0.55% helped by tech shares gains in South Korea and Taiwan. Hong Kong shares continued their rally after the territory's leader said she had no plans to use the emergency regulation ordinance to introduce other laws. Euro Stoxx 50 futures was also trading up 0.2%. In the United States, the S&P 500 lost 0.45% retracting from previous gains.
Oil prices were buoyed by gains in industrial commodities although disruption in Iraq and Ecuador raised concerns of the trend being short lived. Brent crude rose 0.7%, to $58.73 a barrel while U.S. West Texas Intermediate was at $53.08, up 33 cents. Russia, the world’s second-largest oil producer, joined a number of countries that have lately changed their oil supply as its Energy Minister said production may increase by 0.3-0.5 million barrels per day if Saudi Arabia’s production problems were to last longer than anticipated.