European cash equity markets are nursing heavy declines ahead of the midway stage; we have seen notable underperformance in the basic resource and technology sectors which dragged the Euro Stoxx 600 to its lowest level in two years (FTSE -2.5%, DAX -2.4%, CAC -2.3%, FTSE MIB -2.4%). Asian stocks suffered a similar fate overnight as markets were jolted by news that the CFO of Huawei had been arrested in Canada as the request of US authorities – the move will do little to improve the current state of US-China relations and puts the 90-day trade truce into serious doubt. Energy related stocks have also slumped this morning, tracking sharp losses in the oil markets as investors expect OPEC+ to underwhelm with a smaller-than-expected output cut. Saudi Energy Minister al-Falih has said they do not want to shock the market yet Brent crude futures fell over five-percent at the low of $58.36. In the bond markets, both Treasuries and core European bonds are in the green with Gilts extending the highs in recent trade after a solid 2049 Gilt auctions. Data releases were largely ignored meanwhile including stronger prints for German factory orders and construction PMI. Turning to currencies, the Dollar Index has edged up +0.1% to 97.1 while the Japanese Yen sits at the top of the G10 pile. The Australian Dollar is the weakest, followed by the Canadian and New Zealand Dollar as trade concerns and oil prices weigh. We did hear from RBA Assistant Governor Debelle who said there is still scope for further reductions in the policy rate. Looking ahead, futures are pointing to a sharply lower open on Wall Street having remained closed yesterday for a national day of mourning. On the data front, we await US ADP employment change, unit labor costs, non-farm productivity, trade balance, jobless claims, service PMI, ISM non-manufacturing and factory orders.
Key Headlines/Data:
* Italian Lower House are expected to vote on the 2019 budget tomorrow, and will go to the Senate on Monday.
– Il Sole: Italian PM Conte is said to be working on lowering the deficit target to 1.9-2.0% and could also lower the targets for 2020 and 2021.
– Deputy PM Salvini said reports Conte will cut two key reforms are pure fantasy; he later said the new budget estimates will be ready today
– According to sources, League do not want deficit target below 2.2%; 5-Star will not go lower than 2.1%
* German Factory Orders Data (Oct):
– Factory Orders M/M +0.3% versus -0.4% expected, previous +0.3% revised to +0.1%
* DUP lawmaker Wilson said his party would not cote to topple UK PM May in a confidence vote even if she loses Tuesday’s vote. He did add however that they reserve the right to withdraw support at a later date.
* Chinese Foreign Ministry confirmed they have reached an consensus with the US on agriculture, energy and cars and what has been agreed will be implemented immediately. They also said the ultimate goals in talks was to remove all tariffs, adding that the Xi-Trump meeting was a success.
* According to sources, OPEC delegates have said they could cut output by 1 Mln BPD of Russia committed to a cut of 150K BPD. However, the cut could exceed 1.3 Mln BPD if Russia cut by 250K BPD.
– Saudi Energy Minister al-Falih said there is no agreement yet to cut but a 1 Mln BPD would be enough for OPEC+. He later said a cut of 1.3 Mln BPD Is excessive
– Russian Energy Minister Novak said it is difficult for Russia to cut output quickly in Winter
– Nigerian Energy Minister said the output cut is unlikely to exceed 0.8-1.0 Mln BPD
* German Construction PMI (Nov) 51.3, previous 49.8
* RBA Assistant Governor Debelle:
– The Reserve Bank has repeatedly said that our expectation is that the next move in monetary policy is more likely up than down, though it is some way off.
– But should that turn out not to be the case, there is still scope for further reductions in the policy rate
* Greek Unemployment Rate (Sep) 18.6%, previous 18.9%
* UK DMO solid £1.75 Bln of a 2049 Gilt:
– Bid to Cover: 2.40
– Yield Tail: 0.4
* UK Commons Leader Leadsom said the vote on the Brexit deal will go ahead next Tuesday as planned.
