European cash equity markets are mixed ahead of the midway stage with peripheral bourses faring better than their core counterparts (FTSE -0.2%, DAX +0.1%, CAC 0.0%, FTSE MIB +0.8%). Italian banks are among the best performers on the Stoxx 600, rallying alongside Italian government bonds after PM Conte confirmed a new budget deficit target of 2.04% for next year. The basic resource and auto sectors have also outperformed on further optimism surrounding US-China trade relations. Oil stocks have lagged meanwhile, tracking a modest decline in crude prices this morning with US crude futures down around -0.7%. In the bond markets, Gilts are ahead and have outperformed their German counterparts ahead of the ECB this afternoon while data releases were largely ignored – both German and French November CPI prints were unrevised from the flash estimates. Turning to currencies, the Dollar Index is flat at just above 97.0 which has helped Cable to squeeze out a small gain and move above yesterday’s high. On the Brexit front, UK PM May will now travel to Brussels after winning the confidence vote to seek further assurances on the backstop although any changes to the agreed text are unlikely. The Norwegian Krone is the strongest of the G10’s meanwhile after the Norges Bank left the Key Policy Rate on hold. The Swiss National Bank also stood pat on policy. Looking ahead, futures are pointing to a relatively flat open on Wall Street with US import prices and jobless claims due for release at 13:30 GMT. The ECB policy statement and press conference are also expected at 12:45/13:30 GMT.
Key Headlines/Data:
* EU may offer backstop assurances to help secure deal (The Times):
– European leaders are prepared to offer Theresa May assurances that the backstop would only be in place for a “short period” in a move to help her pass the deal, an EU document disclosed last night.
* Swedish Unemployment Rate (Nov) 6.9%, previous 6.9%
* German CPI Data (Nov F):
– CPI M/M +0.1% versus +0.1% expected, previous +0.1%
– CPI Y/Y +2.3% versus +2.3% expected, previous +2.3%
– HICP M/M +0.1% versus +0.1% expected, previous +0.1%
– HICP Y/Y +2.2% versus +2.2% expected, previous +2.2%
* French CPI Data (Nov F):
– CPI M/M -0.2% versus -0.2% expected, previous -0.2% revised to +0.1%
– CPI Y/Y +1.9% versus +1.9% expected, previous +1.9% revised to +2.2%
– HICP M/M -0.2% versus -0.2% expected, previous -0.2% revised to +0.1%
– HICP Y/Y +2.2% versus +2.2% expected, previous +2.2% revised to +2.5%
* Chinese Commerce Ministry said they would welcome a US trade delegation to China.
* EU draft statement said they stand ready to examine whether any further assurances can be offered to the UK on the Irish backstop, but would not change of contradict the withdrawal agreement.
* Swiss PPI Data (Nov):
– PPI M/M -0.3% versus +0.1% expected, previous +0.2%
– PPI Y/Y +1.4%, previous +2.3%
* SNB Policy Statement – Sight Deposit Rate unchanged at -0.75%:
– Overall, the Swiss franc is still highly valued, and the situation on the foreign exchange market continues to be fragile.
– The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary remain essential
– Risks are to the downside, as is the case with the global economy. In particular, a sharp slowdown internationally would quickly spread to Switzerland.
* SNB President Jordan said he sees the risk of major and sudden changes in the exchange rate which would significantly alter monetary conditions.
* Swedish Unemployment Rate (Nov) 5.5%, previous 5.5%
* IEA Monthly Oil Report:
– Our estimate of 2018 oil demand growth is largely unchanged at 1.3 mb/d.
– Our projection for oil demand growth in 2019 remains also unchanged, at 1.4 mb/d
– OPEC crude oil output rose 100 kb/d m-o-m to 33.03 mb/d in November
* Norges Bank Policy Statement – Key Policy Rate unchanged at 0.75%:
– The upturn in the Norwegian economy appears to be continuing.
– Underlying inflation is close to the inflation target of 2 percent.
– Uncertainty surrounding the effects of higher interest rates suggests a cautious approach to interest rate setting.
– Overall, the outlook and the balance of risks imply a gradual interest rate increase in the years ahead. The policy rate forecast is little changed, but the fall in oil prices and weaker global growth prospects imply a slightly slower rate rise than in the September Report.
– “Our current assessment of the outlook and the balance of risks suggest that the policy rate will most likely be raised in March 2019”, says Governor Øystein Olsen.
* Norges Bank Governor Olsen said he sees two rate increases next year, plus one in 2020 and another two in 2021.
* According to the schedule set out by UK parliament leader Leadsom, there will be no vote on the Brexit deal before Christmas. Leadsom later said there will be a vote on the deal by January 21st
* UK government spokesman said a parliament vote on the Brexit deal is still possible next week.
