European cash equity markets are broadly lower ahead of the midway stage; auto stocks have underperformed alongside other trade-sensitive sectors such as basic resources and technology (FTSE -0.5%, DAX -0.6%, CAC -0.5%). Optimism surrounding US-China trade negotiations has dissipated somewhat versus yesterday amid conflicting reports of when the 90-day period for talks begin. Energy related stocks have outperformed meanwhile, supported by further gains in oil prices – US crude futures and Brent are both up over two-percent as we write. The pullback in risk sentiment has also been evident in the bond markets as US and German government bonds trade higher on the day. UK government debt had followed suit but Gilts tumbled lower after an EU court aide suggested that the UK could pull ‘Article 50’ unilaterally. Data releases did not prompt much reaction including stronger-than-expected Euro Zone PPI and UK Construction PMI. Turning to currencies, the Dollar Index has dropped -0.5% to its lowest level in just over two-weeks. The Norwegian Krone is leading the G10’s after an upbeat Norges Bank Regional Network Survey while Sterling and the Japanese Yen are not far behind. We did hear from Bank of England Governor Carney this morning who said he assigns a low probability of a disorderly or no-deal Brexit scenario. He later assured that the UK financial sector is prepared for any outcome. Looking ahead, futures are pointing to a slightly lower open on Wall Street with Canadian labor productivity and ISM New York both due for release. We also expect possible comments from New York Fed President Williams.
Key Headlines/Data:
* European Corporate News:
– GlaxoSmithKline (+1.5%): FT – Entered talks to sell nutrition business to Unilever | Times of India – Near a deal to sell consumer healthcare business to Nestle
– BT Group (+1.9%): Raised to ‘buy’ from ‘neutral’ at Goldman Sachs
– JCDecaux (-3.9%): BNP reinstated coverage of the stocks at ‘underperform’
* According to Corriere, Italian Deputy PM’s Salvini and Di Maio are open to a possible two-percent deficit target:
– However, Messaggero reports that a deficit target of two-percent is not low enough for the EU
– Italian PM Conte said a revised version of the budget will be released later today, adding that his objective is to avoid Italy being penalised in a way that hurts our country and risks also hurting Europe
* Citing government sources, AFP said French PM Phillipe is set to suspend the planned fuel tax increase.
* French Budget Balance (Oct) -€87.0 Bln, previous -€87.1 Bln
* Riksbank Deputy Governor Jansson said it is stoo early to say whether rates will rise in December or February. He noted that the economy and data have not been that positive while inflation figures have also been weak.
* Swiss CPI Data (Nov):
– CPI M/M -0.3% versus -0.1% expected, previous +0.2%
– CPI Y/Y +0.9% versus +1.0% expected, previous +1.1%
* ECJ Advocate General says UK can revoke Article 50 unilaterally.
* Norges Bank – Regional Network Survey 1.49, pervious 1.46:
– The enterprises in Norges Bank’s regional network report solid output growth, in line with what they reported in August.
– Higher activity in the oil sector, higher public investment and digitalisation in both the private and public sector contribute most to growth.
– The decline in residential construction and weak growth in retail trade are having a dampening impact.
– Output growth is expected to pick up somewhat over the next six months and the outlook is in line with contacts’ expectations earlier this year.
* Bank of England Governor Carney said he assigns a low probability of a disorderly or no-deal Brexit scenario. He later assured that the UK financial sector is prepared for any outcome.
* UK Construction PMI (Nov) 53.4 versus 52.5 expected, previous 53.2:
– Solid expansion of overall construction output
– Residential work reclaims its place as best performing area of construction activity
– Job creation accelerates to its fastest since December 2015
* OPEC works on deal to cut output, still needs Russia on board (Reuters):
– OPEC and its allies are working towards a deal to reduce oil output by at least 1.3 million barrels per day, four sources said, adding that Russia’s resistance to a significant production cut was so far the main stumbling block.
* Euro Zone PPI Data (Oct):
– PPI M/M +0.8% versus +0.5% expected, previous +0.5% revised to +0.6%
– PPI Y/Y +4.9% versus +4.5% expected, previous +4.5% revised to +4.6%
* Saudi Energy Minister al-Falih said it would be premature to say whether OPEC+ will cut production.
