European cash equity markets have risen sharply this morning with the Euro Stoxx 600 touching its best level since November 14th (FTSE +2.1%, DAX +2.4%, CAC +1.5%, FTSEMIB +1.9%). Trade sensitive stocks such as basic resources and autos are leading gains after the US agreed to delay a planned increase in tariffs on Chinese goods. The energy sector has also outperformed, tracking a sizeable rally in oil prices after Russia and Saudi Arabia pledged to extend the OPEC+ agreement – US crude futures added almost six-percent at the high of $53.85, its best level since November 23rd. Developments over the weekend have also boosted broader risk sentiment with US Treasuries firmly in the red ahead of the midway stage. German government bonds opened lower on the day but have since recovered back towards the flat line despite some stronger-than-expected macro data. For the record, Euro Zone manufacturing PMI was revised to 51.8 from the flash reading of 51.5. In the periphery, Italian bond yields have declined with the ten-year borrowing costs reaching their lowest level since late September amid reports that a deficit target of around 1.9-2.0% is now being discussed. Turning to currencies, the Dollar Index has reversed an earlier drop to trade flat versus Friday’s close around the 97.0 level. Sterling has slipped to the bottom of the G10 pile on continued Brexit related uncertainty while the Australian Dollar and Canadian Dollar occupy the top two spots. Looking ahead, futures are pointing to steep gains on Wall Street with ISM manufacturing, Markit manufacturing PMI and construction spending due for release.
Key Headlines/Data:
* U.S. to delay China tariffs after Trump-Xi dinner meeting at G-20 in Buenos Aires (Marketwatch):
– The U.S. and China said they would launch negotiations to ease trade tensions, with the U.S. postponing plans to increase tariffs on $200 billion in Chinese goods.
– Under the plan, the two sides would discuss forced technology transfer, intellectual-property protection, nontariff barriers, cyber-intrusions and cyber-theft, services and agriculture. Should the talks fail, the White House said, the tariffs on the $200 billion of goods would increase to 25% from the current 10%. The tariffs were set to increase to that level on Jan. 1.
* Russia, Saudi Arabia agree to extend OPEC/non-OPEC crude pact, but cuts undecided: Putin (S&P Global Platts):
– Russia and Saudi Arabia have agreed to extend the OPEC/non-OPEC market management coalition beyond its expiry at the end of the year, but have not determined whether new output cuts are warranted, Russian President Vladimir Putin said Saturday.
– There is no final decision regarding volumes, but we, together with Saudi Arabia, will do this,” Putin said, according to a transcript released by the Kremlin. “Whatever the final figure may appear during this joint decision, we agreed that we will monitor the situation of the market and promptly react to it.”
* DUP ‘is plotting to ABANDON Theresa May if she faces a confidence vote – leaving the ailing PM without a Commons majority amid row over Brexit border in the Irish Sea’ (Daily Mail):
– The DUP is on the verge of ending its deal to support Theresa May’s government, it was reported last night.
– The Northern Irish party’s ten MPs have a confidence and supply deal with the government to give Mrs May a narrow majority in the Commons.
* Il Messaggero – Italian PM Conte is reportedly preparing a deficit target of 1.9-2.0%, and both Deputy PM’s are said to be on board:
– Finance Minister Tria later confirmed these are the figures being discussed
– Deputy PM Salvini said the EU cannot ask for a target of 1.9%
* Swedish Manufacturing PMI (Nov) 56.7, previous 55.0
* Norwegian Manufacturing PMI (Nov) 56.1, previous 56.0
* Swiss Retail Sales Y/Y (Oct) +0.8%, previous -2.7% revised to -2.5%
* Spanish Manufacturing PMI (Nov) 52.6 versus 51.5 expected, previous 51.8
* Swiss Manufacturing PMI (Nov) 57.7 versus 56.3 expected, previous 57.4
* Italian Manufacturing PMI (Nov) 48.6 versus 48.9 expected, previous 49.2
* French Manufacturing PMI (Nov F) 50.8 versus 50.7 flash/expected
* German Manufacturing PMI (Nov F) 51.8 versus 51.6 flash/expected
* Euro Zone Manufacturing PMI (Nov F) 51.8 versus 51.5 flash/expected:
– Final Eurozone Manufacturing PMI at 51.8 in November (Flash: 51.5, October Final: 52.0)
– Growth of production only marginal as demand continues to falter
– Business confidence remains weakest in around six years
* UK Manufacturing PMI (Nov) 53.1 versus 51.8 expected, previous 51.1:
– UK Manufacturing PMI at 53.1 in November (two month high)
– Trends in output and new orders strengthen slightly
– New export orders decrease for second month running
